Online auction showers Coal India with profit

Friday, 24 Jun 2011

Online auction was introduced by the government five years back as a tool to help coal consumers in the small non-core sector, has turned out to be a cushion for the largest coal producer in the world against flat production.

The contribution of spot sales of coal or e-auction, to Coal India’s overall revenues has seen a sharp rise from 11.9% in 2007-08 to 17.5% last financial year, even as its contribution to overall volume of coal sold remained stagnant at 10% over the four year period. This is a result of an over 37% jump in the average sale price at e auction from INR 1,346 a tonne to INR 1,846 during the same period. Thanks to the historic coal shortages, which marked this phase, forcing buyers to opt for the costly e-auction coal

In the last financial year (2010-11), Coal India sold coal through e-auction at a premium of a whopping 81 per cent over the average notified price of INR 920 a tonne. E-auction coal had fetched at a premium of 63% over the same average notified price in 2009-10.

The company contributes over 80% of India's domestic coal production of 530 million tonnes annually. While its production remained flat at 431 million tonnes last financial year, the company posted a 12.9% jump in net profit in 2010-11 at INR 10,867 crore owing to higher realisation from selling coal at market price. E-auction accounted for INR 8,810 crore or 17.5% of overall sales of INR 50,233 crore.

Experts believe with shortages in coal availability unlikely to subside soon, the boost to Coal India’s profitability as a result of increased realisation from e-auction sales is here to stay. Mr Kuljit Singh partner at accounting and consultancy firm Ernst & Young said that "This is a challenging situation because increased e-auction prices are a result of the current supply deficit created by the delay on the part of the government to sort out critical issues surrounding the coal sector in India. In a strange fashion, therefore, e-auction route has ended up boosting profitability despite reports of supply shortfalls under the linkage route.”

He said the trend has likely to continue in the short to medium term as developing a new coal mine takes five-seven years in India.

(sourced from BS)