Speaking to reporters here today , CIL Chairman and managing director Partha S Bhattacharyya pointed out that coal prices have not been revised since 2004 and with costs increasing, the PSU’s profits have taken a hit. Coal India’s pre-tax profit is expected to decline from Rs 8676.72 crore in 2005-06 to Rs 8212.69 crore in 2006-07.

Bhattacharyya noted that the lower profits in the just completed financial year are primarily the result of “of non-revision in coal prices because of which the inflationary impact on costs remained uncovered”. The drop is also partly due to the “imposition of a stay by the Supreme Court on the e-marketing of coal”, he added.

Coal prices have a pronounced impact on the price level through their direct impact on power tariffs, which in turn have a significant indirect impact on prices of other commodities. CIL has almost a total monopoly on the supply of coal in India. Since the pricing of coal has been decontrolled, the company is entitled to decide independently the timing and quantum of any price revision. Bhattacharyya assured that the company would take any price hike decision very carefully, keeping in mind the overall impact it would have on the economy but made it clear that the current price line cannot be held too long. Coal India has carried out some internal calculations on the necessary and feasible quantum of price increase.

The CMD added that rating agency Crisil, which has given the company an “AAA rating” on its financial performance, has already “flagged this issue”. One of the crucial reasons why CIL has to take a quick decision on a coal price increase is that it contributes to the government’s coffers in a big way by way of taxes and dividends. Out of the estimated 2006-07 pre-tax profit of Rs 8212.69 crore, as much as Rs 4979.45 crore would go towards taxes and dividends.

Therefore, even a small drop in Coal India’s profits does considerable damage to the PSU’s contribution to government finances.

Asked if CIL would consider reducing coal prices in view of the current inflationary trend in the economy, as even its reduced profit was quite a substantial amount, Bhattacharyya categorically ruled out such a possibility. He had to keep the company’s interests in mind, the CMD pointed out.