There will be a shortage once new fuel supply agreements are signed: S Narsing Rao

Interview with Chairman and Managing Director, Coal India Limited

Coal India Limited (CIL) has been in the news after a presidential decree that forced it to sign fuel supply agreements (FSAs) with power plants. The new chairman and managing director of the company, S Narsing Rao, shares his views on controversies surrounding FSAs and the possible imports that the company may have to resort to. In an exclusive interview with Shine Jacob, Rao explains CIL’s strategies on coal imports and plans to tackle production constraints. Edited excerpts:

Power companies have raised concerns about the new fuel supply agreement (FSA), especially the insignificant penalty clause of 0.01 per cent. Would you consider revisiting the clause?
As far as we are concerned, there are no issues with FSAs. Our subsidiaries have made offers to power companies and they have to respond. Till now, we have signed 13 out of 48 FSAs. Power plants that have not signed power purchase agreements (PPAs) are not eligible to sign FSAs, so some of the units that have not signed are not even eligible.

We are getting some feedback from clients like NTPC. Some have requested for modifications in the clauses. But the clauses were approved by the board. On our part, we can assure that we will do our best to stick to our offers.

You have joined Coal India Limited (CIL) at a crucial time, can you outline your priorities?
To step up production, of course. Dispatch and environmental issues need to be sorted out. We also have to work more closely with the Railways.

We need to liquidate our coal stock of about 71 million tonnes (MT) but infrastructure is a major issue. We have to see how we can step up evacuation of coal from the current level of 6 MT. Our targeted production this fiscal is 464 MT, while the dispatch target is 470 MT, which includes some of our coal stock. To do this, we need a bit of micro planning in logistics, contractors and rake availability.

If new FSAs are signed, you’d need to increase production by 70 MT. Do you think this is achievable with the production target that you have set?
Our assessment is that the requirement would be close to 100 MT. We are expecting to supply about 35 MT to the power sector from our production. So there will be a shortage. There’s a question mark over how we are going to meet that. Import is one possible option.

Last year, CIL failed to find takers among power producers for long-term coal off-take agreements. Do you have a separate strategy in place this time around?
The earlier offer was for long-term deals over a 10-year period. These kinds of long-term deals can be advantageous or disadvantageous depending on many international factors — including prices, freight rates and foreign exchange. Given the volatile factors, prospective consumers may have been unwilling to make a commitment.

I don’t think we may look at that kind of a long-term arrangement now. If we are going to supplement coal supplies to the power sector, it would be on a year-on-year basis — not even on a medium-term basis.

Even if you import, what if power companies want coal supplies delivered at the plants?
As I said, a year-on-year deal can be an option for imports. Whether we do it ourselves or bank on some central public sector undertaking (PSU) that already has expertise in the sector is something we will have to look into. Since a PSU dealing with coal imports will already know the business, it can have a back-to-back arrangement with power companies and we can facilitate it. At this stage, this is a possible idea, but we can look into it only if clients are willing.

If at all we go into that arrangement, we would adopt a hands-free approach. At present, FSAs are yet to be signed. After signing FSAs, imports will come into the picture and we will then be able to assess the shortfall. The question on the views of power companies regarding this proposal will only arise once FSAs are signed.

Is a price increase under consideration at this point in time? Will there be a rollback of the gross calorific value (GCV) system?
We will look into the issue of price rise only after coming out with the financial results. The nine-month impact of the National Coal Wage Agreement (NCWA) IX will have to be factored in. I can’t say when it will happen but prices have to be adjusted from time to time.

The government has notified the GCV system, so I don’t think there will be a rollback. There should be no difference between GCV and useful heat value (UHV) systems, it is only a notification. There may be some issues related to the grading and quality but GCV per se cannot be an objectionable thing.

Last year, CIL failed to meet the production target even after revising it a few times. What are your constraints and how do you plan to increase production?
We are optimistic about our targets. We will clear critical stumbling blocks like rehabilitation and resettlement (R&R) hiccups and departmental works will also have to be improved. I don’t think we can do much more than this in the remaining 10 months. But in the long run, we will invest more on infrastructure facilities. Our capital investment for the next five years is around Rs 32,000 crore.

We will invest more on railway lines and will speed up the three rail projects in the pipeline in Jharkhand, Chhattisgarh and Odisha, which will see a total investment of about Rs 2,000 crore. These projects include the Tori-Shivapur-Hazaribagh line in Jharkhand that is about a 100 km, Mand-Raigad in Chhattisgarh and another 100-120 km railway line between Bhupdevapur and Manoharpur in Talcher, Odisha. If these three projects are implemented, we will be able to evacuate 50 MT through each of these projects.

Do you think environmental concerns are going to become a constraint? How are you going to tackle it?
We are taking more proactive steps and will get in touch with all stakeholders like the environment ministry, state governments, district administration and the locals so that it doesn’t become a major stumbling block. All I can say is we are hopeful of getting the clearances for pending projects. About 70 projects need to be cleared that have a capacity of about 196 MT. Some of these have evacuation problems. So, even if the clearances are in place we may or may not be able to take it forward.

CIL was unsuccessful in overseas acquisitions. Even the Mozambique project is yet to take off. What are the primary issues?
We are not a private company so we can’t take big decisions quickly. They have to go through a process. The government-to-government route is much easier. But that, too, has its own set of problems. For example, working in a foreign territory where there is no expertise, you have to get technology from outside.

On acquisitions, we have to look at properties that can be completely owned by Coal India. And for that, we should look at some African and Southeast Asian countries, rather the developed world.