Moneycontrol
Mar 04, 2016 09:32 PM IST | Source: CNBC-TV18

CIL mines have not halted production; demand weak: Swarup

Contrary to news reports, Coal India has not stopped production at any mine even though production has been cut back in the wake of low offtake, Coal Secretary Anil Swarup today confirmed to CNBC-TV18.


Contrary to news reports, Coal India has not stopped production at any mine even though production has been cut back in the wake of low offtake, Coal Secretary Anil Swarup today confirmed to CNBC-TV18.

In an exclusive interview, Swarup said the state-run mining monopoly is gradually increasing its production and added that he expects it to grow dispatch by 9-9.5 percent interview in FY16.

He added that weak demand is likely to pick pick up in another three to four months.

"[The central government's] UDAY scheme will play an important role in reviving demand for ailing power distribution companies," he said. "Once discoms undergo debt restructuring, their financial position is bound to improve." 

The other positive is the govertment’s promise of investments in infrastructure sector. This will help demand revival in cement and steel sectors, he said.

Below is the verbatim transcript of Anil Swarup's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: After a fairly superb 2015, I February Coal India had to shut output for sometime because of want of demand, is that report correct?

A: I don’t think it is correct to say Coal India shut output. In a couple of buyings, where accumulation had grown beyond a certain level some production was brought down but generally the production is going up, every day you have an increase in production.

This year we are growing at the rate of 9.2 percent of the previous year. So it would be wrong to say that the production has been cut down or it has been stopped.

Latha: Year-to-date (YTD) production or growth is not at all in doubt as you say, 9.2 percent. I am only asking if in the month of February, you are noticing increasing instances of demand strike, power companies not taking coal as much as they used to?

A: No, they are taking coal more than what they did last year. The problem is that the coal production has gone beyond what their requirement was at this point in time.

As you understand that the absorption capacity of the distribution companies (DISCOMs) in terms of buying power has gone down because of their financial position. We are very hopeful that the way UDAY is kicking in, they would be in a position to demand power.

Basically, there is a demand for power at the end level. However, the intimidation happened through DISCOMs who are in a very bad shape at least some of them. That is where UDAY is playing a very important role and it won\\'t be very long before that demand picks up.

So, it is a very temporary phase in terms maybe a few days that in some of the mines, production may not be increased to the levels that we would want to but to say generally that the production has been cut down is not painting the correct picture.

Sonia: Give us your expectations for the month of March and April because in February, the production increased only 6.3 percent because of the reasons you alluded to versus about 13.5 percent in January and about 11 percent in December? So in March and April what do you think the production could be, the growth?

A: When you say 13.8 percent in January, you have to look at the January production in 2015. Percentage growth is on the basis of what happens during the previous year. If you would recall last year in January there was a strike. So the production had collapsed that month.

So month-on-month it appears that it has grown. So we should not look at each month's production per se. What I would say is that we should grow anywhere between 9 percent and 9.5 percent this year.

Sonia: Let me take some absolute numbers then. For FY16, the targeted production that the ministry had laid out was 550 million tonnes and I think till February you have done about 86 percent of your target at about 477 million tonne. What is the end FY16 target? Will you meet what you have targeted for the start of the year?

A: As per the existing trends, we would believe we should be anywhere between 535 million and 540 million tonnes. That is what we are looking at right now.

Latha: Since you said that there is a dullness in the demand from DISCOMs, are you looking at new buyers for the coal?

A: As I said, this is an absolutely temporary phenomenon. Let us look at two major developments that has happened in the recent past. One is in the context of the way UDAY is going so we would believe that once the debt gets restructured, there would be demand from the DISCOMs and the demand will grow.

The second is the announcement made by the Finance Minister in the Budget speech with regard to investments in the infrastructure sector. So if the road and other such sectors pickup, there will be increased demand for cement.

If you look at the growth of cement this year, it has been around 3 percent. Steel has been in the negative, so that being the case, if the infrastructure sector picks up which it should given the thrust that has been provided by Budget, in the steel, cement as well as the power sector, we foresee an increase in demand and we have to be prepared for that.

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Sonia: I wanted to come back to that point that we were making about the production hit in the month gone by. There is also that doubling of the clean environment cess on coal to Rs 400 per tonne. The announcement that was made in the Budget and that could lead to a rise in the cost of a lot of the coal fired electricity generation. So do you this could perhaps reduce the scope of Coal India in the future raising notified prices?

A: These are two separate issues. As far as the cess that has been increased, the impact on power would be anywhere between 12 paisa and 14 paisa. It is not going to huge. So as far as the pricing of coal by Coal India is concerned, it will be independent of what has been done in cess. It will be determined by factors other than this.

Latha: Has any DISCOMs asked you for more since the announcement of UDAY, that is almost 12 months ago that UDAY was tied up? States are coming in one-by-one.

A: UDAY wasn’t announced 12 months ago. It happened only a few months ago.

Latha: Have you noticed any DISCOMs coming in?

A: Yes, there is a lot of discussion going on in terms of how they are going to do this. The first thing is the restructuring of debt. They should have the fiscal space for them to ask for more coal, right now they don’t have money to pay for coal. So that has already started happening, MoUs have been signed, debt restructuring is being done, once that happens in next two-three months, we will see a change coming straight away.

Latha: So you are expecting that coal demand from DISCOMs will go up by May?

A: In another three-four months, demand should start picking up.

Latha: What is the update on the further auction of coal blocks?

A: The auction of coal blocks will be determined by the demand. If you remember, the last round that we had -- the fourth round -- there weren’t sufficient bidders for those coal blocks.

So, we are holding on right now, Coal India is doing the job, providing all the coal that is required in the country. If there is a greater demand, we will go ahead and auction more coal blocks.

Latha: Do you see solar as a competition at all anytime soon? We heard that one of the solar producers were ready to supply below Rs 5 per unit in Andhra Pradesh? Do you think that come FY17, there could be some more serious competition?

A: Not at all. The amount of space that is available for energy consumption in India, it provides space for any sort of energy that we have. Secondly, as of now solar energy will be available at only a particular point in the day, in the evening we still have to have coal based power plants to supply energy where we required most of the energy in the evening, that is a peak requirement.

Sonia: You did point out what the production targets were that you could realistically meet by the end of FY16. I just wanted some updates on FY17 and what the early indications are as well. What could be the production and more importantly the dispatch target for FY17 and on the issue of wreck availability, how much have things improved now versus what it was six months ago?

A: The target for 2016-2017 has been pegged at around 598 million tonnes. We should be able to achieve that.

As far as wrecks are concerned, there has been a phenomenal improvement in the availability of wrecks. Last year, till around this time, the average availability was about 190 wrecks per day. Today we have an average availability of around 209 wrecks per day. These months we are getting around 225 to 228 wrecks per day.

So, there is a phenomenal improvement and I must compliment the railway ministry for coming ahead and that is why despite the fact that it appears that in some cases production has been cut down, the offtake is phenomenal. We are producing at 9.2 percent, the evacuation is 9.3 percent. So, we are liquidating some of the stocks that had got accumulated last year.

Latha: What about railway line linkages, you all were tying up with states for some rail line linkages, any update on that?

A: There is very good news on that front. Let me first explain to you the three major railways lines, one of them is the Jharsuguda-Barpali line should be ready by June end this year itself.

The other two Tori-Shivpur and Gevra Road-Pendra Road should be ready by December 2017. Good progress on these, the latest news is that all land that was required for Tori-Shivpur has been handed over to the agency that is constructing the lines.

So, there is a lot of good news. As you are aware that we have entered into arrangements, joint ventures with state governments, three state governments, we have identified the other railway lines beyond these three railways lines for construction so that it keeps pace with the increase in production by Coal India up to 2020. So there is good news on that front.

Sonia: I wanted one more clarification, you did mention that 598 million tonne will be the dispatched target for FY17, which is the healthy 12 percent growth compared to the target of 535 million tonnes that you have by the end of FY16. I just wanted to understand, what exactly would be the per day dispatch, what could the government do roughly because currently it is about 1.6 million tonnes per day, so what could the runrate be?

A: I don’t have the ready data in front of me but it should be on an average about 220 wrecks per day, 220-225 wrecks per day.

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