Wage revision, fuel price hike hit Singareni profits

State-owned Singareni Collieries Company Limited (SCCL) is finding it difficult to maintain the minimum profit margin during the current financial year due to huge jump in the production cost, following wage revision and increase in fuel prices.

The downslide in profits of SCCL had actually begun in 2005-06 when the company's gross profit came down to Rs 487 crore from Rs 576 crore in the previous financial year mainly on account of rise in wage bill.

Combined with the recent increase in the prices of fuel and other inputs, the production costs have almost increased by 40 per cent this year, according to senior officials of the company.

"In the present scenario, it is not possible to maintain the minimum rate of return of 13 per cent on our turnover," a company official told Business Standard.

The production cost of coal in Singareni last year increased by Rs 60 per tonne to touch Rs 946.65 as compared with Rs 886.42 per tonne in 2004-05.

This is expected to further go up due to latest factors like fuel price hike impending a price revision to sustain the ongoing capital expansion plans.

The cost of production in SCCL is normally higher compared with that of Coal India entities as most of its workforce is engaged in underground mining. The company achieved a gross turnover of Rs 4,209 crore during 2005-06 with a total production of 36.13 million tonnes of coal for the year.

Though the inter-ministerial regulatory agency on coal prices set up by the Centre has completed the study of the cost of production versus coal tariff in Coal India as well as SCCL, company officials, however, are unsure of a positive outcome.

The regulatory body, which plays only an advisory role, is due to submit its report soon, according to officials.

While the Singareni officials are seeking at least 10 per cent hike in prices of coal to sustain the company's returns as well as investment plans drawn up for the current year, there is an apprehension that the Centre might ask Coal India to reduce tariff since the tariff increase effected in the year 2004 had become a bone of contention between the energy ministry and the ministry of coal.

"In either of the scenarios, it is not very easy to convince the state government to allow us to increase the coal price as the government's immediate concern would be its impact on the power sector" a company official said.

The official, however, maintained that there was no other option before the company but to increase prices to fully absorb the impact of wage revision and increase in other costs.

It may be recalled that chief minister Y S Rajasekhara Reddy himself wrote a letter to Prime Minister Manmohan Singh last year seeking a regulatory body at the national level to regulate coal prices in view of the direct impact they have on thermal power generation.

But the coal companies argue that there is no rationale in controlling tariff after the Centre had deregulated coal prices way back in 1996 on one side and is effecting the wage revision on the other side.