Coal India says higher revenue to offset wage hike

Monday, Jan02, 2012

(Reuters) - Coal India, the world's largest coal miner, hopes a revision in its pricing method will boost revenue and help offset the impact of a likely wage increase in the near term, its chairman said on Monday.

The state-run company last week decided to benchmark the pricing for non-coking coal to gross calorific value from the current useful heat value based gradation, a move that could push up costs for cement and steel makers.

"I am not looking for any price hike," N.C. Jha told Reuters. "I expect some additional revenues might come which could offset the additional wage cost that is likely to come."

The company prices coal about two-thirds lower than global prices, in part because of comparatively low quality coal.

Despite the change in pricing method, it will continue to offer between 25 to 77 percent discount to power sector customers, and 25 to 66 percent discount to others, Jha said.

Coal India will study the new mechanism for three months before adopting it, he said.

"Under a best case, Coal India's Q4FY12 (March quarter)earnings could see 8 to 10 percent upside," brokerage Religare estimated in a note to clients, adding the power sector would feel "neglible" impact, while cement and steel customers could face some cost increases.

The miner, based in the eastern city of Kolkata, accounts for nearly 80 percent of the coal output in Asia's third-largest economy, but it has been unable to meet growing demand from customers due to delays in environmental clearances at some mines.

It raised prices last February for some customers, resulting in additional revenue of about $1.4 billion annually.

WAGE NEGOTIATIONS

Coal India has been in negotiations with five recognised unions, which represent most of its 300,000 workers, for a new wage agreement. A new round of talks is set to start on January 10.

Anticipating a higher wage bill, the company made a provision of 7.5 billion rupees in the September quarter, and will make an equal provision in the December quarter, Jha said.

"If the unions agree, we could see some movement (on wage increase) this month," he said.

The government, which raised $3.4 billion from the company in 2010 in the country's largest IPO ever, owns 90 percent of the miner.

The company is interested in acquiring assets in Australia, Indonesia, South Africa and the United States and is talks with unlisted companies, Jha said, without identifying them.

Shares in Coal India, the country's fourth-most valuable company at about $36 billion, were trading 3.2 percent higher in a flat Mumbai market.