The coal ministry has prepared a road map for phasing out of the lucrative e-auction route for Coal India (CIL), a move that is likely to adversely impact the company's bottomline and its valuation ahead of a proposed stake sale.
Sources said that CIL has already been directed to reduce quantity of e-auction coal to a mere 26 million tonne in 2014-15, a fall of over 55% from 58 mt it sold under the route last year. The company may need to keep the e-auction of coal at 5% of its total production in subsequent years. Depending on the fuel availability situation, the company could be told to further reduce this quantity with possibility of completing eliminating e-auction of coal once domestic prices are aligned with international prices.
“The intention is that fuel needs of maximum number of power projects are met first before any other route is explored to sell coal,” said an official.
The situation on fuel availability for power projects has already reached critical stage this year. Of the 100 coal-based power plants monitored by Central Electricity Authority (CEA), about 44 plants are currently having critical coal stock of less than seven days, of which 25 power plants are having super critical coal stock of less than four days requirement.
The decision (to reduce CIL e-auction) could result in loss of earnings to the tune of R2,000 crore for CIL in 2014-15.
Depending on the decisions taken in subsequent years, the earnings could see a further fall. Already CIL’s financials are under stress with the company’s witnessing a drop in the last fiscal profit, the first such fall since the global financial crisis of 2008-09.
The move is expected to affect government’s disinvestment programme as a 10% divestment of the government equity in the company is expected to fetch close to R24,000 crore or more than one-third of R63,425 crore pegged from the disinvestment proceeds in this years Budget. With expectation of falling profitability, the company’s valuations can take a hit impacting the share sale issue.
CIL sold close to 58 million tonnes of coal, or 12.5% of its total production of 462 million tonnes, through spot e-auctions in 2013-14.
This helped the company earn revenues to the tune of about R13,000 crore. If the fuel was sold at notified prices, the earnings from the same amount of coal would have been lower by R4,000 crore.
The average price