Coal- Production growth to result in supply glut

We met some senior officials in the Coal Ministry in India to understand the ground realities on production and supply growth and future road ahead.

Key take aways from the meeting

Ø Coal India (CIL) will strive to maintain a current production growth of about 10% and the Government is confident of overcoming logistic and land related issues to achieve sales volume growth. The Government believes that the issues related to land acquisition and logistics are getting resolved to a large extent with the involvement and help of the state governments.

Ø As per the Government classification, coal blocks for auction is divided into two broad categories of a) Regulated sector & b) Unregulated sector. Power generating companies supplying power at regulated cost based tariffs come under the regulated sector. All other companies including power generating companies selling power at market rates or for captive consumption, metal companies including steel and cement companies come under the unregulated sector. This classification would remain for the future coal blocks auction and there would not be separate auction for a particular sector like steel or cement, etc.

Ø As announced earlier, companies having existing coal linkages at fixed price with CIL will continue till 30th June 2016. The Government is in process of finalizing the procedures for the auctioning of coal supplied through linkage after the cut- off date of 30th June 2016. It has invited suggestions from the various user industries for the auction process mechanism, tenure of linkage, etc.

Ø The Government is going to ensure that there is enough coal available for all by increasing production at higher rate as it has been doing over the past year.

Our view