Coal India talks of Rs2,600 crore writeback

Coal India expects to raise its domestic output by only about 25% from current levels in the next five years based on conservative estimates, Coal India chairman N C Jha has said.

On a positive note, the state-owned near monopoly coal miner would go for complete market determined pricing for all of its output within the next seven years, Jha told DNA Money on the sidelines of an analysts’ meet on Saturday.

“Based on whatever blocks available with us now, we expect to produce about 560 million tonne by FY17. So, something like production increase of 110 million tonne (from 2011-12 target of 452 million tonne) in five years,” he told analysts.

The estimate, Jha said, is based on the assumption that Coal India will get environmental clearances for most of its planned projects barring blocks under ‘no-go’ areas.

The modest growth estimate, despite assuming significant relaxation of curb currently imposed on Coal India by the environmental ministry, didn’t go down well with the analysts present at the meeting.

“Your estimate for production growth till FY17 is far too conservative. Does it mean that Coal India is not thinking of exploiting its full potential?” asked one analyst citing examples of private sector players who are working on developing coal blocks of the size 25-50 million tonnes.

“Reliance ADAG and Adani Group have new coal blocks which can be worked to the potential that they have while the blocks that we have are being exploited for 35 years or more. The projected figure has been arrived at after proper study of the optimum capacities of each mine,” Jha said.

If Coal India gets some blocks from about 50 which are being de-allocated, Jha expects a boost in production as they are open-cast mines where production can be ramped up much quickly.

“We have also asked for allocation of 138 blocks with a reserve of over 40 billion tonne, a decision of which is yet to be taken by the government,” Jha said.

The slow growth in production would probably get offset by increase in revenue from selling all its production to market linked prices.

“Within the next seven years we would be able to get all our coal in washed form and sell them at globally-linked prices,” Jha said.
Jha said washing would improve the quality of coal raising it to superior grades available from best mines of the world helping to Coal India to benchmark its prices. Jha expects Coal India to post profit and revenue growth in 2011-12 better than previous year.
“We intend to grow our offtake by somewhere around 9% at 454 million tonnes. In addition to it, we have a huge stock of 70.5 million tonnes lying at the mines out of which we have targeted to liquidate 25 million tonnes. These, along with the full year impact of the February price increase would help us to come out with impressive financial results in 2011-12,” Jha said to pacify the analysts.

Also, Coal India will write back to profit about `2,600 crore kept under the overburden removal reserve in the 2011-12 bottomline following a change in accounting norm to be implemented during the year, finance director A K Sinha said.