The largest coal producer in the world, Coal India Ltd (CIL) accounts for an estimated 81 per cent of India's overall coal production and meets coal requirement of nearly 76 per cent of the total thermal power generating capacity in India.
Coal India's greatest strength comes from the huge reserves it has at its disposal. At 18,863 million tonnes comprising of 10,595 million tonnes of proven reserves and 8,268 million tonnes of probable reserves, CIL is the richest coal mining company of the world in terms of reserves.
Coal India's capex plans are huge, as it plans to spend Rs 24,400 crore in capital investment for the period 2012-17. An additional amount of Rs 25,000 crore is set aside for acquisition of assets abroad and another Rs10,000 crore for development of coal block in Mozambique. The big question going around is how Coal India will finance these huge projects? The company has a cash balance of Rs 56,300 crore in FY12, which means it can manage these projects through internal sources alone.
Coal India shifted from the useful heat value (UHV) to gross calorific value (GCV) method of calculating coal prices since the last quarter of the FY12. This new method has resulted in higher realisations, however, the flipside is that the company may not increase coal prices for the next two years according to analysts covering the company.
The Government's recent actions to set in order the finances of the State Electricity Boards (SEB) is expected to benefit Coal India as SEBs have historically been the highest consumers of coal in the country. Also clearance of projects and construction of new rakes should enable to remove some bottlenecks which will aid further production.
Coal India plans to increase its production capacity from current levels of 433 million tonnes in FY12 to 615 MT by FY17, with over 60 per cent of the incremental production expected to come from brownfield expansion and ongoing projects. The remaining 40 per cent is expected to come from new mines, especially with the Government expected to clear projects at a fast pace. CIL is awaiting clearances for 149 projects from the Ministry of Environment and Forests and recently the Government has allocated 116 mines to CIL to augment its production capacity.
The Government is also trying to get CIL to commit availability of coal to the private sector either by increasing production or by importing or by paying up for the failure to supply more coal. CIL has accepted to pay the fines for the moment, which will vary depending on the percentage of contracted coal supplied. The company is ready to buck up 40 per cent of the value of coal not supplied if, for instance, the total supplies to power manufacturers falls below 50 per cent.
Coal India is the place to be if you want to invest in a pure energy company. It simply has no other peer or competition in the country. Though, imports may increase but the sheer volume of Coal India's operations will render it simply irreplaceable.