Price increase (of coal) will be balanced judiciously: Pramod Agrawal

Price increase (of coal) will be balanced judiciously: Pramod Agrawal

October 1, 2021 Off By Sindy Thompson

At a time when power plants in the country are facing an acute shortage of coal on the back of a sudden spurt in demand and regulated intake by power utilities, Coal India Ltd has ramped up supplies to rein in “normalcy”. The State-owned miner, which has been witnessing gradual scaling up in power generation and increased demand, is looking to increase coal prices, albeit “judiciously”, so as to ensure that it does not hurt demand.

In an exclusive interview with BusinessLine, Pramod Agrawal, Chairman & Managing Director, CIL, talks about production and off-take targets for the current fiscal, the possibility of a price hike and the traction it has been witnessing on e-auction platform. Excerpts:

There are talks of a possible price hike of coal. By how much do you see prices increasing this fiscal? What will be the impact on demand?

Most input costs have gone up significantly and it is time we review our pricing structure. Price increase will be balanced judiciously. While protecting our bottom line, we will also consider the impact on the price of energy in the country, because a price increase will influence various commodities. We will not rush, but rather plan the process slowly, taking the views of all our stakeholders and getting them on board. It should not impact demand much.

How do you see your production and off-take this fiscal, given that there has been a surge in power demand on the back of a recovery in economic activities post the second wave?

Production and off-take targets for the current fiscal are 670 mt (million tonnes) and 740 mt respectively. Power generation scaling up is a good sign for coal demand. If the demand sustains then our output and suppy will witness a positive jump.

Also see: CIL steps up coal supply to power utilities

CIL has envisaged a capex of over ₹17,000 crore this fiscal. Do you think this is an achievable target? What are your capital investment plans in the next one to two years?

CIL’s major capex components include land acquisition and purchase of heavy earth moving machinery sourced from abroad. Spending on evacuation infrastructure build up like rail lines also forms a major head. If State governments facilitate acquisition of land as scheduled, equipment is delivered on time and the coal demand sustains as expected then our capex is surely achievable. Primarily capex is driven by coal demand.

We have more than doubled ourcapex to close to ₹13,284 crore in FY21 compared to ₹6,270 crore in FY20, an increase of around 112 per cent even amid Covid slump. During Q1 of the current fiscal, CIL’s capex witnessed a robust two-fold increase to ₹1,840 crores, on a year-on-year comparison, logging 118 per cent growth. This represents 94 per cent achievement of the progressive target of ₹1,960 crore for April-June. It would be premature to predict capex plans of the ensuing years.

A number of Gencos have been facing trouble because of low coal stock. Was this in the offing? How do you see the situation moving forward? What is CIL doing in this regard?

[CIL had] envisaged such a situation and had been requesting Gencos, from October of last year, to shore up their stocks by lifting coal instead of regulating intake to avert a low stock situation during monsoon. If you look at the beginning of this fiscal, power houses had a comfortable stock of 28.7 mt. Even at the end of July it was 24 mt, at par with the stock position of the previous five years as of that date. With the sudden spurt in power generation, demand for coal peaked in the second half of August. We have also been requesting power utilities to maintain the CEA prescribed 22-day normative stock at their end. Ideally, power houses should have built up coal stocks.

Also see: Power outage risks increase as coal stockpiles plummet

Despite monsoon challenges and non-payment of outstanding dues, CIL supplied 243 mt of coal to power utilities during April–September 2021 (till September 28), almost 24 per cent higher as compared to the 196 mt supplied to power utilities during the same period last year. Coal supply to the power sector during said period is also higher by 11 per cent compared to the pre pandemic levels when supplies stood at 218 mt during April–September 2019.

Your e-auction sales witnessed good growth during the first quarter of this fiscal. Do you see the momentum continuing moving forward?

Till August 2021, we booked 53.3 mt under e-auction, registering a 42 per cent growth over the same period last year. This is more than a two-and-half fold increase compared to the nearly 20 mt booked during pre-pandemic April–August 2019.

With power generation showing signs of recovery, economic activity gathering pace, and ascending international coal prices showing no signs of relenting so far, indications are clear that there would be preference for domestic coal. In this scenario, e-auction bookings are bound to increase and sustain moving forward. We are fairly confident of eclipsing the FY21 all-time high e-auction bookings of 124 mt this financial year. Having said that, we hope there would not be a recurrence of Covid which could be potentially detrimental to our sales.

Also see: Coal India’s e-auction bookings grow 42 per cent during April-August

How do you see import substitution happening in the next one to two years?

Presently, with international coal prices climbing up sharply, consumers are opting for domestic coal. Till August, under special spot e-auction for coal importers, 74 per cent of the offered quantity or 2.3 mt of coal was booked with 44 per cent add-on over notified price. But overseas coal prices are highly pliable in nature and price dynamics may change rapidly. So, we prefer to keep watch on a month-to-month basis. We could only hazard a guess as to how the import substitution scenario will turn out twelve or twenty-four months down the line.