KOLKATA: Coal India plans to raise prices of some grades of coal after a review at the end of this month but the increase would not be steep, top company executives told ET.
“The CIL management is likely to finalise the issue of fuel supply agreements (FSAs) in the next board meeting. Following this, it will take up the price review. The review may also be discussed at the April 16 board meeting,” a senior CIL official said.
Analysts say the company would be under pressure to increase prices after signing FSAs that commit higher supplies than its output. The company’s independent directors and The Children’s Investment Fund (TCI) – which holds 1% equity in the miner – have fiercely opposed new supply pacts, but the government has issued a presidential directive forcing the company to sign the agreements.
On January 1, Coal India adopted a new, internationally prevalent pricing system based on gross calorific value.
TCI Against Cheap Coal
This led to an increase of 100-300% in the price of some medium grades of coal. But the company was forced to roll back prices after strong protests from consumers.
Company officials said the rollback has hurt some of Coal India’s subsidiaries, particularly Eastern Coalfields and Western Coalfields.
“This will have to be corrected,” the Coal India executive said. When CIL adopted the new pricing system, it had decided to review it after a quarter.
The company’s biggest minority shareholder, TCI, is campaigning for international prices for coal. It has argued that Coal India’s profit can rise to $19 billion if it stops selling coal at prices up to 70% lower than international levels.
“FSA beneficiaries, who buy CIL coal at 70% less (prices), sometimes resell power/products at market levels anyway; these industrialists fatten their profit margins at CIL’s expense and worst, these discounts do not pass through to the end client, the Indian people,” TCI said.
The likely path for CIL to meet the new FSA requirements could be a combination of reducing supplies to existing FSAs, reducing/stopping e-auction sales, raising production, importing the shortfall, and raising the blended prices of coal, Angel Broking said in a report on Wednesday.
“Our analysis points out that CIL will have to increase blended FSA prices by 15-17% over FY13-15 to fully offset the impact of high-price imports.
However, political compulsions could dilute CIL’s pricing power and, hence, there is a risk that some portion of losses due to the high-price imported coal will have to be absorbed by CIL,” it said.