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Mining Bill: How is Coal India going to deal with it?

Q: How is Coal India going to deal with this 26% profit sharing? Will it be difficult to implement or have you worked out some of the contours of implementation and what it could mean to your earnings?
A: We are actually looking at the details of the proposal because that is not yet very clear to us. As and when it comes, we definitely have strategies to deal with it, there should not be too much of a problem, particularly because there is a major difference between the price at which we are selling coal today and the alternative price from imported sources. So, it should not be very difficult to adjust the whole thing and make it neutral to our operations.

However, the basic understanding that we have is that it’s going to be 26% of the profit after tax in the previous year that will have to be spent in this year, which means essentially this will be tax deductible expenditure, which means net of tax impact is going to be 31-32% less. Based on the margins that we at this point of time, 26% of profits would translate into 6% of revenues which means basically a 6% price adjustment.

The second point is that we are as on date incurring a lot of expenditure on these kind of issues. We do expect that there should be provision for a set off of those expenses against this provision. If that set off is allowed then the effect is going to be marginal, it should be manageable. If the setoff is not allowed, in that case we definitely require price revision. I don’t see any reason why we shouldn’t be able to enforce that.

Q: That is a fair summary of the situation that you may be able to raise prices by 5-6% and mitigate the impact of this, will you do that will you be able to do that, raise realisations by 5%?
A: Yes that is right

Q: So you have every intention of doing that?

A: No, not unnecessarily, certainly not. We have built credibility at the last ten years of deregulation; I don’t want to play with that. But if this comes up and we have to mitigate the impact then price revision would be justified.

Q: What your minority shareholders would want to know is that you are saying this move will eventually be margin neutral for Coal India, if 26% has to be given up, you can raise prices and mitigate the impact and your margins will not be diluted, is that what you are saying?

A: That is what I am saying in the worst case scenario. In a scenario where I am allowed a set off of the expenses that I am now incurring on those issues, basically looking at the social impact and all, for the society whatever we do, in that case the impact will be even less. If it is very marginal then we may not increase prices on this account.

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