Coal news and updates

Coal e-auction limit to be cut by 25 mt to feed power plants

The government is planning to reduce the e-auction limit for coal by 25 million tonnes to cater to the demand from the power sector in the coming quarters.

People close to the development told Financial Chronicle that there were plans to reduce the volume of coal supplied through the e-auction route by 25 million tonnes, primarily to meet the demand of power producers, as there are no immediate means to increase domestic production.

However, there are concerns that the reduction in coal volume through e-auction may lead to a drop in production from coal mines due to evacuation-related problems because of logistics issues.

Even companies that have signed fuel supply agreements with Coal India (CIL) are not able to secure more than 60-70 per cent of their contracted limits.

P Umashankar, former coal secretary, said the move to reduce the volume of coal through e-auction was a good one, as it will help meet the demand of power producers, whereas e-auctioned coal goes to other sectors as well.

“It should be ensured that the decision does not lead to a drop in production due to issues of evacuation, as user companies often face logistical difficulties in buying coal directly from the producers,” Umashankar said.

There are issues of non-existent rail networks in areas where new mines are coming up. These networks should come up on a priority basis and all timelines for forest clearances and land acquisitionadhered to.

“The central government will have to work very closely with the state governments to address relevant issues. Even complex issues can be resolved if the intention is right and the present government has shown that,” Umashankar said.

CIL is planning to lay rail networks in Jharkhand, Chhattisgarh and Odisha to evacuate 110 mt of additional coal in the first phase and another 300 mt in the second phase.

According to earlier estimates, the first phase was to start production from 2016-17 and the second phase in 2017-18. “It is expected to take at least four years for the first phase of the project if the work starts this year. This means CIL will have to wait longer than expected to increase capacity by 110 mt by 2017,” said Dipesh Dipu, founder director of Hyderabad-based consultancy firm Jennissi Consultants.

If the government reduces coal volume through e-auction by 25 mt, the company’s premium earning of around 40 per cent will come down to that level. At present, CIL auctions coal at Rs 2,300 per tonne while coal supplied under the FSA is priced at Rs 800 per tonne.

“Judging by past records of continuous delays, we anticipate completion and initial impact of the three rail lines only by FY18. This means that until FY17, CIL’s volume growth will remain in the 25-35 mtpa range, including road coal traffic growth,” Edelweiss Securities said in a report.

Rupesh Sankhe, senior analyst at Karvy Stockbro-king, said if the e-auction volumes were reduced by 25 mt, Coal India was likely to see a Rs 2,500 crore impact on bottomline. The existing mcap is around Rs 2,00,000 crore, which would come down by 10-12 per cent. It will help companies that were not able to source coal even after signing agreements with CIL, he said.

Source: Financial Chronicle