Coal from Singareni to cost more for new firms

According to Chairman and Managing Director S Narsing Rao, SCCL has identified five new projects that can produce an additional 8 million tonnes (mt) of coal per annum. However, the mining of these projects is expensive than the production cost of existing mines.

"Every project we propose should give at least a 12 per cent internal rate of return (IRR) at 85 per cent efficiency of operations. Only then the project is viable. Today, SCCL is supplying coal at Rs 1,070 per tonne. I can't go to a mine where the cost of production is more than Rs 1,070 unless the buyer pays the cost plus the minimum return that can ensure the viability of the project," Rao said.

Applications of about 60 companies for coal supplies are currently pending with SCCL. Of these, 25 applications pertain to setting up of captive power plants. These companies, mostly cement and sponge iron units, have also secured the letters of assurance from the Union government, which asked SCCL to supply coal if it is available.

Rao said the demand for domestic coal supply was increasing rapidly with the steep rise in oil prices and the international price of coal. In the last two years, coal prices in the international market increased from $50 to $130 per tonne. With an additional $30 going towards landing cost, import of coal has become an unviable option for many companies.

On the other hand, SCCL's coal production was unable to meet the growing demand. As against a projected demand of 60 mt per annum by 2011, SCCL would be able to produce only 45 mt. In 2007-08, the company produced 40.6 mt and has targeted to produce 41.5 mt in the current financial year. The existing demand-supply gap is estimated to be 10 mt.

The company's efforts to enhance production from its Sattupalli mine have been hindered by the absence of a railway line for evacuation of coal. Consequently, the company is producing only 1.2 mt per annum from this mine though it has a capacity to produce 6 mt.

SCCL has approached the railway ministry for laying the 60-km track between Bhavanapalem near Sattupalli and its Rudrampur coal handling plant near Kothagudem in Khammam district but to no avail. "Our request is pending with the railways from 2004 despite active persuasion," Rao said.

It has been estimated that the cost of laying the track will be about Rs 300 crore. "If money is the problem, SCCL is ready to foot the bill provided the railways extended concessions to the company to that extent," he added.

Meanwhile, the company has announced to invest Rs 3,500 crore in upgrading its mining operations over the next three years. It has already taken up three mechanisation projects, two near Ramagundam and the third one at Shanti Khani in Adilabad district, at a cost of Rs 1,900 crore. It is planning to launch another such project at Bhupalapally in Warangal district at a cost of Rs 500 crore. The company is expecting an incremental production of 10 mt through these four projects.

On the whole, SCCL is currently operating 50 mines including 37 underground and 13 open cast mines. The power sector accounts for over 72 per cent of its coal supplies. According to the provisional estimates, it recorded a turnover of Rs 5,155 crore and a net profit of Rs 190 crore in 2007-08.