Offtake target bigger challenge than production: Coal India

Moneycontrol Bureau

Meeting offtake targets for the year will be the bigger challenge than the production goal, Narsing Rao, chairman of Coal India said in an interview with CNBC-TV18.
The company has to dispatch around 135 million tonnes this quarter to meet its guidance of 8.5 percent offtake growth. Rao said there could be a small shortfall in the production target of 464 million tonne for the current financial year, but he was not worried as the company had started with around 70 million tonnes of inventory.
Coal India shares have underperformed benchmark indices Sensex and Nifty over the last one year, on concerns over lower realisations, penalties in fuel supply agreements, and production constraints because of environmental issues. Also, investors were worried that Coal India may have to pay for coal blocks in future under the new rules for allotment of coal blocks.
Rao said allocation of coal blocks would not be a problem as Coal India had a different structure from those public sector companies which would be subject to the new rules. But he admitted that both volumes and realisations of its high margin e-auction sales have fallen. Also Read: 35 power producers have signed FSAs with CIL: Govt
"We expect about two-to-three million tonnes lower than last year e-auction sales and more than the volume of three million tonnes less we are expecting about Rs 150-200 lower realizations per tonne during the year as an aggregate and this has got to do with the international price," Rao said.
He was non-committal on the price revision, other than saying that average sales realisations were "comfortable" for now. Below is an edited transcript of the interview on CNBC-TV18 Q: There are a few investor-apprehensions that the new allocations could indicate Coal India would have to pay for future coal block allocations. Are those apprehensions justified?
A: It is not justifiable because that’s a totally different route. What the coal ministry has put on block are for state and central public sector utilities. Coal India comes under totally different purview and is kind of a captive to the coal ministry.. Q: So there is no question of going down that payment route?
A: No. Q: There are reports that Coal India may actually fall short of its production guidance for the year. Is that possible?
A: The current quarter is proving to be challenging. In the last quarter we achieved close to 310 million tonnes as compared to 155 million tonnes. So, I think we should more or less achieve our target, but what matters particularly most to the market is the offtake.
The offtake is slightly better than the production. Compared to a growth target of 8.5 percent, we are already at about 8 percent. Again, in the last quarter the target is about 135 million tonnes. Q: But is it likely that you might fall a bit short of that USD 464-million tonne target and could that make you conservative about setting targets for the next year?
A: On the production front, there could be a small shortfall but that’s no reason for worry because we started with a ground stock of about 70 million tonne. The challenge is meeting the offtake targets. Once we are able to meet the offtake targets, we would have done our job and this has no bearing on the next year’s target which has already been set at 487 million tones. Accordingly, we are going preparing to meet the challenge of achieve the target of 487 million tonne for 2013-14.
_PAGEBREAK_ Q: Are you likely to be able to push through a price-hike in the current quarter?
A: We still feel our average sales realisation is fairly comfortable. So at the moment we are not considering of pushing for a hike. But we may consider a hike in prices in the month of March perhaps after March 31. At the moment I am not in a position to comment on the revision of coal prices. Q: So could that add some pressure on margins in the current quarter?
A: No, but that would be offset by increased production and offtake. Q: How are your e-auction sales volumes? Are they still under pressure?
A: Yes, we expect the volumes to be about two-to- three million tonnes lower than the e-auction sales in 2011. We are also bracing for a fall of Rs 150-200 in realisations per tonne during the year as an aggregate and this is related to international prices. Q: Are you hopeful of being able to push through increases in prices even after March-April given that the country will soon start getting into election mode?
A: We will decide when such a situation arises. Q: What is the status on the fuel supply agreements (FSAs)? Have you signed more FSAs?
A: Yes. We have inked pacts with the Damodar Valley Corporation (DVC) for its Koderma plant; Andhra Pradesh Power Generation Corporation Limited (APGenco) has signed three FSAs for three power stations. A Tamil Nadu government undertaking also has inked a pact and on Wednesday, a Madhya Pradesh government undertaking also signed an FSA. So the FSA with the National Thermal Power Corporation (NTPC) and one or two state utilities remains to be inked. Q: What is holding up NTPC as you have in deliberations for quite a few weeks now?
A: All that is known is that the PSU held a board meeting. It was expected that the FSA would be signed in the last board meeting on December 28. I think the information at hand was insufficient and the issue was deferred to the next board meeting. We have clarified our position to them on each of the clauses and put to rest any apprehension they have had. I don’t think there are any major issues now. Q: By when are you hopeful that the deal will be signed?
A: The inking of the FSA just a formalisation of the agreement to supply coal which is already underway. We will be penalised for a shortfall only if the FSA has been inked. On the basis of a memorandum of understanding (MoU), we are supplying coal to NTPC. Q: What did you make of the new ministry of environment and forests (MOEF) recommendations of removing some of the preconditions required for increasing production? Do you think the removal of the conditions will be of significant help?
A: It does. We have been requesting the government of India to give the go-ahead to projects that have been accorded the environmental clearance after 1994. The government has accepted our request subject to terms and conditions that include a demand for a 25-percent increase in the capacity. In my assessment, there are 15-16 projects which qualify under this criteria. An increase of a maximum of about 45 million tonne per annum increase in production is possible once we have completed the process.