Coal India, the only supplier of the scarce mineral to steel and power industries, has tweaked a clause in its fuel supply agreements to escape penalty even while supplying only half of the contracted amount to end users. As against the earlier penalty trigger point of 90%, the state-owned fuel supplier now has to ensure only 50% supplies to evade damages. Even as supplies turn into the biggest concern, the industrial consumers are complaining of quality and e-auctions . According to the sponge iron industry , which feeds primary steelmakers , Coal India now supplies only 50% of committed quantity, citing shortage and lower production due to stringent environmental norms.
“Sponge iron makers, who are one of the major industrial consumers of coal, are facing acute supply problems due to reduction in supplies by Coal India,” says Rajesh Gupta, head of the Sponge Iron Manufacturers Association. “As it is, most small steel companies have been facing problems due to reduced gas supplies. Now with the fall in coal supplies, the viability of the industry will be affected,” said Mr Gupta, who is also co-promoter of Mumbaibased Lloyds Metals. The association has more than 92 members, including large players such as Essar Steel and Ispat Industries.
The sponge iron feed for manufacture of steel has increased from 19% in 2000 to 37% in 2010. This rise in demand for sponge iron has also increased the requirement of coal, a major input for manufacture of sponge iron. Use of sponge iron by steel companies reduces the need of scrap and coal and also lowers production costs. According to HK Vaidya, chief general manager at Coal India: “The trigger point for all new fuel supply agreements that we sign with consumers is 50%. If we supply below 50% of the contracted amount we pay a penalty and if they do not pick up at least 50% they pay a penalty. The tigger point for old power plants, however , is 90% but all new power plants have the same 50% trigger point.” The sponge iron makers also say that quantity of coal reserved by coal companies for e-auction is substantial.
“The quantity e-auctioned by coal companies is sufficient or relatively sufficient to cater the normative requirement of coal of these industries. The policy should have provided for fuel supply agreement of 100% contracted quantity of their normative requirement or to the maximum possible quantity of coal available with coal companies. Any excess quantity, after meeting the normative requirement of holders of FSA, may be diverted for sale through e-auction ,” said Mr Gupta, in a letter to coal minister Sriprakash Jaiswal. A recent report by Ernst & Young says that the demand-supply gap of coal for sponge iron manufacture was 10 million tonnes in financial year 2010. Compounded by the low quality of coal supplied by coal companies , the requirement of coal to this industry has further increased by 25% to 56%, depending upon the quality of the coal received , said the report.
On e-auction , Mr Vaidya said: “We sell around 45 million tonnes of coal through the electronics platform – which is 10% of the total production. Any consumer is welcome to buy coal through the platform, irrespective of whether they have a fuel supply agreement with us or not,” he added. However, the users say that the quantity of coal sold through eauction by the coal companies is much higher. “During 2008 and 2009, 48.87 million tonnes and 45.74 million tonnes were sold, respectively . This constitutes 12.9% and 11.6% of the sale of raw coal by Coal India and its subsidiaries, and in terms of value it is as high as 18.7% and 16.2%, respectively,” said the letter to Mr Jaiswal.
GoM on Coal to meet today
New Delhi The Group of Ministers (GoM) on Coal is likely to meet for the third time on Thursday to try and resolve issues hurting the production of coal in the country amid an ever-widening demand and supply gap, which is expected to reach 137 million tonnes in 2011-12 . The meeting, originally scheduled for June 16, had to be brought forward as Coal Minister Sriprakash Jaiswal leaves on a 10-day visit to three European nations on June 13, to seek technology for underground mining.
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