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CIL takes the heat as spot sales move to frigid zone

Dip could flatten firm?s cushion against stagnation in productivity

Sudheer Pal Singh  |  New Delhi 

In a distress signal for the world’s largest coal miner, Ltd’s (CIL’s) spot sales dipped for the first time in the five years since the e-auction, or spot sales, scheme was launched in 2007.

Revenue from is expected to fall 14 per cent to Rs 5,286 crore during the first half of the current financial year, compared with the Rs 6,134 crore during the same period of 2011-12. The dip could flatten CIL’s cushion against stagnation in productivity.

The earning in the first half of last year was 67 per cent higher over the revenue between April and September of 2010-11. Chairman said the new trend, if true, was a matter of concern. “But there is not much we can do about it. Ultimately, we can offer through auction the quantity available only. Also, we were not allowed to raise prices this year,” he told Business Standard. Though he did not confirm the e-auction revenue figures, the company is expected to announce results early next month.

Logistical bottlenecks, suspect quality and reduced spot purchase by power are seen as reasons for the decline. In a market experiencing shortage, consumers are purchasing less coal than offered. The company offered 27 million tonnes (mt) on e-auction between April and September; only 19.9 mt was purchased. This was 9.2 per cent of the total volume sold during the period. Last year, in contrast, over the same period, 22.7 mt, or 12 per cent, of total volume was sold through the electronic platform.

The reduced interest in e-auction came despite prices remaining at the same level as last year. Between April and September, coal was sold at an average price of Rs 2,655 a tonne, compared to the average of Rs 2,693 a tonne during the same period last year. In a heavily coal-starved market, e-auction realisations are expected to be higher year-on-year, despite a marginal dip in volume.

However, this did not happen, as CIL’s attempt at raising prices in January was thwarted by protests.

The notified price of coal, which acts as the floor price for e-auction, was Rs 1,600 a tonne last year. The switch to gross calorific value-based pricing, attempted in January, could have led to a significant jump in the notified price. However, huge protests by consumers, led by power companies, forced the government to roll back on its plans. The result was a marginal Rs 82 a tonne increase in the notified price to Rs 1,682 a tonne this year.

  HY* 2010-11 HY 2011-12 HY 2012-13
E-auction volume (mt) 20.2 22.7 19.9
As % of total volume sold  10 12 9.2
Average coal price 
at e-auction (Rs /tonne)
1,808 2,693 2,655
Notified price (Rs /tonne) 920 1,600 1,682
E-auction revenue (Rs cr) 3,664 6,134 5,286
As % of total revenue 9.8 18 14
*April-September                                                                               Source: Industry sources

The price rise was rolled back despite a 25 per cent pay increase and a commensurate Rs 6,000 crore additional annual outgo.

The new trend is attributed to logistical difficulties, as 90 per cent of the coal sold through e-auction is transported via road, and is of poor quality (the bulk of it is E and F grade, which fetch less prices). A CIL official said spot sales may have dipped as supply under the linkage route to power has improved.

Meanwhile, consumers in the non-core sector — for whom the scheme was originally launched, and who are frequent buyers at e-auctions – appeared miffed at the new trend. E-auction, they said, had failed as an intervention aimed at easing coal availability for small industries.

“There has been a significant decline in coal purchase at e-auction by sponge iron for some time. Owing to the high prices, sponge iron makers have to approach the auction only when they have no other option,” Anil Nachrani, president of the Chhattisgarh Sponge Iron Association, told Business Standard.

The sponge iron industry consumes 19 mt of non-coking or thermal coal annually. Half of this is sourced through the spot market. The high bids by power sector consumers, bulk users of the commodity, drives the small-sized sponge iron companies away. Nachrani said if the prices at e-auctions were to be fair, the quantity offered should be increased.

First Published: Tue, October 23 2012. 00:40 IST