KOLKATA (miningweekly.com) - Faced with a number of problems, producer Coal India Limited (CIL) announced the deferral of its planned price rationalisation in order to cope with higher production and the liquidation of rapidly rising pithead stocks.

Rising coal production, expected to hit the 550-million-tonne mark by the end of current financial year, and a government directive to liquidate stocks would not go down well with a hike in prices at this point of time, a senior CIL official said.

While no firm decision had been taken, CIL management was engaged in developing a strategy to cope with the rising production and falling sales through a combination of aggressive pricing, higher offerings at e-auction sales, and efficient distribution to reach out to those few thermal plants which were still not receiving supplies to full volumes, he said.

Hiking prices, which CIL had considered implementing before the end of March, would definitely have to wait, as it would prove counter-productive to aggressively push offtake, he added.

The official, however, did not rule out the possibility of pruning the targeted 550-million-tonne production target, at least over the last two months of the current fiscal year, if offtake did not match production, as the government had made it clear that the miner should not get saddled with higher pit-head stocks.

Last week, Coal Minister Piyush Goyal directed CIL to sustain and achieve a 9% growth in production in the current fiscal year, and the miner would be able to do that only if it was able to manage and check its pit-head stocks currently pegged at 40-million tonnes.

In December, CIL decided that even though it would not align domestic coal prices to falling international prices, it would rationalise domestic prices based on gross calorific value (GCV) and implement the revised prices by March 2016.

According to the CIL official, studies conducted showed that several grades of coal ranging between G1 and G5 were not being priced correctly and the existing pricing regime did not sufficiently reflect the GCV and this was both against the interest of the miner as well as the consumer.

The so-called rationalisation of domestic prices based on GCV would in effect push up prices to within the range of 15% to 20%, the miner had reckoned.

But now with the government pushing for higher production growth, a price hike would only result in higher stocks at a time when user industries demand was slowing down.

Simultaneously, to ensure that offtake was maintained in tandem with rising production, CIL was even considering tweaking its fuel supply agreements with thermal power producers, under which it was mandated to give assured supplies of up to 80% of coal required by the power plants. In the revised agreements, CIL would even consider assured supplies to a 100% extent to ensure movement of stocks, the official added.