Coal India may be in for more trouble.
The Economic Times reports that the company, which supplies coal to Indian companies, may have to cut its sales through e-auctions in order to make available the much-sought fuel for power companies.
The company estimates the reduction in auction supply will result in a revenue loss of Rs 5,000-6,000 crore per year from next financial year until 2016-17, the report said. The company has informed the coal ministry about the likely revenue loss, it said.
The company is already under fire from its largest foreign investor, The Children’s Investment Fund (TCI), after the government forced it to sign fuel supply agreements with power producers in the country. If the company fails in the commitment, it will have to pay penalties. The Coal India board has, however, made these penalties minuscule.
The country is at present facing a severe coal shortage due to Coal India’s inability to open new mines over environmental issues.
TCI has set a 30 June deadline for the company to respond with a plan to revise to market level the prices of coal to be sold to companies under fuel supply agreements, according to media reports.
The company has also been under pressure due to the impending proposals in Mining and Minerals (Development and Regulation) Act, directing miners to share 26 percent of profits with local communities.
However, brokerage house Networth Capital does not see much threat to the company due to these issues.
“Prima facie, both the issues (FSCs and e-auctions) look detrimental to CIL’s financial health. However, low penalty on FSA clause at 0.01 percent for 80 percent supply trigger level, as made out by CIL, has had solid backing of the Coal Ministry…we see government ultimately making some amendments in the Act so as to lessen loss to the coal behemoth,” Networth said in a research note.