CIL plans to shut down 65 loss-making mines
LOW DEMAND FOR THE FUEL, DECLINING PROFITS A DRAG ON THE COMPANY’S BALANCE SHEET
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.