Coal India's Wage Costs may Rise 19% This Fiscal

Coal India, which is under pressure from labour unions for a salary hike, could see its wage costs rise by as much as 19% this fiscal, according to investment banking major JP Morgan. The wage cost increase from July 1 would impact the non-executive segment, which is 85% of the wage bill. We are building in a total wage cost increase of 19% in FY12E,which includes the inflation impact and the wage agreement hike, JP Morgan said in a research note. Four of the five trade unions of Coal India have put up their wage demands to the management, demanding salary hikes ranging from 100% to 500%,which is likely to put severe financial pressure on the company.

1,500 firms queue up for coal linkages

CIL unable to meet demand surge

What's common to NTPC, GMR Energy, Shree Cement Ltd and the Railways? These are among hundreds of companies seeking coal supplies from the Government for their power, steel and cement projects.

In the past year alone, the Coal Ministry has seen a 20 per cent rise in applications to over 1,500 from those seeking long-term coal supplies for their projects. The demand is led by captive power producers, independent power producers, State electricity boards, sponge iron and cement makers.

Securing a linkage would enable the end-users to procure coal at a lower price than the prevailing market rates.

Through CIL

Supply for such linkages is done through Coal India Ltd (CIL) and comes at a notified price which is at a discount to the global prices.

The differential between the CIL-notified rates and the global prices range from as low as 15-20 per cent for the higher grades to as high as 50 per cent for the lower grades of coal.

Also, the notified prices in the past six months were lower by as much as 68 per cent when compared with the coal sold in the domestic market through e-auctions.

This demand surge comes at a time when CIL's output has remained stagnant in the past couple of years. Environmental considerations and land acquisition issues are hurting CIL's expansion plans.

As a result, the Ministry has not been able to allocate linkages to these players though some linkages were provided on selective basis over a year ago, sources said. Coal imports to bridge the demand-gap supply are expected to double to 142 million tonnes (mt) in the current fiscal against 70 mt last year.

The Ministry had stopped issuing coal linkages from early 2009. Instead, Letters of Assurance (LoAs) are issued based on the recommendation of Standing Linkage Committee, after scrutinising the applications.“We have been applying for linkages over the past five years.“The required SLC meetings are not happening and the standard answer from the Government is we don't have coal,” said Mr H. M. Bangur, Managing Director, Shree Cement Ltd.However, that has not deterred Shree Cement, which has gone ahead with its expansion plans both in cement and power sectors. “We have gone ahead with our plans by procuring coal from the open market and imports,” Mr Bangur said.

Demand outlook

Till March 2012, the coal requirement for the power sector is pegged at 396 mt. Of the 347-mt now offered by CIL, 306 mt already stands committed for supply to generating stations commissioned till March 2009.

“Over 100 applications have been submitted during January-July this year, mostly from captive power plants, followed by SEBs and independent power producers,” said an official from the Independent Power Producers Association.