November 25, 2021 - Coal India, the world’s largest producer of the fuel, said rising costs mean it’s “inevitable” that it will be forced to hike prices of supplies in long-term deals to protect profitability.
The state-run company is facing pressure from high diesel prices and an increase in salaries of employees due retroactively from July. The higher costs threaten to eat into investor returns and potentially hinder its investment in mines and logistics infrastructure.
The “coal-price increase is something where we have to bring all stakeholders on board. That process is on,” Chairman Pramod Agrawal said on a conference call, adding the recent coal crisis delayed the plan. “Everybody understands that we have reached a point where coal price increase has become inevitable.”
The Kolkata-based miner consumes almost 1.3-billion liters of diesel annually to run its operations, Finance Director Samiran Dutta said on the call. Profit for the quarter ended September missed expectations, partly due to higher costs including a provision for the salary increase.
Coal India last raised prices in 2018. The fuel accounts for nearly 70% of the nation’s electricity generation, so the impact of higher prices can resonate through the economy.
The company’s shares are up about 17% this year, on course for their first annual gain since 2014. Expectations of a price increase and prospects of coal continuing to be a dominant energy source in India despite climate challenges have boosted investors’ sentiment.
Despite a recent spurt in demand for coal, the miner is cautious over longer-term plans. It has pushed back a plan to reach one-billion tons of annual output by a year and is now targeting that milestone by the year ending March 2025, provided there’s enough demand, Agrawal said.
“We can’t produce coal and keep it,” he said.