India to Urge State Coal Miner to Cap Prices, Absorb Wage Costs

Coal India Ltd. (COAL), the world’s biggest producer of the fuel, will be urged to maintain prices even if the company agrees to a wage increase next week, Coal Minister Sriprakash Jaiswal said.

The government will ask Coal India to absorb costs as the company prepares to meet unions on Jan. 27 and 28 to discuss a 25 percent increase in salaries, Jaiswal said yesterday in New Delhi. Coal India, which decided to grade coal on the basis of its gross calorific value starting Jan. 1, will be asked to keep prices unchanged, he said.

“If the minister says prices will remain almost unchanged after the new grading system, it is disappointing news,” said Rahul Jain, an analyst with RBS Equities India in Mumbai. “The general feeling is that Coal India can absorb the wage increase because there is an embedded price increase in the gross calorific value based grading.”

India’s power companies are facing higher raw material costs because of a local shortage of coal and rising prices of the fuel globally. The profit margins of utilities, including Reliance Power Ltd. (RPWR) JSW Energy Ltd. (JSW) and Adani Power Ltd. (ADANI), are being eroded as they need to import the fuel, while charging government-set retail power prices.

Shares of state-owned Coal India fell 3.4 percent, the most in a month, to 339.80 rupees in Mumbai yesterday. The benchmark Sensitive Index fell 0.1 percent.

Ensuring an Increase

“We will try to ensure Coal India will absorb the wage increase and keep prices unchanged,” Jaiswal told reporters in New Delhi yesterday. “We will have a meeting on Jan. 20 to see what impact the gross calorific value-based grading system has on prices.”

Coal India Chairman N.C. Jha and Director Personnel R. Mohan Das could not be reached yesterday on their cell phones.

Reliance Power Chairman Anil Ambani, JSW Energy Chairman Sajjan Jindal and Adani Power Chairman Gautam Adani are among executives who sought additional coal output at a meeting with Planning Commission member B.K. Chaturvedi in New Delhi yesterday, said Ashok Khurana, director general of the Association of Power Producers.

Coal India is close to granting a 25 percent increase in wages to non-executive workers for a five-year period starting July 1, 2011, Mohan Das said on Jan. 13. The company will hold a meeting with trade unions on Jan 27 and Jan. 28 to make a final decision.

A wage agreement would reduce the chance of Coal India’s unions calling for strikes and disrupting production. Wages at Coal India are revised every five years for non-executive employees and were increased by an average 24 percent in 2006 after an agreement reached in January 2009.

Output at Coal India has been hindered by heavy rains and delays in land acquisitions and environmental approvals to develop new mines.

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; Rebecca Keenan at rkeenan5@bloomberg.net

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