The world’s largest coal producer, Coal India Ltd (CIL), is considering raising the price of dry fuel between 8-10 per cent, the second straight increase in less than two years.
The hike is aimed at meeting the cost of a 34 per cent wage hike affected last year that has put an additional burden of Rs 5,600 crore annually on the company.
Sources in the company said that a decision to increase coal prices would be taken later this month, but they would wait to see the global fuel price movement before taking a final call.
Global coal prices are close to $95 a tonne and a hike would become imminent once it crosses the $100 mark.
While higher coal prices would help CIL maintain its profit margin and generate revenue required to increase investment for enhancing production, it would hit power consumers, as the price of electricity may go up by about 10 paise per unit.
Higher prices could not have come at a worse time for generation companies, many of whom have become stressed assets, unable to service debt under sluggish market conditions.
“A coal price hike now looks certain this month as the additional wage bill is making it difficult for CIL to keep its profit margin. A board meeting would be convened soon to discuss and decide on the raise,” said a company source, not willing to be quoted.
CIL increased the price of coal grades consumed by the power sector - G8 to G13 - between 13 and 19 per cent in May last year immediately after announcing new wages for its employees. Before this hike, coal prices were not touched for three preceding years.
“CIL is already unable to meet its coal commitments for several consumers, including captive power generation companies. Things will become worse in these circumstances if it also raises fuel prices,” said an official of the Indian Captive Power Producers Association (ICPPA), asking not to be named.
On an average, CIL’s coal price is Rs 1,400 per tonne. But this price applies to the regulated power sector, while it is already about 20 per cent higher for non-regulated sectors such as cement and steel.
Sources said that the order of increase this time would also be skewed and would be higher for non-regulated sectors than for power sector consumers.
For CIL, a hike of 8-10 per cent in coal prices could translate into additional revenue of around Rs 4,000 crore for a full year.
This could still leave a gap in funds required to meet up to 34 per cent increase in wages, that this year could translate into an additional outgo of Rs 8,000 crore.
“Prices of coal will have to be revised again soon if the additional cost of higher wages has to be fully met and complete investment commitments made,” said another CIL official privy to the development.
The company is already facing financial pressure due to non-revision of prices. In the second quarter of the current financial, the company’s profit halved to Rs 368.88 crore against Rs 612.44 crore a year ago.
What is adding to the heat is the demand to increase coal plies to power plants, which gets it lesser revenue than other buyers.
Coal sold through spot e-auctions by the company generally earns the highest at times, giving it about 25 per cent revenue on just about 10 per cent of total sale volume.
CIL accounts for over 80 per cent of the domestic coal production. The company has a target to achieve a production of 598 million tonnes in the current fiscal. It is eying an output of one billion tonnes by 2020.
Apart from helping CIL, the expected price increase will also fill the cash boxes of both the Centre and the coal-bearing states on account of higher earnings from mineral cess and royalty.
CIL shares have shed value so far in 2017 starting the year at a price of over Rs 300 a share only to fall to lows of Rs 240 in early August. It has gained some ground now, but is still much below gains made by Sensex this year.
CIL shares closed 3.02 per cent, up at Rs 271.05 on BSE at close of trading hours on Friday.