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BW Businessworld

Many Shades Of Black And Grey

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Coal India (CIL) is getting ready to play the Good Samaritan, albeit with a motive. It plans to spend Rs 7,500 crore over the next three years to help Indian Railways lay tracks and develop railway infrastructure in Jharkhand, Chhattisgarh and Orissa. That will enable it to move 60 million tonne of coal now stuck at pitheads due to lack of railway lines.

Coal India is cash rich: its consolidated net profits at end-March 2012 stood at Rs 14,788 crore, and its cash pile at Rs 58,202 crore. But will they succeed? In the past, the coal ministry had made a similar effort by offering financial help to the railways to lay tracks. But the plan ran into the roadblocks of land acquisition, environment and forest clearances. Sources say that Railway Board chairman Vinay Mittal and coal secretary S.K. Srivastava are touring states to clear the logjam; they were recently in Chhattisgarh to meet CM Raman Singh.

The coal ministry's offer to fund wagon and rakes hasn't received a positive response from the railways. They claim that production cannot go up without increasing evacuation, for which they need more rakes. Last year, they got 165 rakes per day. This year, the number is 185. The optimum figure, however, is 202.

Power plants are already facing a shortage of 55 million tonnes. Overall coal demand in 2016-17 is seen at 980 million tonnes, whereas production in the same period is estimated to be 615 million tonnes. In the first quarter of this year, coal production grew by 6.4 per cent and evacuation to power plants is up by 8.5 per cent. While it is an improvement, imports cannot be ruled out. CIL may need to import 18 million tonnes this year to meet 80 per cent of new FSAs (fuel supply agreements) and 90 per cent of old FSAs.

There is another vexed issue: how to fix coal prices. A PMO-appointed high-level panel has agreed to the concept of price pooling where the average price of imported and domestic coal will be taken to arrive at a common price. But this has been a sticky issue due to the complexities involved in calculating the price. It could also raise coal prices by Rs 150 per tonne and increase power tariffs by up to 20 paise per unit, says a senior Planning Commission official. The coal ministry, CIL as well as some states are opposed to it. CIL's CMD Narsing Rao was quoted as saying: "We will not take a hit of even a rupee on account of that. If pooling has to be done as per the government pooling, it would be outside the balance sheet of the CIL."

Price pooling may not be easy due to the lack of uniformity in the quality of Indian coal as well as the shortage across sectors and individual consumers, says Dipesh Dipu, director - consulting (mining) at Deloitte. "The pooling mechanism is likely to be very challenging." He adds that there are not enough compelling reasons to import through CIL.
It would involve higher costs of procurement and reduced flexibility for utilities in imports.

But Ashok Khurana, director-general of the Association of Power Producers, believes that there is no option but to go for price pooling, and that CIL can fix the price after taking into account the import costs. Of course, the monopoly's past unsuccessful attempts to change prices show otherwise. Khurana's solution to the coal conundrum: "Liberalise the coal sector and take away CIL's monopoly."

(This story was published in Businessworld Issue Dated 30-07-2012)