Coal producers at home will have to struggle hard to cut production cost so as to remain competitive against foreign suppliers, say experts
By Sai Nikesh
International coal prices have declined to a 12-year-low as a result of weak global demand and the ongoing economic slowdown. The fall in coal prices is being attributed to rise in coal exports from Australia and sharp fall in demand from major importers like the United States, India, and China.
Although India is the net importer of the mineral fuel, falling global prices are likely to hit the India’s domestic coal production, say experts. In case of continuous fall, Indian coal producers, mainly the government-owned Coal India Ltd (CIL), will have to struggle hard to cut their production cost so as to remain competitive against foreign suppliers.
“Fall in coal prices in the international market is a threat to Indian coal industry, particularly in public sector. The only solution is to improve productivity as per the Australian standards i.e., nearly 100 tonne/ man shift from the present 2-3 tonne/man shift. This will ultimately result in low cost of production and competition to international prices,” M S Venkata Ramayya, General Manager, The Singareni Collieries Company Ltd (SCCL), senior Vice-President of Coal Mines Officer’s Association Of India (CMOAI).
Meanwhile, Rajiv Agrawal, Secretary, Indian Captive Power Producers Association (ICPPA) informed that the Indian government is already making efforts to increase coal prices, despite the fall in international market.
“The government is planning to cancel all coal linkages excluding those meant for Independent Power Producers (IPPs) and put all the cancelled linkages, Coal India future production for auction, which will automatically lead to price rise,” he said.
Government also has the plans to auction approximately 10 million tines of coal for IPP, which means that the cost of power will go up. If government allows auction, the global competition of India as a country will be severely hampered, he noted.
Agrawal further informed that “there is already a 30% shortage in terms of quantity and because of shortfall in demand & supply, the entire coal block options are showing quotations that are in parity with the import landed price.”
Governments across the world are supporting the industry in such a way that their cost of production is minimized, he said, citing examples of China which gives up to $200 subsidy to aluminium industry, for which 40-60% input cost is coal-based power.
While Indian coal price is approximately $16/tonne, it is $8/tonne in case of China. “If the government goes ahead with linkage option, the basic energy price for India will be prohibitive. And, this is the right time the Indian government should make efforts to reduce production cost, keeping in view the fact that it has a very little control over the price of petroleum as 80% of the product is imported,” Agrawal added.
This article was published in The Dollar Business on August 19, 2015