Steel Ministry To Mediate In Sail-Cil Stand-Off

The union ministry for steel has decided to intervene in the on going tussle between Coal India Ltd (CIL) and Steel Authority of India (SAIL) over a long term coal supply agreement which was due to be signed in July 1997. The deal now seems to be a non-starter.

SAIL is trying to formalise a three-year coal supply agreement with CIL which supplies it with more than half of its annual requirement of 13 million tonne. The conflict has arisen over the issue of determining a base price for the supply of low ash content coking coal by CIL over the three year period.

 

Ashok Basu, secretary, ministry of steel, gave an indication of the ministrys interest in solving the problem which has already stretched far beyond normal limits. The steel secretary has urged both parties to consult the ministry so that efforts can be made to find solutions to some of the issues.

Ministry officials said, while no concrete moves have been made either by the ministry or the two warring parties, it is expected that the ministry will soon take an active initiative in removing the bottlenecks. The steel ministrys initiative now seems to be the only option left for SAIL. The proposed agreement has already suffered two major setbacks and this is likely to translate into the steel major not being able to realise its cost saving targets during the current fiscal.

It had planned to cut down on its annual coal consumption by two million tonne this year, in line with its efforts to save Rs 1000 crore through cost reduction measures. If the three-year pact with CIL comes through, the steel major will be able to reduce some of its imports of coking coal.

The reason for this is, as per the coal supply agreement, CIL would improve the ash content in its coking coal to about 20 per cent for which a base price would be fixed. The base price would stem the constant tussle between the two parties on the issue of pricing and would also ensure supply of better quality coal by CIL.

The first major setback to the issue was received when dissenting opinions within the SAIL board put the agreement on the backburner for a temporary period. However talks with CIL were resumed soon after. The second major reverse occurred when the meeting held between the two parties on December 3 ended inconclusively with Coal India raising objections to a pre-determined base price for supply of coal. The meeting was the ninth in a row between the two parties over the coal supply agreement.

The odds are naturally against the steel major, which stands to incur heavy losses in the event of its having to continue the purchase of coal from CIL without a fixed base price. According to SAIL sources, The outflow in resources will continue for SAIL which has to make considerable investments in importing coking coal and this would make it difficult for it to compete with other steel producers.