India: CIL’s sales via FSA route fall 7% y-o-y in FY ’21

Coal India Ltd (CIL) has witnessed a fall in coal volumes dispatched via the fuel supply agreement (FSA) route at the expense of higher sales seen in the auctions.

In the present difficult market conditions, sales via the FSA route decreased 7% year-on-year (y-o-y) to 466.39 million tonnes (mn t) in FY ’21 compared to 501.03 mn t in FY ’20, in tandem with the country’s overall coal demand which was affected by the subdued electricity generation.

It is pertinent to note that CIL carries out coal supply via two modes- FSA and e-auctions, amongst which the former has a major share in the total sales volume.

However, sales via auctions, which is a costly mode of coal procurement compared to the FSA route, gained traction during FY ’21 due to the concession in coal prices provided by the company.

In order to relieve customers of their financial burden, the company had scrapped the upper cap on the notified coal price for the first half of FY ’21 (Apr-Sept ’20) which brought about a reduction in the reserve price for these auctions. It was only in Oct ’20 that CIL asked its subsidiaries to resort to the older regime of price fixation.

The move prompted buyers to procure their short-term coal requirements via auctions at a considerably lower price instead of booking bulk volumes via the FSA route.

Evidently, coal was sold via auctions at a price realisation of INR 1,568/t during FY ’21 against a price disparity of INR 189/t over the FSA price of INR 1,379/t. In contrast, the price disparity between these two modes of sales was INR 762/t in the previous fiscal.

Outlook

Encouraged by the government’s mandate to promote usage of domestic coal , CIL has taken several steps to substitute the imported version with domestic. Besides, resumption of linkage auctions for non-power customers is likely to provide the company with new supply contracts and bolster its FSA sales.

Moreover, elevated coal prices in global markets have also increased bid prices in auctions which is expected to re-ignite the appetite for coal via the FSA route.

Early signs have been encouraging for the company which has registered an improved coal demand, driven by a comparatively better power generation as it looks to cut excess inventories.