TCI to govt on coal: "Why do you want to earn $20 bn less?"

New Delhi: Even as Coal India Ltd (CIL) is finalising the penalty clause on the fuel supply agreements (FSAs) it has to sign next week with power producers, The Children’s Investment Fund (TCI) has again exhorted the government to raise coal prices to market levels.

TCI’s argument: the increase in profits can be ploughed back as dividends and used to subsidise coal consumers who can’t afford higher power tariffs caused by the hike in coal prices.

In the past, TCI has alleged that coal prices are being kept 70 percent lower than international benchmarks in India, severely hurting CIL’s profitability. But the government has brushed aside TCI’s concerns, saying lower coal prices mean cheaper power to consumers.

[caption id=“attachment_272153” align=“alignleft” width=“380” caption=“In the past, TCI has alleged that coal prices are being kept 70 percent lower than international benchmarks in India, severely hurting CIL’s profitability.Reuters”] [/caption]

TCI is a minority shareholder in CIL and has been on the warpath against CIL as well as the ministry of coal over the company being forced to sign FSAs with power producers through a presidential directive. It has threatened legal action against Coal India, but has kept the actual move under wraps.

Oscar Veldhuijzen, partner in TCI, told Firstpost that if coal prices are market linked, CIL’s profits “would increase by $19 billion which can be distributed to the government through divided payments”. He also pointed out that coal price discounts through FSAs will primarily benefit private power producers since “some power companies keep FSA benefits to themselves as they sell power under merchant power tariffs”.

Earlier this week, a senior coal ministry official had said that in the first year (2012-13), FSAs will be signed only with those parties whose power plants were commissioned between March 2009 and December 2011. He had said that FSAs would be signed primarily with state power utilities and private power companies would account for a smaller number of FSAs. In all, the FSAs this year are meant to cover 25,000 mw of power generation in the country.

Speaking to Firstpost earlier, Coal Minister Sriprakash Jaiswal had said that CIL had to keep coal prices low in order to keep prices of power, cement and steel reasonable for the end consumer. But a coal regulator (expected to be appointed soon) will look at coal pricing, the minister had said.

Veldhuijzen said if coal prices were raised by $50 per tonne to bring them on a par with global markets, CIL could make $19 billion of incremental profits on an estimated 375 million tonnes of coal supplied under FSAs in FY13. The government’s share in CIL’s profits would then be over $20 billion (since CIL’s total profits would be $23 billion and the government shareholding in CIL is 90 percent).

He also argued that Indian consumer households use about 200 billion units of power each year “which can entirely be paid for by dividends from CIL if FSA coal prices were raised to market levels.”

TCI’s fresh remarks on coal prices come just when a debate has begun within the coal ministry and the CIL board over the quantum of coal which will need to be imported to avoid penalties under FSAs to be signed in FY13. CIL’s CMD designate, S Narsing Rao, has estimated that incremental coal production of at least 64 million tonnes is needed this fiscal to fulfil proposed FSA commitments.