S Narsing Rao, CMD of Coal India, in an interview to CNBC TV18, says is optimistic that issues with NTPC on the quality of coal can be sorted out. Though noncommittal about the additional divestment of 10 percent that the government is apparently contemplating on Coal India for FY14, he admits that with costs going up because of diesel price hikes, the company may decide to pass this down to customers if needed.
Here is the edited transcript of Rao's interview with CNBC-TV18
Q: Update us on the latest development- the strike on Wednesday. What kind of production losses did Coal India face and will you have to bring down targets because of that?
A: Yes, we had two days of strike because of Bharat Bandh, and unfortunately we suffered a production loss of close to 2 million tonne and offtake of 1.6 million tonne. However, in the remaining 35 days, we need to make up our loss.
Q: You have raised wages of contract workers. Can you just quantify the impact of this on cost and margins?
A: Yes, recently we have revised wages payable to contract workers. We estimate the impact of that (on margins) could be in the range of about Rs 250 crore per annum.
Q: Just a clarification from your end on the additional divestment of 10 percent on Coal India that the government is contemplating for FY14. Have you had any communication from the government about this?
A: So far we have no formal communication from them. I am seeing these reports in the press only.
Q: When we last spoke with National Thermal Power Corporation (NTPC) and the power minister, they said fuel supply agreements (FSA) had not been signed fully, at least not with parties like NTPC. What is the update from Coal India?
A: Except NTPC, all other eligible customers have signed the FSAs as I earlier indicted to you. There are only issues relating to quality, and surely we would be able to resolve those.
Q: I believe your e-auction realisations have also improved. Do you hope to sell via that route and how much is the improvement in realisations?
A: This year, for example, in the first nine months, our realisations are slightly higher than last year, despite lower sales of about 2 million tonne. This is also a not a function of only quantity. What quality of coal we offer in the e-auction determines how much additional money we get – difficult to quantify that but yes, we are likely to end the year with around 47-48 million tonne, that is lower than last year.
Q: Your issues with NTPC are to do with the quality of coal that the company is seeking. Do you think those issues can be amicably resolved?
A: There are a couple of issues they have raised. One, they have indicated they will not be able to take coal that is below 3,300 kilocalories. That is simply unacceptable because there is no such condition existing.
Coal is a natural formation. We supply whatever quality of coal that is excavated or mined. The second issue, about joint sampling and third party sampling, is not a problem which cannot be sorted out. We are committed to charge them for the quality of coal we supply to them. These are only issues of modalities- how to put some system in place which both parties agree to.
Q: Your costs are going up – first Rs 250 crore on account of this contract wage, and maybe Rs 500-600 crore more because of diesel price hikes. Will you pass this down to customers by coal price increases?
A: Yes, your observation that costs are going up is correct. As I also indicated, that every rupee rise in diesel cost us about Rs 120 crore per annum. In September, oil companies increased the price by Rs 5, now totally there is an increase of about Rs 16 in this particular financial year. Coming back to the revision of prices, we will take a call when we think it is really required.
Q: One of your large stakeholders has again criticised the fact that Coal India does not seem to be adequately or appropriately using the cash on its books. Last we had spoken indicated a special dividend is possible have you taken any decision on what you plan to do with the cash you have on your books?
A: You are referring to the TCI demand. We also got a letter or notice from them. I have no disagreement with what they are saying, that every year we have 'x' amount of profit, the part of which we don’t invest, should be given out as a dividend. We will take a call on this in the company’s next board meeting, as the Government of India is a 90 percent shareholder.