Coal news and updates

Beginning the Herculean task of increasing electricity generation, Power Minister Piyush Goyal on Friday has asked Coal India   to raise coal production from existing mines and reduce the quantity offered in E-auction so that utilities can get more fuel supply. Discussing the viability of the comment, Partha Bhattacharya, former chairman of Coal India said the company alone cannot solve the mining crisis, and more credible players should be included to make this a reality. “The fact that Coal India would not be able to meet the country’s demand for coal, if the power sector goes in for accelerated addition to capacity was understood in the early 90s. Due to that 1993 amendment of the Coal Mine Nationalisation Act was carried out, which allowed the government to take out blocks from Coal India and give it to captive end-users,” Bhattacharya said. He, however, feels that Coal India must improve its production as it was doing some 3-4 years ago. “Coal India had accelerated its growth to well over 6.4 percent in 2008-09, achieved close to 7 percent in 2009-10, and was on its way towards 7-8 percent growth, when all of a sudden in 2010-11, the Ministry of Environment and Forest introduced Comprehensive Environment Pollution Index (CEPI) and a blanket ban on all industrial expansion,” he said. Bhattacharya feels that the government should open up the coal sector and get competent players to aid availability. He thinks the issue related to reducing E-auction volumes should be left to Coal India. Harshvardhan Dole, Vice-President--Institutional Equities, IIFL, said the Power Minister has tried to ensure that no plant should remain stranded due to lack of coal availability and that is “an extension of the policy that was envisaged by the previous government and absolutely a step in the right direction”. He feels that the government must now ensure that there’s an increase in the power offtake from the current levels. Below is the transcript of Partha Bhattacharya and Harshvardhan Dole's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18. Sonia: The first comment that was made by the power minister that the coal supply issue will be addressed by the new government but we all know that Coal India alone cannot meet the requirements of the demand that is currently there in the system. In your mind, what are the one-two or three steps that need to be done in order to ensure higher supply of coal? Bhattacharya: It is important to understand the problem at its roots. Without that, we will not be able to come to a proper solution. The fact that Coal India would not be able to meet the country’s or the power sector’s demand for coal is the power sector goal for an accelerated addition to power capacity, which was understood very well in early 1990s. That is the reason, the 1993 amendment of coal mine’s nationalisation act was carried out which allowed the government to take out blocks from Coal India and give it to captive end-users. So having known that situation 20 years back, I don’t think much could be achieved just by forcing Coal India to supply coal to power stations. The fact that you have to add credible number of players in the mining space in order to make it happen, you require couple of Coal Indias to make it happen. A company of Coal India’s size cannot meet the demand of the entire country. The basic mistake that took place is having understood that Coal India cannot do it again in 2007, when the new coal distribution policy was enacted, a line was put in the policy document that Coal India will have to meet everybody’s demand. So that is the genesis of the whole issue today. That is how, the government doesn’t have any other means other than to force Coal India to increase production and continue supplies. Coal India definitely should increase production, there is no reason why it should continue to languish like the way it has done for the last three-four years but again there is a reason to that. Coal India has accelerated its production growth to well over to 6 percent, it achieved 6.4 percent in 2008-2009, achieved close to 7 percent in 2009-2010, was on its way to move towards 7-8 percent kind of growth when all of a sudden in 2010-2011, the ministry of environment and forest introduced something called Comprehensive Environment Pollution Index (CEPI) and introduced a blanket ban on all industrial expansion in all the areas which are critically polluted without looking into what are the industries, that are leading to this critical pollution. Had they done that then coal mining would have been spared in those days. So that is the reason why in 2010-2011 and 2011-2012 Coal India simply fell flat. The growth rate was just over 1 percent or so. In these two years, Coal India has missed out on production of at least something like 55 million tonne. So today our production level in Coal India would have been 55 million tonne better than what it is just because of that single Act. The second is no new credible players are getting added. So in this situation, I am not convinced that actual steps that are required to be done are being taken. What we need to simply do is to open up the coal sector and get formidable mining players. Players with core competence in coal mining and that is what is going to make a difference. Anuj: The other point about reducing E-auction because in the past Coal India has maintained that it is not something that it does by choice, it is something that it has to do because transportation becomes an issue, how would you comment on that? Bhattacharya: Not only that. Coal India has not been giving coal inputs to any new consumer for the last more than a decade. So now if somebody needs coal who doesn’t have a linkage, where do they go? E-auction is one route which enables anybody to get coal. So it provides a transparent access and 10 percent is not a big amount and it also enables Coal India to discover the price. The subsidy that Coal India provides in its pricing becomes unveiled through the e-auction process. So I think a company’s corporate policy should be left to the company to decide. You can always make E-auction zero and then transfer that coal to power sector but that is not the solution then you are slightly stepping into the corporate governance part of it. The company needs to have set its own rules for governance. Sonia: What did you make of the Power Minister’s statements of increasing the supply of coal but we all know that problems that persist in the system? Mr Bhattacharya was pointing out that we need to open up the coal sector and get formidable players but the previous government has also spoken about that, we haven’t seen anything like that come through, what is your assessment of the situation, how it could pan out from here? Dole: What he is trying to do is just to ensure that no plant should remain stranded due to lack of coal availability and that is to me an extension of the policy, which was envisaged by the previous government and absolutely a step in right direction. I think what further needs to be done is also to ensure that the power offtake kind of goes up because already there is a mechanism, which is being implemented whereby one can import coal and pass on that incremental cost to the end level consumers. But what is currently withholding the sectoral recovery is essentially flat or muted offtake of power from the state electricity boards (SEBs). So to me, while coal is surely a bit of an issue, Coal India needs to ramp up the coal production and probably these steps will ensure over a period of time that the coal supply kind of goes up but till the time the offtake from the SEBs improves, these wages may not lead to the desired results in medium-term to long-term to me. Sonia: How do you approach a stock like Coal India now? Purely on the back of these, the possibility that they will have to cut down on E-auction sales where most of their profitability comes from, what could the impact on Coal India be? Dole: I don’t cover Coal India myself but as a house, we think that if essentially the company is able to ramp up the coal production from hereon that is what our analysts have been writing in the reports, there is a reasonable risk reward even now from here on the table. Anuj: The other issue which has been discussed over last one month is breaking up Coal India though the minister was quick to clarify that that proposal is not on board right now, what would be your comment on that, could that be one of the solutions? Bhattacharya: My point has always been that we need to add formidable mining players and those should be additional players. So breaking Coal India doesn’t make that happen, because the same subsidiaries becoming companies doesn’t add to mining players so I don’t think that will help. Not only that, the Coal India does have a lot of value addition in the system because corporate governance vision, long-term vision and things like that are all dealt at the Coal India level. The subsidiaries are big enough but they have been always looking towards Coal India and the ministry of coal for overall policy level guidance.  So I don’t think breaking Coal India does make too much of a sense. In this country, there are not too many companies or not too many sectors where India’s largest is also world’s largest. Coal India happens to be one of those rare things, the largest coal mining company in the world also happens to be Coal India. So just breaking it for whatever little gains here and there, I don’t think it should be a sensible thing and I am very happy that the minister has clarified that that is not on cards. Coal India stock price On June 24, 2014, at 14:41 hrs Coal India was quoting at Rs 389.65, up Rs 1.75, or 0.45 percent. The 52-week high of the share was Rs 423.50 and the 52-week low was Rs 238.35. The company's trailing 12-month (TTM) EPS was at Rs 23.76 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 16.4. The latest book value of the company is Rs 56.24 per share. At current value, the price-to-book value of the company is 6.93.

 

Source: CNBC-TV18