CIL drops plans to enter shipping business
State-run Coal India Ltd has dropped its plan to enter the shipping business because of lack of demand for the fuel imported by the miner.
State-run Coal India Ltd (CIL) has dropped its plan to enter the shipping business because of lack of demand for the fuel imported by the miner.
Coal India, the world’s largest coal miner, had planned to form a partnership with Shipping Corp. of India Ltd to import coal.
“Since there hasn’t been much demand for coal to be imported by us, the shipping plans are on the back burner," a top Coal India executive said, requesting anonymity.
The development comes at a time when Coal India mined around 462.5 mt against the production target of 482 mt in the last fiscal year because of muted demand for the fuel on account of unwillingness of state electricity boards (SEBs) to buy enough power.
The production target for 2014-15 has been fixed at 507 mt.
The coal miner had earlier also decided to drop its plans for an entry into fertilizers. It had planned to revive the Talcher unit of the Fertiliser Corp. of India involving an investment of around ₹ 8,000 crore.
“Our final decision on the fertilizer plans will depend on the detailed project report which is yet to be finalized. We will evaluate the project on its merits," said the Coal India executive.
According to the memorandum of understanding signed in September 2013 by Fertiliser Corp. with Coal India, GAIL India Ltd and Rashtriya Chemicals and Fertilizers Ltd, Coal India was to supply around 5 mt per annum of coal for the project.
Demand for coal in India is expected to rise from 649 mt a year now to 730 mt a year in 2016-17, but projected availability is only 550 mt a year.
Coal requirement is estimated to hit 850 mt a year by the end of the 13th five-year plan (2017-22).
However, analysts remain hopeful about the state-run miner’s prospects.
UBS Global Equity Research in a 17 April report wrote, “Although CIL has shown moderating production growth, with a 2.8% CARG (compound annual growth rate) over FY09-14, this has not always been the case. CIL’s had a production CAGR of 5.7% in FY04-09. There are expectations of more clarity and stability on policy matters and a more conducive environment following the general elections, that would help CIL return to higher-trajectory growth in production and better pricing (due to a pick-up in the investment cycle)."
The report further said, “We project a sales CAGR of 4.6% over FY14-17, taking total off take from 472 mt to 540 mt, which we believe is reasonable."
The power sector is the biggest consumer of coal, absorbing 78% of local production. India’s bid to boost coal production has been hit by delayed and more stringent environmental approval processes.
The process of allotting mines is also being questioned following allegations of preferential treatment and corruption, including during the period when Prime Minister Manmohan Singh was coal minister.
Coal will continue to be the mainstay of India’s energy mix.
“India has strong structural demand for coal, given the country’s reliance on thermal power. We expect thermal coal-based power capacity to rise from an estimated 123GW at end-FY13 to around 150GW by FY16," the UBS report said.
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