KOLKATA: Coal India officials are unhappy with the Budget announcements for the coal sector as the proposed exemptions on mining will help the state-run miner save only about Rs 60-80 crore. The company imports equipment worth Rs 600-900 crore every year.
However, Coal India has readied another expression of interest for importing coal on a long-term basis. The company was awaiting commitments from consumers before going ahead with it. Now that the government has announced exemption on import of mining equipment, it may once again ask for expression of interest from overseas suppliers.
“Nevertheless, importing coal will be a loss-making proposition since the price of international coal is almost three times higher than the price at which Coal India sells under the fuel-supply agreement,” said Rajesh Agarwal, head at Research at Eastern Financiers Ltd.
“This would mean that the company will be buying at a higher price and selling at a lower price, taking a hit on its earnings. The other option is to divert some coal from its e-auction segment, but this will also impact earnings,” Agarwal added.
The government has also stipulated that the company will have to sign fuel supply agreements with power plants that have signed power purchase agreements with distribution companies. This will require Coal India to sign FSA for supply of 504 million tonnes (mt) of coal during 2012-13. The company may be able to supply about 464 mt, leading to a shortfall of 40 mt. This is slated to rise to about 61 mt by 2016-17.
“To supply enough coal to meet FSA requirement, Coal India would either have to increase its production target or go for imports. With the kind of cash the company has at its disposal, one would not be surprised if the management plans for acquisition,” an analyst said. Adding, “But the moot question remains whether increasing production only would solve the issue, since major hindrance is the availability of rakes. With shortage of rakes, even if the production is increased it would not help. As far as costs are concerned, it would depend upon the ramp up in production that is made.”
Although Coal India has acquired coal blocks in Mozambique, production from the mine will take another two-three years.