The Hindu Business Line : Govt allows Coal India to hike prices by 11%

Kolkata, Oct. 15 The Union Government today allowed Coal India to hike prices by 11 per cent on an average with effect from October 16. The price rise comes after nearly two years.

According to sources, the hike in prices may leave a positive impact of Rs 4,600 crore on the company’s bottomline on an annualised basis. Without the price hike, the company would have ended the year with lower profits due to negative impact of a wage hike effected earlier.

The Union Government has also allowed CIL to implement a remunerative pricing mechanism to remove the fundamental weakness of two of its perennially sick subsidiaries — Bharat Coking Coal (BCCL) and Eastern Coalfields (ECL) — despite owning the country’s best coal reserves.

The prices of coal produced by all other subsidiaries have been increased by 10 per cent.

According to a CIL release, BCCL will effect a higher price rise of 15 per cent for its 30-million-tonne raw coal production which include the country’s only source of prime coking coal. ECL is allowed to charge import-linked prices for A and B grade thermal coal production, accounting for over 30 per cent of the approximately 31 mt total production.

Both the companies were suffering from lower returns vis-À-vis high cost of production of quality coal, sourced mostly from underground mines.

Seen in the background of CIL’s proposal for 10 per cent disinvestment for an IPO, sources feel that addressing some fundamental weaknesses would help the company attract a better value in the capital market. The company has already taken steps to enhance its coal beneficiation capacity, modernisation of equipment and a rapid increase in coal production.

“Today’s decision helped remove ECL’s fundamental weakness,” a source told Business Line. ECL incurred a loss of approximately Rs 350 crore in the first half of this fiscal. However, following today’s decision, the company expects to end 2009-10 with a profit of approximately Rs 250-300 crore. BCCL now expects to end the year with a profit of Rs 500-600 crore.

Impact of the price rise

While CIL officials were not available for comment, sources said that in its presentation to the Union Government, the company estimated that the coal price hike would leave a maximum of 0.16 per cent inflationary pressure on the economy.

It is estimated that for the power sector, the cost of coal would increase by Rs 77 a tonne and the price of electricity would go up 5 paise a unit. The price of cement is expected to move up by Rs 20 a tonne.

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