Coal India to Hike Prices by 11% to Cover Cost Spike

Coal India
by 5paisa Research Team 12/09/2021

In what promises to have cascading inflationary impact on the economy, Coal India is looking to hike coal prices by 10-11%. The chairman, Mr. Pramod Agarwal, confirmed that the need to hike prices had been felt in internal discussions and there was almost a consensus on the subject. However, since the government is the majority owner of Coal India, the final decision will vest on the government.

The current average regulated price of coal is Rs.1,394 per tonne. The last price revision had happened in 2018. However, Coal India management  admitted that costs had spiralled on a variety of fronts in the last two years making a strong case for a hike in the price of coal. However, the bigger issue is the wage revision that is due shortly.

In the last wage agreement signed with the employees, Coal India had give a hike of 20% to its employees. The wage revision will again become due this year and this price hike is meant to compensate CIL for that. Coal India has an annual wage bill of Rs.37,000 crore and the wage revision that is due from July will cost the company another Rs.10,000 crore. All these factors need to be compensated for.

The big challenge is the inflationary impact. It is estimated that a 10% spike in coal prices will increase the power cost by 30 paisa per unit. That could have a downstream cascading effect. That would be the contentious issue at a time when the RBI is trying hard to hold inflation under 6%.

The real reason for CIL looking to hike prices is the sharp in global coal prices. This reduces the advantage for most power companies to import coal from other countries. Even with a hiked price, Indian coal can still be competitive. That is what is driving CIL to urge the government for a price hike.

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