Significant relief to coal consumers: Coal India may not revise prices till July 2011 - Price hikes linked to wage revision

Coal India Ltd, the world's largest coal producer, is not likely to revise its present coal prices till July 2011, which could mean a significant relief to coal consumers, including major power and steel producers.With the next wage revision at CIL due by July 2011, the company may have to revise prices of the raw material at that time by 10 to 15 per cent to partially offset the cash outflow arising out of the wage revision. During the last wage revision, when the company increased the wages of its employees by an average of 25 per cent, it revised coal prices to the extent of 15 per cent.

CIL, which has been trimming its manpower during the last several years as one of the steps to hold coal prices significantly below international prices, at present has about four lakh employees on its roll.“While we will not look to increase (coal) prices immediately, we may have to revise the prices after the wage revision slated before July 2011. The hike this time could be below the earlier 15 per cent, but it would depend on the quantum of wage increase that we conclude,” Mr T.K. Laheri, Chairman and Managing Director of Bharat Coking Coal Ltd, one of the eight subsidiaries of CIL, told Business Line.He, along with other officials of CIL and its subsidiaries, was here in connection with the road show of its public offer that opens for subscription on October 18.

CIL does not see the need for frequent revision of coal prices, with its present pricing mechanism involving long-term price contracts, some exceeding even 28 months. “One of the factors that ensured us supplying coal at cheapest prices (compared to global prices) is that we have been able to contain production cost, which had been Rs 745 per tonne in 2009-10, against Rs 660 in the previous year. This ensures comfortable margins,” Mr Laheri said.

In the long run, the company plans to increase production of value-added products like washed coal, with plans to set up 20 washeries in the next five years. “By that time, one-third of our estimated production of 500 mt will be washed coal. At current prices, we get about $15 more per tonne by selling washed coal,” he pointed out.Infusion of new technologies and digging deeper than the present level of 300 metres for underground mining are other measures being taken to hold coal price levels.