Although the market is abuzz with apprehensions on the impact of the new pricing mechanism on revenues for Coal India, Mr NC Jha the chairman of the company said the move will only lead to better demand quality and will result in higher revenues. Mr Jha reiterated that "With the change in the pricing mechanism I don’t think there will be any rise in price. However, it will be a binding for us as well to maintain the quality.”
In an interview to CNBC-TV18, he further said the company is looking at bringing domestic prices inline with international prices as it switches to the gross caloric value. He added that "We have revised production target to 440 million tonne for FY12 and production target for FY13 is 464 million tonne.”
Below is an edited transcript of Mr NC Jha's interview to CNBC-TV18.
Q - What is your own estimate of the impact on the revenues with the new pricing mechanism? Is it neutral or may be there will be some downward calibration?
A - For last more than 50 years, we have been selling coal on useful heat value basis which is determined by an empirical formula. The UHV and the gross caloric value of the same coal used to be more or less similar. However, over the years, we now have power plants to use such coal. When you apply the same formula for GCV, the GCV becomes very low while the gross caloric value is quite high. So, there was no real heat value pricing so far.
Hence, for the last maybe five-seven years, the focus was on switching over to GCV based pricing. That’s exactly what we have done from the 1st January this year. When you compare the UHV and GCV, whatever estimates we have made is based on the conversion factor, we are engaging the pass the Central Fuel Research Institute and they had developed a formula for conversion from UHV to GCV. As far as the pricing is concerned, we have tried to link it to the international price of coal.
Currently, we have five benchmark prices available for international coal 6500 kilocalories, 5800, 5000, 4200 and 3700. We have tried to link those prices with international prices. We have tried to maintain a discount which was available based on the UHV. So, more or less the discount has been maintained.
However, the basic difference comes is that the same quality UHV based pricing from different sources and in different companies were different. However, when you switch over with GCV based pricing; it has to be uniform whether you buy from this source or that source. So, there has been a rationalization of the discount to international price as well as rationalization of pricing across the subsidiaries and across different sources.
We have tried to estimate whether any company goes into a loss because we have not grown by the highest price available for any UHV. I went for weighted average; some companies which were selling coal at a higher price had to now sell at lower price. Some which were selling at lower price will get a little extra revenue. Therefore, in this process some companies will breakeven, hence the realizations they were getting will continue and some other companies whose prices were earlier depressed will get slightly more revenue.
On the whole, I don’t think there will be any rise in price. However, it will be a binding for us as well to maintain the quality. The moment we move from one slab to the other which is a width of 300 kilocalories per kilogram now, there maybe a price difference if the movement is for better quality and the additional revenue. But if there is a slippage in the quality then there is a loss in revenue.
Q - The decision on the wage hike is also pending and should come up next week. What are current discussions indicating about what you might be able to settle that next week?
A - We had offered about 10% increase but their demand was that whatever was the last time increase, it was 24% this will start from above that. We had said that it won’t be possible because otherwise there will be huge difference. So there was the deadlock and we decide to meet again.
Now we had requested the trade unions to come down from their earlier stand of 24% and they requested us to go up from our stand of 10%. So, we will be having our negotiation meeting for three days. Hopefully, this three days meeting will be able to close this issue.
Q - What about the volume targets because this year you started with a certain volume target but had to scale it down? Does it look like you may fall short of that 440 million tonne target that you set out? More importantly for FY13, what kind of early indications are getting above volume delivery for Coal India?
A - Our volume target for this year was 447 million tonne. However, we had a huge loss of production during the monsoon period. Due to that short fall which was about 20 million tonne in two months, it appeared to be very difficult so we revised our target to 440 million tonne. The current production is indicative of meeting that but when we had a review by the minister and the minister asked us to achieve the 447 million tonne target. We are all geared to go as close to 447 million tonne as possible but our revised target is now 440 million tonne.
Anything more than that will be on the success basis. If everything goes alright, there is no ill-effect of monsoon, availability of rake is proper and I think these three months, January to March will be quite okay. So, I don’t have any doubt about achieving 440 million tonne.
Q - What about next year?
A - Next year’s target has been fixed at 464 million tonne, which is 24 million tonne more than the earlier target of 440 million tonne. We are now getting help from the ministry for environmental and forestry clearances. I think 464 million tonne achievement is not very tough and we should be able to do that.
Source - CNBC-TV18
