Coal India's explosives JV takes a backseat

Over a year after the world’s largest coal miner, Coal India Ltd (CIL), tried to secure self-sufficiency in obtaining explosives — a key component in scaling up production — the company continues to rely on third-party sources and has spent over Rs 1,609 crore so far in the current financial year.
 
In February last year, the coal monolith signed an agreement with the Indian Oil Corporation Ltd (IOCL) to float a joint venture (JV) firm, which would acquire assets of the oil major’s 12 explosive-producing plants and would ensure a steady and quality supply to CIL.
 
 “For production to go in the planned way, timely supply of explosives is crucial. We come across situations when the third-party supplier is unable to supply the requisite explosive and thus blasting gets postponed”, a Coal India official told Business Standard.
 
It was perceived that the JV, which would have been a coal and petroleum ministry venture, would address this crucial problem.
 
The JV’s formation and production under it was supposed to commence from April this year. However, this plan has taken a backseat as the company is now fighting means to de-bottleneck its supply lines and improve logistics.
 
While the cost of explosives comprise 25 per cent of the total cost of raw materials, which stood at Rs 7,083 crore in the last fiscal year, timely and quality supply of explosives are of paramount importance for the miner both to extract coal and expose coal seams to make them ready for future production.
 
Sources at CIL said the proposal has not passed its initial stage even after signing the agreement. Internal clearance and Niti Aayog’s nod is required before it can be sent to the ministry for approval. And in this case, Niti Aayog’s go-ahead is still awaited.
 

“Last year, we faced the problem of excessive coal and the primary stress was on how to sell it. This year, while we see the demand reviving, we need to focus on increasing production as well as evacuate the coal to reach the power plants”, the official told this paper. From April-November this year, CIL is trailing by five per cent behind its production target of 347.69 million tonne (mt) and has to achieve a mammoth 252.31 mt in a 4-month timeframe to meet the target set by the coal ministry.
 
Queries sent to IOCL over the status of the JV did not elicit any response.
 
Currently, IOCL caters to about 30 per cent of CIL’s explosives requirement. CIL’s move to be self-reliant on explosives stems from the need for timely supply, and would help in cost reduction.
 
“Once, the JV is operational, assured quantity and good quality of explosives at the rates finalised by JV will reduce the dependence of CIL on other manufacturers”, said another CIL official.
 
In 2012, following a CIL complaint on cartelisation, the Competition Commission of India had imposed a penalty of Rs 60 crore on ten explosives manufacturers for violating the Competition Act, 2002. The miner had filed the complaint under the provisions dealing with anti-competition agreement and abuse of dominant market position.
 
It was then that the black diamond extractor decided to secure its own uninterrupted supply of these chemical components and talks with IOCL began for a JV project.