Nature of the Event
The company received formal communication on 21 October 2026 from WCL about a revised diesel price compensation mechanism that applies to all mining service contracts with CIL subsidiaries, including WCL and Northern Coalfields Limited (NCL).
Background and Rationale
Diesel constitutes a major cost in the company's mining operations. The existing contracts compensated diesel price changes based on retail fuel outlet prices. From 20 March 2026, bulk diesel prices rose sharply above retail prices (approximately 86% increase over pre-March 2026 levels), prompting the company to approach CIL. CIL initially changed the compensation basis from retail to bulk prices through letter No. 385 effective 20 March 2026. The interim arrangements did not fully cover the steep price rise, leading to this finalized revised mechanism through CIL letters No. 456 and No. 466.
Key Features of Revised Mechanism
- Compensation will be based on bulk diesel price actually paid, including transportation cost (not exceeding price at nearest government oil company depot)
- 100% of diesel price increase over the tender-assumed price will be compensated
- Quantity compensated will be based on standard consumption norms for work done instead of fixed contract formula
- Fortnightly payments (up to 75% of work value) introduced under interim arrangement will continue, with final settlement in monthly bill
- Applies retrospectively from 20 March 2026
- Amounts received under interim arrangements will be reconciled with revised method
- Company falls under "Case 4" of CIL letter No. 456
Contract Details Covered
The revision applies to eight mining service contracts with total value of ₹12,11,157.34 lakh (₹12,111.57 crore):
Western Coalfields Limited Contracts:
1. Sasti Expansion OCM, Ballarpur Area: LOA No. WCL/GM(CMC)/E1092727/LOA/21/2023-24/26 dated 12-09-2023, Value: ₹1,55,232.84 lakh, Period: 22-11-2023 to 23-07-2029
2. NMUG to OCM, Majri Area: LOA No. WCL/GM(CMC)/E1107770/LOA/26/2023-24/31 dated 20-09-2023, Value: ₹1,52,066.65 lakh, Period: 18-10-2023 to 16-04-2027
3. Gauri Pauni (E) OCM, Ballarpur Area: LOA No. WCL/GM(CMC)/E2055586/LOA/21/2025-26/55 dated 11-02-2026, Value: ₹1,91,226.87 lakh, Period: 01-03-2026 to 10-02-2031
4. Dhoptala New, Ballarpur Area: LOA No. WCL/GM(CMC)/E2052106/LOA/48/(2025-26)/2026-27/13 dated 28-04-2026, Value: ₹1,03,557.78 lakh, Period: 22-05-2026 to 22-05-2031
Northern Coalfields Limited Contracts:
5. Jayant Mine: LOA No. NCL/SGR/CMC/JNT/23-24/200 dated 09-09-2023, Value: ₹1,73,885.09 lakh, Period: 05-10-2023 to 18-09-2026
6. Dudhichua Mine: LOA No. NCL/CMC/OB/DCH/2025-26/283 dated 17-06-2025, Value: ₹1,46,112.38 lakh, Period: 06-08-2025 to 05-08-2029
7. Jayant OCP: LOA No. NCL/HQ/CMC/JNT/2026-27/294 dated: 19/05/2026, Value: ₹1,49,187.85 lakh, Period: 20-06-2026 to 18-09-2028
8. Dudhichua New: LOA No. NCL/HQ/CMC/DCH/2026-27/185 dated: 11/05/2026, Value: ₹1,43,888.68 lakh, Period: 18-06-2026 to 18-06-2029
Status of Implementation
- Formal communication received from WCL for contracts 1-4 on 21.10.2026
- NCL contracts (5-8) are covered under CIL's circular but formal communication from NCL is awaited
- The CIL letters are addressed to all subsidiaries of CIL, including NCL
Financial Impact Assessment
The actual financial impact depends on:
- Volume of work done
- Diesel consumption norms applicable
- Diesel prices as verified by customers
- The revision applies from 20 March 2026 retrospectively
An illustrative computation provided in Annexure B shows that under the revised method, the company would receive significantly higher compensation compared to the original contract method across various diesel price scenarios. For example, at base case bulk price of ₹125 per liter (vs tender price of ₹92), the company would receive ₹23.10 lakh compensation per month for 100,000 cubic meters of overburden removal, compared to paying ₹0.61 lakh under the original method.