The country’s largest coal miner, Coal India (CIL), is exploring the option of forming a trust to distribute a portion of shares offered in its proposed initial public offering to people from whom land is acquired for mining.
The option is being considered to institute a fair and transparent system for distribution of CIL’s shares as compensation to people who lose their land or livelihood on account of mining projects planned by the company, an official involved in the disinvestment process.
With the changes, the size of CIL’s proposed initial public offer may increase to 15 per cent of its total equity capital. The coal ministry had earlier proposed to sell 10 per cent of government equity in the market under the proposed IPO.
An additional 5 per cent equity would be offered to CIL’s 4.25 lakh employees as stock option and to the proposed trust in a ratio to be finalised later. The government holds 100 per cent stake in the company.
The proposal is still being finalised by CIL and the coal ministry. The company is also examining the legality of the exercise and has sought the opinion of market regulator SEBI.
“Once all clearances are received, a formal proposal would be sent to the department of disinvestment,” an official connected with the proposed disinvestment process said.
As per the plan, the government would place a fixed portion of its equity in an independent trust. The trust would, in turn, process claims of project-affected families and offer CIL shares to them as part of the compensation package.
The earlier proposal of CIL and the coal ministry to reserve shares under the IPO for employees and project-affected persons was rejected by the finance ministry. CIL has appointed merchant bankers to initiate the IPO exercise and get the company valued.
Coal ministry officials said CIL’s disinvestment proposal may be cleared early next year and the PSU would come out with its issue during the next financial year.
The company was given Navratna status last year and was asked to get listed before September 2011. The company has a paid-up equity capital of Rs 6,316 crore. Investment banking officials said the proposed CIL offer may raise over Rs 15,000 crore for the government.
CIL’s annual production is expected to touch 450 million tonnes in 2009-10. The company clocked a pre-tax profit of Rs 8,738.46 crore in 2008-09.
Forthcoming IPO
Coal India’s initial public offer or IPO will hit the markets in November or December next year. According to Bhattacharya, IPO proceeds would be utilised to acquire assets for a stabilized coal supply that could deliver energy to the country.
In this regard, CIL has engaged large fund managers. The fund managers, this would be one of the largest issue in the Indian stock exchange.
Bhattacharya said that CIL has emphasised the need for issuing preferential shares to the land-losers. Apart from this, it also planned to offer stock options to its over four lakh employees besides considering a proposal to issue shares to its former employees.
CIL which had received Navratna status last year was scheduled to get listed in the bourses within a three year period.
Turning to coal imports, he said that coal import was increasing by 20 per cent annually. Import of coal was necessary since CIL could not meet the entire demand supply gap of coal.
In another development, Coal India is in talks with a West Australian private sector mining firm for acquiring a coal block with in-place reserves of 150 million tonnes (mt).
The mine, CIL wants to acquire, which is partly explored, is located north of Perth and the process will involve acquisition of the coal firm with the promoters keeping a stake.
“We have engaged technical consultants to do due diligence. We have to take a view on it,” said Bhattacharyya.
Going by recent coal deals, if the reserves are not proven, the valuation of a mine is around 10-20 cents per tonne. For proven resources, it is 50-60 cents per tonne. Operational mines come with a much higher price tag of around $2-3 per tonne.
CIL is targeting a production of 435 mt this year, against 403.73 mt in 2008-09, having posted a profit of Rs300 crore on a turnover of Rs 46,000 crore last year.
CIL had a consolidated cash balance of Rs 29,665 crore at the end of the fiscal 2009 and is looking at coal mining opportunities in countries such as Mozambique, Bangladesh, Indonesia, South Africa and Australia.
Analysts say coal mining in Australia is advantageous as it compares with other traditional coal-rich geographies such as Indonesia and South Africa.
“Australia may be a good destination for coal mining asset acquisition due to better quality of coal. The relative disadvantage for its distance in comparison with Indonesian coal is sufficiently set off by the stable political and regulatory framework for the mining sector in Australia,” said Dipesh Dipu, principal consultant (mining) with audit and consulting firm Pricewaterhouse Coopers.
“With rapidly rising exports out of Indonesia, the quality of coal may suffer. The recent changes in the mining laws that require domestic market obligations also are likely to make Indonesia-focused strategies uncertain. Similar risks exist with South African coal as well. Hence, Australian ventures may be the way to go. However, Australian coal with partial ownership may not help obtain a preferential price due to stricter minority interest safeguard rules of the country,” he said.
India has 256 billion tonnes (bt) of coal reserves, of which around 455 million tonnes per annum (mtpa) is mined. It imports around 40 mt of coal.
Demand is expected to reach around 2 bt a year by 2031-32, around five times the current rate of extraction, with most of it coming from the power sector.
Regarding the listing, the state-owned miner wants its employees and people who have had to give up land for its mines to become shareholders.
“Whoever is going to give me land, I should give them an option for getting shares. We have sought legal opinion for the same (because) as of now there is no precedent for any such thing. Unless, we do this, the share issue wouldn't take place,” Bhattacharyya added.
Coal India is also planning to offer mine-specific coal supplies to interested parties at about 10 per cent premium over the notified price. The proposal is prepared based on a number of requests from large consumers will be forwarded to the CIL board for due consideration shortly.
A senior CIL official told media that while the coal company was entering into firm fuel supply pacts with the customers underlining supply commitments (which if not fulfilled would attract penal provisions), the coal distribution policy gives CIL freedom to decide on the sources of the coal to be supplied.
“However, we have received requests from a number of consumers (including aluminum major Hindalco and Rosa Power of Reliance Power) to meet their entire thermal coal requirement from a specific source closer to their respective facilities rather than from multiple sources,” the official said.
CIL officials agree that there is logic in such requests by consumers. Replacing multiple sources by a single source that too closer to the consumption point would remove many logistics issues (concerning both CIL and the consumer) and reduce pressure on rail network. It may also reduce the landed price of coal at the consumer’s end through reduction of freight cost.
“However, as a producer by agreeing to such a proposal of single mine specific supplies we would also run the risk of failing to live upto our supply commitment in case there is any disruption in operation in a particular mine. Naturally we may now have to work out a win-win formula,” the official said.
CIL Chairman said, “We have received some requests for single mine specific supplies. We are now weighing the option of imposing a ‘risk premium’ to effect such supplies. However, a final call on the same will be taken by the board.”
Company sources revealed that CIL was considering 10-12 per cent risk premium for such supplies. “Initial estimates suggest that we may charge 10-12 per cent risk premium in cases so that in case we end up paying penalties for our failure to supply from that specific mine, the loss may be off-set by the premium we earn on coal price,” an official said.
Import linked prices
Coal India Ltd is adopting a conservative approach in pricing despite being allowed to charge import-linked price for the country’s minuscule reserve of 12-13 million tonnes of A and B grade high quality coal. The company was allowed to charge import-linked price for superior grade coal in October.
Eastern Coalfields Ltd, which has the country’s largest reserve of 11 million tonnes of superior coal having highest energy value and low sulphur content, recently entered into MoUs with four West Bengal-based power producers to sell the underground production of 5 million tonnes of A and B grade coal at an import-linked price of Rs 3,500-3,700 a tonne. The four power producers are CESC Ltd, West Bengal Power Development Corporation Ltd, Durgapur Projects Ltd and Damodar Valley Corporation.
The landed price to the producers will include 25 per cent cess and Rs 6 a tonne of royalty collected by the West Bengal Government plus freight. Till the coal price hike in October, the notified price of A and B grade coal at pit head was Rs 1,700-1,800 a tonne.
According to an industry source, the price of similar grade Australian coal (of over 6,000 million kilo calorie of gross calorific value) is approximately $65 a tonne on FOB basis. After inclusion of $25 a tonne of ocean freight cost, the landed price of similar imported coal is Rs 4,500 a tonne at today’s exchange rate.
“We are yet to devise a finer mechanism for charging import-linked price and have priced our underground production of superior coal at 15-16 per cent lower than the landed cost of imported coal. However, we are charging the notified price (Rs 2,200-2,300 a tonne) open cast production of A- and B-grade coal. The weighted average of price of the coal on million Kcal basis works out to be approximately 50 per cent cheaper than the imported coal,” a CIL official said.
According to him, following introduction of import-linked price ECL’s underground operations may break-even beginning this fiscal.
Apart from ECL, South Eastern Coalfields Ltd has small quantities of A- and B-grade coal reserves. However the company is yet to charge import-linked prices.
Tough Talk
Coal India Limited may have taken a tough stance with regard to the latest controversy over the industrial investment proposals in the coal bearing zones of Ranigunj-Asansol area in West Bengal. The proposals are for setting-up steel projects by Bhushan Steel, Videocon and Abhijit group and others.
The West Bengal Government previously ran into a similar controversy with CIL with regard to the proposed $2.5-billion Durgapur Aerotropolis project. After communications involving the Centre, State Industries Department and CIL finally reached an agreement on the 3,500-acre project in April.
Though a substantial part of the Aerotropolis project is planned on the coal bearing zone, CIL finally agreed to the State Government’s proposal for a minor relocation of the airport city project freeing 400 acres of coal bearing land. The land is under lease hold of Eastern Coalfields Ltd, a subsidiary of CIL.
As part of the agreement, the State Government agreed to consult CIL before allotting land for all future industrial investment proposals in the coal-bearing zones of the state.
“We have also decided to identify alternative land for three investment proposals (Bhushan Steel, Videocon and Abhijit group) in the Durgapur-Asansol area to unlock mineable coal reserves,” Principal Secretary, Sabysachi Sen, told newspersons shortly after a meeting between the top officials of the State and CIL on April 8. The land for the three projects were identified without CIL’s consent.
CIL also confirmed that relocation of these proposed projects would free a “very high quantity of quality mineable reserves”. Referred to as Ranigunj coal, the area has the country’s most ancient coal reserves.
“We were confident that the agreement was good enough to help protect the precious natural resources. However, it now seems that the state administration is trying a roundabout way to backtrack on its own promises,” a senior CIL official said.
According to him, the district administration recently raised a number of queries regarding CIL’s mining plan in the area and advocated freeing the same for the said projects.
In another development Coal India, which is mulling over 15 per cent stake dilution, will soon seek legal opinion on reserving some shares for its employees and land losers, as suggested by the disinvestment department.
“As suggested by the disinvestment department. Coal India will soon take the advice of a legal firm on the matter of allotting shares to its employees and land-losers,” a top government official told media.
Coal Minister Sriprakash Jaiswal had earlier said that the Navratna company could sell a maximum of 10 per cent stake. However, CIL wants to reserve 5 per cent stake for its employees and land losers in the proposed divestment.
The government holds 100 per cent equity in the coal firm. Jaiswal had earlier ruled out raising additional equity by CIL as part of the proposed disinvestment programme. Of the 5 per cent, 3 per cent is for the employees as stock options and 2 per cent for those whose land have been acquired or could be acquired in the future by the firm for mining purposes.
Also, the official said the coal major will appoint a Merchant banker to oversee its internal financial structure and suggest reforms.
GPS Logistics System
Coal India intends to introduce a global positioning system based logistics system across 11 of its opencast projects to optimise the use and performance of its equipment. The coal behemoth is looking to organise the dispatch of dump trucks between shovels, excavators and dumping points in its mines.
As per report the coal major has floated a global tender for the procurement of GPS based truck dispatch system, estimated at INR 132 crore to modernize operations at four mines of its subsidiary Northern Coalfields, three mines each at Mahanadi Coalfields and South Eastern Coalfields and at one mine of Eastern Coalfields.
The proposed system will not only monitor the position of all mobile equipment at mines associated with the production of coal and removal of overburden but will also automatically compute the best assignment of the equipment to optimise production.
Moreover, a wireless connectivity system is expected to be established for voice and data connectivity between maintenance operation personnel, supervisors and a centralized station.
The on-board instrument will capture online data relating to specific mining equipment including position, equipment health and performance data, which it will relay to a nodal station.
A CIL official said that “The installation of this system will augment the overall utilization and productivity of the mines. It is essential that the idle time for the vehicles used at the mines be reduced, which cannot be done without such a system. About seven international players have already shown interest in the project.”
Freight Rate Volatility
CIL has started talks with global shipping lines and major domestic and foreign ports in order to escape freight rate volatility while bringing coal from foreign mines that it is trying to take control of.
CIL chairman Bhattacharyya has said that while CIL’s primary objective is to bridge the demand- supply gap by pushing foreign coal into the Indian market, it has to ensure that the market doesn’t fall prey to the global coal and freight market's volatility. According to the estimates of Richard Bay, a global benchmark for coal prices, thermal coal prices fell 58 per cent at $60 per tonne during the last 12 months. The Baltic index showed that freight rates were down 83 per cent at the current $18,500 per day from its peak in June. This shows the extent of volatility that the global coal and freight market faces, and CIL needs to take control of this.
“We will strike deals so that we can produce coal at costs, comparable with the prices of domestic coal. The Indian coal market, unlike the global coal market, is not exposed to price volatility and once in two-three years there is a revision of price,” Bhattacharyya said.
He added that besides arrangements with miners, there is the issue of freight, which will require the same sort of arrangement. Freight will also be a component of the cost of coal and so freight volatility also needs to be escaped.
“CIL has started talks with shipping lines like the Shipping Corporation of India and also with foreign and domestic ports to fix long-term rates,” Bhattacharyya said. He however, did not want to name the ports with which the company has started holding talks. CIL officials said that while companies from the US, Australia, South Africa and Indonesia will start making presentations from December, clinching a deal with mine owners in the US will strategically help CIL to secure coal at Indian rates. The US is not as big an exporter of coal as Australia and the country’s coal mining, despite huge reserves, has not grown because there was no growth in demand. Officials said CIL is more inclined to secure long-term mining contracts in foreign blocks than acquiring coal blocks. Entering into such contracts is more feasible in the US than any other country and this mode seems to be ideal to escape price volatility.
CIL profit
Out of additional revenue of Rs 4,629 crore (approx.), expected to be generated from price revision, subject to full off-take of the production quantity, CIL is to absorb around Rs.200 crore per annum towards increased input cost of coal feed to washeries of CIL and balance amount will contribute to reduce the burden of increased wages cost, whose impact in the first year (i.e. 2009-10) is around Rs 4,000 crore.
Apart from the profit from coal and its related operations like washeries and other, interest on term deposits lying with Banks also contribute towards total profit of CIL and its subsidiary companies. Against interest income of Rs 2,241 crore during 2008-09, interest contribution during 2009-10 has been estimated to be reduced to Rs 1,718 crore mainly because of significant reduction in the rates of interest on term deposits.
The option is being considered to institute a fair and transparent system for distribution of CIL’s shares as compensation to people who lose their land or livelihood on account of mining projects planned by the company, an official involved in the disinvestment process.
With the changes, the size of CIL’s proposed initial public offer may increase to 15 per cent of its total equity capital. The coal ministry had earlier proposed to sell 10 per cent of government equity in the market under the proposed IPO.
An additional 5 per cent equity would be offered to CIL’s 4.25 lakh employees as stock option and to the proposed trust in a ratio to be finalised later. The government holds 100 per cent stake in the company.
The proposal is still being finalised by CIL and the coal ministry. The company is also examining the legality of the exercise and has sought the opinion of market regulator SEBI.
“Once all clearances are received, a formal proposal would be sent to the department of disinvestment,” an official connected with the proposed disinvestment process said.
As per the plan, the government would place a fixed portion of its equity in an independent trust. The trust would, in turn, process claims of project-affected families and offer CIL shares to them as part of the compensation package.
The earlier proposal of CIL and the coal ministry to reserve shares under the IPO for employees and project-affected persons was rejected by the finance ministry. CIL has appointed merchant bankers to initiate the IPO exercise and get the company valued.
Coal ministry officials said CIL’s disinvestment proposal may be cleared early next year and the PSU would come out with its issue during the next financial year.
The company was given Navratna status last year and was asked to get listed before September 2011. The company has a paid-up equity capital of Rs 6,316 crore. Investment banking officials said the proposed CIL offer may raise over Rs 15,000 crore for the government.
CIL’s annual production is expected to touch 450 million tonnes in 2009-10. The company clocked a pre-tax profit of Rs 8,738.46 crore in 2008-09.
Forthcoming IPO
Coal India’s initial public offer or IPO will hit the markets in November or December next year. According to Bhattacharya, IPO proceeds would be utilised to acquire assets for a stabilized coal supply that could deliver energy to the country.
In this regard, CIL has engaged large fund managers. The fund managers, this would be one of the largest issue in the Indian stock exchange.
Bhattacharya said that CIL has emphasised the need for issuing preferential shares to the land-losers. Apart from this, it also planned to offer stock options to its over four lakh employees besides considering a proposal to issue shares to its former employees.
CIL which had received Navratna status last year was scheduled to get listed in the bourses within a three year period.
Turning to coal imports, he said that coal import was increasing by 20 per cent annually. Import of coal was necessary since CIL could not meet the entire demand supply gap of coal.
In another development, Coal India is in talks with a West Australian private sector mining firm for acquiring a coal block with in-place reserves of 150 million tonnes (mt).
The mine, CIL wants to acquire, which is partly explored, is located north of Perth and the process will involve acquisition of the coal firm with the promoters keeping a stake.
“We have engaged technical consultants to do due diligence. We have to take a view on it,” said Bhattacharyya.
Going by recent coal deals, if the reserves are not proven, the valuation of a mine is around 10-20 cents per tonne. For proven resources, it is 50-60 cents per tonne. Operational mines come with a much higher price tag of around $2-3 per tonne.
CIL is targeting a production of 435 mt this year, against 403.73 mt in 2008-09, having posted a profit of Rs300 crore on a turnover of Rs 46,000 crore last year.
CIL had a consolidated cash balance of Rs 29,665 crore at the end of the fiscal 2009 and is looking at coal mining opportunities in countries such as Mozambique, Bangladesh, Indonesia, South Africa and Australia.
Analysts say coal mining in Australia is advantageous as it compares with other traditional coal-rich geographies such as Indonesia and South Africa.
“Australia may be a good destination for coal mining asset acquisition due to better quality of coal. The relative disadvantage for its distance in comparison with Indonesian coal is sufficiently set off by the stable political and regulatory framework for the mining sector in Australia,” said Dipesh Dipu, principal consultant (mining) with audit and consulting firm Pricewaterhouse Coopers.
“With rapidly rising exports out of Indonesia, the quality of coal may suffer. The recent changes in the mining laws that require domestic market obligations also are likely to make Indonesia-focused strategies uncertain. Similar risks exist with South African coal as well. Hence, Australian ventures may be the way to go. However, Australian coal with partial ownership may not help obtain a preferential price due to stricter minority interest safeguard rules of the country,” he said.
India has 256 billion tonnes (bt) of coal reserves, of which around 455 million tonnes per annum (mtpa) is mined. It imports around 40 mt of coal.
Demand is expected to reach around 2 bt a year by 2031-32, around five times the current rate of extraction, with most of it coming from the power sector.
Regarding the listing, the state-owned miner wants its employees and people who have had to give up land for its mines to become shareholders.
“Whoever is going to give me land, I should give them an option for getting shares. We have sought legal opinion for the same (because) as of now there is no precedent for any such thing. Unless, we do this, the share issue wouldn't take place,” Bhattacharyya added.
Coal India is also planning to offer mine-specific coal supplies to interested parties at about 10 per cent premium over the notified price. The proposal is prepared based on a number of requests from large consumers will be forwarded to the CIL board for due consideration shortly.
A senior CIL official told media that while the coal company was entering into firm fuel supply pacts with the customers underlining supply commitments (which if not fulfilled would attract penal provisions), the coal distribution policy gives CIL freedom to decide on the sources of the coal to be supplied.
“However, we have received requests from a number of consumers (including aluminum major Hindalco and Rosa Power of Reliance Power) to meet their entire thermal coal requirement from a specific source closer to their respective facilities rather than from multiple sources,” the official said.
CIL officials agree that there is logic in such requests by consumers. Replacing multiple sources by a single source that too closer to the consumption point would remove many logistics issues (concerning both CIL and the consumer) and reduce pressure on rail network. It may also reduce the landed price of coal at the consumer’s end through reduction of freight cost.
“However, as a producer by agreeing to such a proposal of single mine specific supplies we would also run the risk of failing to live upto our supply commitment in case there is any disruption in operation in a particular mine. Naturally we may now have to work out a win-win formula,” the official said.
CIL Chairman said, “We have received some requests for single mine specific supplies. We are now weighing the option of imposing a ‘risk premium’ to effect such supplies. However, a final call on the same will be taken by the board.”
Company sources revealed that CIL was considering 10-12 per cent risk premium for such supplies. “Initial estimates suggest that we may charge 10-12 per cent risk premium in cases so that in case we end up paying penalties for our failure to supply from that specific mine, the loss may be off-set by the premium we earn on coal price,” an official said.
Import linked prices
Coal India Ltd is adopting a conservative approach in pricing despite being allowed to charge import-linked price for the country’s minuscule reserve of 12-13 million tonnes of A and B grade high quality coal. The company was allowed to charge import-linked price for superior grade coal in October.
Eastern Coalfields Ltd, which has the country’s largest reserve of 11 million tonnes of superior coal having highest energy value and low sulphur content, recently entered into MoUs with four West Bengal-based power producers to sell the underground production of 5 million tonnes of A and B grade coal at an import-linked price of Rs 3,500-3,700 a tonne. The four power producers are CESC Ltd, West Bengal Power Development Corporation Ltd, Durgapur Projects Ltd and Damodar Valley Corporation.
The landed price to the producers will include 25 per cent cess and Rs 6 a tonne of royalty collected by the West Bengal Government plus freight. Till the coal price hike in October, the notified price of A and B grade coal at pit head was Rs 1,700-1,800 a tonne.
According to an industry source, the price of similar grade Australian coal (of over 6,000 million kilo calorie of gross calorific value) is approximately $65 a tonne on FOB basis. After inclusion of $25 a tonne of ocean freight cost, the landed price of similar imported coal is Rs 4,500 a tonne at today’s exchange rate.
“We are yet to devise a finer mechanism for charging import-linked price and have priced our underground production of superior coal at 15-16 per cent lower than the landed cost of imported coal. However, we are charging the notified price (Rs 2,200-2,300 a tonne) open cast production of A- and B-grade coal. The weighted average of price of the coal on million Kcal basis works out to be approximately 50 per cent cheaper than the imported coal,” a CIL official said.
According to him, following introduction of import-linked price ECL’s underground operations may break-even beginning this fiscal.
Apart from ECL, South Eastern Coalfields Ltd has small quantities of A- and B-grade coal reserves. However the company is yet to charge import-linked prices.
Tough Talk
Coal India Limited may have taken a tough stance with regard to the latest controversy over the industrial investment proposals in the coal bearing zones of Ranigunj-Asansol area in West Bengal. The proposals are for setting-up steel projects by Bhushan Steel, Videocon and Abhijit group and others.
The West Bengal Government previously ran into a similar controversy with CIL with regard to the proposed $2.5-billion Durgapur Aerotropolis project. After communications involving the Centre, State Industries Department and CIL finally reached an agreement on the 3,500-acre project in April.
Though a substantial part of the Aerotropolis project is planned on the coal bearing zone, CIL finally agreed to the State Government’s proposal for a minor relocation of the airport city project freeing 400 acres of coal bearing land. The land is under lease hold of Eastern Coalfields Ltd, a subsidiary of CIL.
As part of the agreement, the State Government agreed to consult CIL before allotting land for all future industrial investment proposals in the coal-bearing zones of the state.
“We have also decided to identify alternative land for three investment proposals (Bhushan Steel, Videocon and Abhijit group) in the Durgapur-Asansol area to unlock mineable coal reserves,” Principal Secretary, Sabysachi Sen, told newspersons shortly after a meeting between the top officials of the State and CIL on April 8. The land for the three projects were identified without CIL’s consent.
CIL also confirmed that relocation of these proposed projects would free a “very high quantity of quality mineable reserves”. Referred to as Ranigunj coal, the area has the country’s most ancient coal reserves.
“We were confident that the agreement was good enough to help protect the precious natural resources. However, it now seems that the state administration is trying a roundabout way to backtrack on its own promises,” a senior CIL official said.
According to him, the district administration recently raised a number of queries regarding CIL’s mining plan in the area and advocated freeing the same for the said projects.
In another development Coal India, which is mulling over 15 per cent stake dilution, will soon seek legal opinion on reserving some shares for its employees and land losers, as suggested by the disinvestment department.
“As suggested by the disinvestment department. Coal India will soon take the advice of a legal firm on the matter of allotting shares to its employees and land-losers,” a top government official told media.
Coal Minister Sriprakash Jaiswal had earlier said that the Navratna company could sell a maximum of 10 per cent stake. However, CIL wants to reserve 5 per cent stake for its employees and land losers in the proposed divestment.
The government holds 100 per cent equity in the coal firm. Jaiswal had earlier ruled out raising additional equity by CIL as part of the proposed disinvestment programme. Of the 5 per cent, 3 per cent is for the employees as stock options and 2 per cent for those whose land have been acquired or could be acquired in the future by the firm for mining purposes.
Also, the official said the coal major will appoint a Merchant banker to oversee its internal financial structure and suggest reforms.
GPS Logistics System
Coal India intends to introduce a global positioning system based logistics system across 11 of its opencast projects to optimise the use and performance of its equipment. The coal behemoth is looking to organise the dispatch of dump trucks between shovels, excavators and dumping points in its mines.
As per report the coal major has floated a global tender for the procurement of GPS based truck dispatch system, estimated at INR 132 crore to modernize operations at four mines of its subsidiary Northern Coalfields, three mines each at Mahanadi Coalfields and South Eastern Coalfields and at one mine of Eastern Coalfields.
The proposed system will not only monitor the position of all mobile equipment at mines associated with the production of coal and removal of overburden but will also automatically compute the best assignment of the equipment to optimise production.
Moreover, a wireless connectivity system is expected to be established for voice and data connectivity between maintenance operation personnel, supervisors and a centralized station.
The on-board instrument will capture online data relating to specific mining equipment including position, equipment health and performance data, which it will relay to a nodal station.
A CIL official said that “The installation of this system will augment the overall utilization and productivity of the mines. It is essential that the idle time for the vehicles used at the mines be reduced, which cannot be done without such a system. About seven international players have already shown interest in the project.”
Freight Rate Volatility
CIL has started talks with global shipping lines and major domestic and foreign ports in order to escape freight rate volatility while bringing coal from foreign mines that it is trying to take control of.
CIL chairman Bhattacharyya has said that while CIL’s primary objective is to bridge the demand- supply gap by pushing foreign coal into the Indian market, it has to ensure that the market doesn’t fall prey to the global coal and freight market's volatility. According to the estimates of Richard Bay, a global benchmark for coal prices, thermal coal prices fell 58 per cent at $60 per tonne during the last 12 months. The Baltic index showed that freight rates were down 83 per cent at the current $18,500 per day from its peak in June. This shows the extent of volatility that the global coal and freight market faces, and CIL needs to take control of this.
“We will strike deals so that we can produce coal at costs, comparable with the prices of domestic coal. The Indian coal market, unlike the global coal market, is not exposed to price volatility and once in two-three years there is a revision of price,” Bhattacharyya said.
He added that besides arrangements with miners, there is the issue of freight, which will require the same sort of arrangement. Freight will also be a component of the cost of coal and so freight volatility also needs to be escaped.
“CIL has started talks with shipping lines like the Shipping Corporation of India and also with foreign and domestic ports to fix long-term rates,” Bhattacharyya said. He however, did not want to name the ports with which the company has started holding talks. CIL officials said that while companies from the US, Australia, South Africa and Indonesia will start making presentations from December, clinching a deal with mine owners in the US will strategically help CIL to secure coal at Indian rates. The US is not as big an exporter of coal as Australia and the country’s coal mining, despite huge reserves, has not grown because there was no growth in demand. Officials said CIL is more inclined to secure long-term mining contracts in foreign blocks than acquiring coal blocks. Entering into such contracts is more feasible in the US than any other country and this mode seems to be ideal to escape price volatility.
CIL profit
Out of additional revenue of Rs 4,629 crore (approx.), expected to be generated from price revision, subject to full off-take of the production quantity, CIL is to absorb around Rs.200 crore per annum towards increased input cost of coal feed to washeries of CIL and balance amount will contribute to reduce the burden of increased wages cost, whose impact in the first year (i.e. 2009-10) is around Rs 4,000 crore.
Apart from the profit from coal and its related operations like washeries and other, interest on term deposits lying with Banks also contribute towards total profit of CIL and its subsidiary companies. Against interest income of Rs 2,241 crore during 2008-09, interest contribution during 2009-10 has been estimated to be reduced to Rs 1,718 crore mainly because of significant reduction in the rates of interest on term deposits.
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