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Coal India needs more clarity to determine e-auction volume

Even though Coal India(CIL) has been allowed to revert to the old system of removing the cap on e-auction volumes with effect from April 2015, in the absence of a specific guideline from the ministry, the state-owned miner is in a fix over determining the volume to be sold via e-auction route.

Coal India (CIL) was at loggerhead with the nodal ministry over the latter's directive last September to halve its lucrative e-auction volumes to 25 MT and finally settled  for keeping  its e-auction sales to 7 per cent of total sales.

The directive of the coal ministry removing the cap on e-auction volume, which was first reported by Business Standard, only says the the miner can  “revert to the old system”, without any further clarification, which has kept the miner in a fix over deciding on the volumes.

The e-auction volume is key to CIL, as its profitability to a large extent is dependent on the realisation from e-auction sales. While a small part of overall volumes, e-action sales contribute 35-40 per cent of total Ebitda (earnings before interest, taxes, depreciation and amortisation). Hence, higher e-auction volumes would mean higher profitability in the coming quarters.

The standard practice as interpreted by Coal India is 8-10 per cent of the total sales. But out of total sales of 471.58 million tonnes (MT) in 2013-14, a total of 58 MT of coal or 12.29 per cent was sold by CIL through e-auctions which prompted the ministry to put a cap on the volume, which has now have been removed.

“When we are talking of reverting to the old system, does it mean the volume can reach over 12 per cent of the sales. The existing guideline says CIL's first priority is to supply coal to the power sector, e-auction will happen after fulfiling that. In 2013-14, when e-auction volume was at its peak, CIL did fulfil its FSA commitment. There was no violation of guideline that way,” said a source.

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The miner may seek clarification from the ministry on its directive.

“So after meeting the FSA commitment if the e-auction volume touches 12 per cent as it did in 2013-14, there again may be some objection from some quarter. It is better to get this discussed and clarified in advance,” the source added.

Also not to forget Coal India has begun 2015-16 on a strong note registering a production growth of 10.7 percent at 41.52 million tonnes in April, over the corresponding month of 2014.Coal offtake was at 43.52 million tonnes during April. So even if CIL annual sales in the current fiscal comes close to close to its annual output target of 550 MT, a 12 per cent of that would be 66 MT. On the other hand, in 2014-15 e-auction volume was about 45.59 MT.

“While there was a talk of keeping the annual e-auction volume at 25 MT only seven eight moths back, I am not sure whether ministry would be okay if the volume is over 60  Mt at the end of 2015-16,” said another official.

source: http://www.business-standard.com