New Delhi | August 24, 2016:

The Indian Railways has notified 8-14 per cent increase in freight rates for coal moved between 100 km and 700 km. However, for more than 700 km, freight rates have been cut by up to 13 per cent.

It would also levy coal terminal surcharge at Rs 55 a tonne for loading and unloading for distances beyond 100 km. The cut in long-distance coal freight rate may bring more coal traffic to the railways. The effective increase in freight, including coal terminal charges, could be 25-30 per cent. “The move is expected to bring additional revenue of Rs 1,000 crore to the railways,” said an official.

Coal accounts for almost 50 per cent of Indian Railways’ freight basket. The commodity accounted for 552 million tonnes (mt) of the total originating loading in the last financial year. The railways has been struggling to stem the decline in freight and passenger revenues. It has seen a 7.74 per cent fall in freight earnings in July, compared with the year-ago period.

The freight increase is likely to have an inflationary impact. Consumer prices rose at a faster-than-expected rate of 6.07 per cent last month, compared with the June 2016 level of 5.77 per cent.

This comes after hikes in clean energy cess and coal prices. It will further increase end-user power cost, said Lalit Jain, group chief commercial officer, Hindustan Power.

“The inability to pass such tariff shall further deteriorate financial condition of distribution companies and power generators.” Jain added.

Private power producers, however, would have to pay a higher price as they mostly depend on coal supply from Coal India and not captive mines. “With an increase in the railways freight, energy tariff from coal based power plants will increase by 8-10 paise/ kWh (unit),” said Jain of Hindustan Power. “The railways need more investment but the burden of the same should be shared by everyone. Imposing all burden on stressed power sector could have been avoided.”

Analysts said since most users are now trying to procure coal from close by, companies in power, steel and cement sectors are likely to be impacted the most. However, the cost increase on per tonne coal is not too steep.

For power industry, analyst Sachin Mehta of Centrum Broking is not much concerned. Mehta said the cost increments will be a pass-through for power sector. For cement, the increase in freight for the manufacturers, who source coal from distances between 200 km and 700 km may see cost rise of Rs 10-15 a tonne.

As far as coal terminal charge (CTS) is concerned, analysts say overall costs can increase by as much as Rs 30 a tonne. However, cement players use a mix of petcoke and coal to meet their fuel and power requirements. Hence, the actual cost increase will be lower than Rs 30 a tonne. At these levels too, it works out to be maximum hike of Rs 1.50 per 50-kg cement bag.

Looking at the high energy requirements by both ferrous and non-ferrous players, Goutam Chakraborty of Emkay Global said it may be marginally negative. Nevertheless, the impact on individual manufacturers may be different and cannot be quantified now, said Chakraborty. Also, the fact remains that many producers have their captive mines and many production facilities are also in 200 km range, which means not much rise in costs. Thus, overall impact may not be too steep. Major metal players like Tata Steel, JSW Steel and Hindalco closed about half a per cent lower on the bourses on Tuesday and it was only Vedanta that saw 1.3 per cent correction.

Motilal Oswal research analyst Sanjay Jain said “After the reallocation of coal mines, distances from mines to plants have reduced considerably in several cases. Due to this, the overall impact on the metals sector (base metals and steel) would not be very huge.” He, however, refrained from quantifying the impact on the sector.

JSW Steel’s Group Financial Officer Seshagiri Rao said, “We had plans to lower the already high logistics cost in order to maintain our operating profits. With a huge hike on coal freight now, our entire math regarding cost curtailment has gone for a toss. This will put a lot of burden on the industry.”

“We are trying to lower road movement and maximise rail movement. Railway sidings are already in place at our new Mahan and Aditya plants. We plan to have such sidings at the old facilities (Hirakud and Renukoot) as well,” said Satish Pai, managing director, Hindalco.

In case of power, pithead coal-based power plants, mainly run by state-owned NTPC Ltd, would reap benefit for falling in the perimeter of less than 100 km. Similarly, far-away power plants in the east and northern regions sourcing coal from blocks beyond 700 km would see a decrease in their fuel sourcing cost.

A senior NTPC official said the move was aimed at creating a level-cost field for power plants, irrespective of their distance from the coal fields. “We are working out the finer details. But prima facie, there is no negative impact on the fuel cost. It actually benefits far-away plants, whose fuel sourcing cost would now be on the same lines as the pithead plants,” he said.

According to a release by Indian Railways, the percentage reduction in freight rates for distance between 1,501 and 2,000 km is likely to be in the range of 4 per cent and 13 per cent, while beyond 2,000 km the reduction is likely to be in the range of 9-15 per cent. The last hike in coal freight rates happened in 2015-16 Budget, when rates were hiked 6.3 per cent.

(Source: http://www.business-standard.com/)