CIL plans to shut down 65 loss-mak­ing mines

LOW DE­MAND FOR THE FUEL, DE­CLIN­ING PROF­ITS A DRAG ON THE COM­PANY’S BAL­ANCE SHEET

Resource Digest - - CONTENTS -

Un­der pres­sure from low de­mand for coal, de­clin­ing prof­its and high ex­pec­ta­tions of work­ers from the on­go­ing wage ne­go­ti­a­tion, Coal In­dia Ltd (CIL) has re­vived the agenda of clos­ing down loss-mak­ing mines to cut op­er­a­tional ex­penses.

Ac­cord­ing to sources, the com­pany re­cently iden­ti­fied 65 loss­mak­ing mines for clo­sure. The ap­prox­i­mately 40,000 work­ers — roughly 13 per cent of the to­tal force of 3,09,455 — em­ployed in these mines will be re­de­ployed.

Of the 65 mines iden­ti­fied for clo­sure, 62 are un­der­ground mines spread over four min­ing sub­sidiaries — East­ern Coal­fields (ECL), Bharat Cok­ing Coal (BCCL), South East­ern Coal­fields (SECL) and Cen­tral Coal­fields (CCL). Ap­prox­i­mately 37 mines with 15,000 work­ers are ex­pected to be closed down this fis­cal.

“There is no jus­ti­fi­ca­tion to al­low these mines to be a drag on the CIL bal­ance sheet. We can save some money on ad­min­is­tra­tive costs and raw ma­te­ri­als by shut­ting down pro­duc­tion,” ex­plained a CIL of­fi­cial.

The agenda is not new. A ma­jor­ity of CIL’S 413 mines ei­ther make losses or are on ar­ti­fi­cial sup­port (like higher no­ti­fied price for coal pro­duced by West­ern Coal­fields) or make very low prof­its.

Dis­pro­por­tion­ately high man­power when com­pared to its 554 mil­lion tonnes (mt) of pro­duc­tion fur­ther adds pres­sure on the bal­ance sheet. Over 200 un­der­ground mines pro­duce just 5 per cent (31 mt) coal and are the big­gest drag on the bal­ance sheet.

CIL has been try­ing to shut these mines down for nearly two decades. The last such at­tempt was made in 2010 when 30-40 mines were lined up for clo­sure. How­ever, the plan didn’t suc­ceed due to re­sis­tance from trade unions.

For­tu­nately for CIL, the high en­ergy com­mod­ity prices and an un­prece­dented coal cri­sis in In­dia came as a breather in the last decade. Pro­duc­tion from high-cost un­der­ground mines were off-loaded in the open mar­ket, where coal was sell­ing at dou­ble the no­ti­fied price.

The melt­down in en­ergy prices in 2014 wiped out this ad­van­tage. With abun­dant sup­ply of do­mes­tic coal, low im­port prices and a gen­eral slow­down in in­dus­trial ac­tiv­ity, e-auc­tion sales can no more save the day for CIL.

The re­sult is seen in a 35 per cent de­cline in net profit in the last fis­cal, on the back of a 1.7 per cent growth in vol­ume sales. Low im­port prices limit the scope of rais­ing prices and fill­ing the gap. To add to these woes, trade unions de­manded a 50 per cent rise in salary for the five-year agree­ment start­ing July 2016.

“There is no way we can sus­tain op­er­a­tions at peren­ni­ally sick mines. And we do hope that the trade unions will ac­cept the re­al­ity,” a source said. He hopes that the trade unions will put up less re­sis­tance to mine clo­sure plans this time.

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