Coal prices likely to be hiked as CIL prepares to revise wages: Sources

Coal India Limited is likely to revise its coal prices apart from wages.

Coal India Limited (CIL), the country’s largest coal miner, is likely to increase its notified prices after five years as the company on May 10 confirmed that it is going to hike wages within a month, at least three officials privy to the development told Moneycontrol.

The hike in coal prices, if approved by the CIL Board, could result in an increase in power tariffs by up to 3.5 percent, experts said.

The decision to hike wages, which is going to benefit nearly 238,000 non-executive workers, has added an additional liability of nearly Rs 6,000 crore on the CIL, officials said. Wages of non-executive workers, who account for 94 per cent of CIL’s workforce, are revised every five years.

“In such a scenario, CIL is under extreme need to rationalise its coal prices to maintain adequate supplies during the summer months and also during the winters,” said a senior coal official requesting anonymity.

Also read: MC Interview | Don't expect shortage of coal, imports will continue to increase: Coal Secretary.

But, apart from being able to meet India’s growing power demand, a hike in coal prices is also needed for CIL to maintain profitability and to save a few of its subsidiaries such as Eastern Coalfields Ltd (ECL), Western Coalfields Ltd. (WCL) and Bharat Coking Coal Ltd (BCCL) from facing a financial crunch.

A second senior official said the decision on the quantum of increase in coal prices is likely in the next 10-15 days. “The minister (Pralhad Joshi) has been busy with the Karnataka elections. A decision is likely 10-15 days after the elections are concluded,” said the official requesting anonymity. The results of the Karnataka Assembly elections are scheduled on May 13.

CIL’s March-23 quarter earnings took a hit over-provisioning for wages. The Maharatna public sector undertaking (PSU) cited a decline in profitability owing to wage provisions in a statement issued on May 10, “Pending conclusion an upfront wage cost was provisioned in the accounts every quarter since July 1, 2021, the date of commencement of NCWA-XI.  This had a telling effect on CIL’s profit after tax (PAT) in the fourth quarter.”

It added that excluding the provision on wage cost due to NCWA-XI, CIL’s Q4 PAT during FY23 would have been around Rs 9,920 crore, an all-time high. Of the total provision of Rs 8,153 crore charged to the profit and loss account on account of wage revision during FY23, the last quarter alone took up 72 percent at Rs 5,870 crore, CIL said.

The company, however, did not respond to queries sent by Moneycontrol on the plan to increase coal prices.

Notified coal prices were last revised by CIL in January 2018. The increase back then was effectively 11 percent. For 2025-26, the PSU has set a production target of 1 billion tonnes.

Earlier this year, CIL chairperson, Pramod Agrawal said there is a "strong case" for increasing coal prices, and the hike could be effected "very soon" as discussions are underway with stakeholders.

Power Tariffs

Coal-fired electricity contributes anywhere between 73-77 percent in meeting India’s power demand, which is growing at about 6.4 percent annually. Experts and industry stakeholders said an increase in power tariffs will be inevitable once notified coal prices are revised by the government.

Hetal Gandhi, Director (Research) at CRISIL Market Intelligence and Analytics said the resultant hike in power tariffs could range between 2.5-2.5 percent.

“Crisil Research expects CIL notified prices to increase by 6-9 percent following the 19% wage hike to maintain its operating margins between 8-10%. Assuming other costs remain the same, landed costs for the power sector to increase by 2.5-3.5 percent to Rs.3,105-Rs.3,115 per tonne with power tariffs expected to increase by a similar percentage. Non-power sector will see a price hike of 3-4 percent on the landed costs to Rs.3,350-Rs.3,360 per tonne,” Gandhi told Moneycontrol.

Also read: Power tariffs in India are one of the lowest in the world: RK Singh.

Ashok Khurana, Director General of the Association of Power Producers (APP), said the brunt will have to be borne by the end consumers in terms of higher power bills.

“APP has been demanding a coal price regulator for a long time. At present, there is complete opacity in the pricing. The general elections are scheduled for next year (2024). The coal price hike could also be deferred for now. Let us see what the CIL Board finally approves,” he said.