ECL aims to meet 58 MT output, plans closure of six underground mines

KOLKATA: Eastern Coalfields Ltd (ECL) is confident of achieving its 58-million-tonne coal production target in the current financial year and returning to profit, even as it prepares to close six loss-making underground mines to address high legacy costs, Chairman and Managing Director Satish Jha said.

ECL, a Coal India subsidiary operating in the Raniganj coalfield, had remained profitable on a year-on-year basis and also posted a profit in the first quarter of the current fiscal, but slipped into a loss in the September quarter due to prolonged monsoon disruptions that severely impacted output.

"From June 15 to August 27, we had rainfall almost every day. It was not only the quantity of rain, but the number of rainy days that affected production to a very large extent," Jha told PTI in an interview.

The company's output growth slipped from plus 2 per cent in mid-June to minus 5.2 per cent by the end of August. "By September and October, we had almost wiped out the negative and came down to minus 0.2 per cent, but four days of cyclonic weather again pushed us back," he said.

"Nothing other than weather is the constraint. We are confident of returning to positive growth in November, provided the weather supports us," Jha added.

ECL produced about 52 million tonnes of coal last year and is targeting an additional 6 million tonnes this fiscal. To stay financially viable, the company needs to maintain a minimum monthly output of 4 million tonnes, Jha said.

"If we produce 4 million tonnes per month and above, financially we will be in the green, not in the red," he said. "We now need to produce about 30 million tonnes in the remaining months, which means around 6 million tonnes per month. We have achieved this level earlier as well," Jha said.

"If we achieve 58 million tonnes, we will definitely be in profit and better than last year, though the increase will not be proportionate to volume growth due to subdued market conditions," he added.

Elaborating on the profitability factor, Jha cautioned that higher output would not automatically translate into proportionate gains due to prevailing market conditions.

"The coal market is now buyer-driven. Customers want good quality coal at cheaper rates, so profitability will depend on demand conditions," he said.

Explaining the thin margin between profit and loss, Jha pointed to ECL's high fixed cost structure due to its legacy underground operations. Mining in the Raniganj coalfield began as early as 1774, making ECL one of the oldest coal-producing entities in the country.

"This is a very old company. We have inherited small legacy mines and large manpower in underground operations," he said. "Around 67 per cent of our cost of production goes into salary and wages, which is the highest in Coal India," the ECL CMD said.

By comparison, Coal India’s average wage cost is about 48 per cent, while newer subsidiaries operate with salary and wage costs of 20 to 25 per cent, he said. "That cost has to be incurred whether the mine runs or not," he added.

To address structural losses, ECL has identified six underground mines for closure or manpower redeployment within the current financial year.

"If losses exceed salary and wage costs, we will shift manpower and take a call to close operations. The mines have been identified, and after internal workshops, we will implement the decision this fiscal," Jha said.

ECL currently operates 80 mines, including 48 underground, 23 open cast and nine mixed mines.

To improve realisations, ECL has taken steps to enhance coal quality at key sidings such as Salanpur, Mugma and Chitra. "Salanpur is now 100 per cent compliant. Mugma is at 80 to 90 per cent. Chitra has challenges due to steeply dipping seams, which cause coal and overburden mixing," Jha said.

He said improved mining methods adopted at Salanpur would be replicated at Mugma and Chitra. "It will take some time, but quality issues will be resolved," the CMD said.

Jha also flagged evacuation and sales constraints at Rajmahal, where ECL holds its largest coal stock, with supplies largely linked to NTPC’s Kahalgaon and Farakka power plants.

"Those plants' merit order is lower compared to other NTPC stations because power generation is prioritised at units with the lowest cost," he said, adding that discussions were underway with NTPC to align pricing and efficiency.

"If we reduce prices somewhat and they improve efficiency, both the miners and the generator's interests can be matched," Jha said.

Despite the challenges, he said ECL remains focused on stabilising production, managing costs and improving quality to ensure a return to profit by the end of the financial year.