Coal Insights, September 2014

4 Coal Insights, September 2014

COnTEnTs

24 | CovER StoRyNot keen to open up coal to private sector yet: GoyalOptions are open, but time is not ripe, feels India’s new coal and power minister.

41 | INtERvIEW‘Indian Steel industry to see huge coking coal demand’The Indian steel sector is poised for good growth and will entail huge consumption of met coal, says Arti Lunia.

22 | SPECIAL FEAtUREIs pooled price mechanism a workable solution in current scenario?There is a need to correct the pricing system first, says N C Jha.

37 | INtERvIEW Should acquire some plants by March 2015: NtPCPlants that have achieved financial closure and are ready will be considered, says chairman.

49 | IN FoCUSSupreme Court verdict jolts India Inc. There is a lull after the storm as the captive block allocattees stand to lose their blocks and investments.

6 Spot steam coal prices ease in September

8 Coking coal prices slightly up in September

10 Coal India’s August production up 9% y-o-y

12 E-auction volume cut fails to augment power sector supplies

14 Indian power sector’s August capacity addition at 3,320 MW

18 India’s cement production falls 1.35% in July m-o-m

20 Is govt laying out concrete road map to ease cement woes?

47 ‘Bring structural changes, re-do processes to India’s coal woes’

49 US coal consumption to grow 2% to 943 MMst: EIA

50 Mozambique: A mine of opportunities

52 Will wagon procurement solve CIL’s supply issues?

53 Railways’ coal handling up 1.21% m-o-m in Aug

54 Coal handling by major ports at 6.81 mt in August

55 E-auction

56 Port data


COvER sTORy

Not keen to open up coal to private sector yet: Goyal

In the words of Piyush Goyal himself, when he assumed charge as the Minister for Coal, Power & Renewable Energy, it

was baptism by fire. As he got into the nitty-gritty of his portfolio, he realised that the issues he inherited were far more challenging than they had seemed when he sat in the Opposition bench, the problems much deeper than he had anticipated!

Almost each state has its own share of woes with some incurring annual transmission and distribution losses that ran into `10,000-15,000 crore! States are facing power outages, while the financial health of discoms is weak, generation is low and the T&D system has not been made strong enough. Even people in the national capital region suffer from power shortage.

In renewable energy, things are not too bright either though wind and solar have huge potential, because accelerated depreciation, a kind of fiscal incentive, was withdrawn while a cloud of uncertainty hung over the imposition of an anti-dumping duty in the solar power sector.

The country’s coal production has hardly grown, leading to a supply crisis that has put a question mark on the survival of many power stations. There is a stark lack of logistics infrastructure for transporting coal to the power plants.

In terms of environmental clearances, because of the “Go” and “No-Go” areas scheme unveiled in 2010, almost the country’s entire coal mining exercise had come to a halt. When it was removed in 2012, another provision was brought in, in the form of environmental clearances. Till date it has not been clarified what are environmental areas!

The only silver lining is that coal imports have remained stagnant, underpinning the

Coal Insights, September 2014 25

COvER sTORy

Excerpts:

24x7 power did not happen in the last 10 years of the UPA government and in 2012 we had a major blackout. Now, you yourself have said the state electricity boards (SEBs) have problems. So what makes you so sure that this will be possible in the next five years?

As far as state electricity boards are concerned, we have certainly inherited a legacy of `300,000 crore of losses and to which `60,000-70,000 crore are being added every year.

A financial restructuring plan (FRP) for SEBs was finalised in March or April of 2012, but implementation of the same was done in October 2013. However, I found that the FRP fell short of the requirements at that point in time. By the time it was implemented the losses mounted and in any case the plan did not have any element of interest subsidy or relief whatsoever. It was just a substitution of the short-term loan with additional long term loan.

I think that is an issue we would like to discuss bilaterally with the states and they are willing to come on board and look at reforms. Based on the FRP, a model law has been proposed which each of the seven states incurring major losses will implement. If they had implemented the model guidelines, at least the current losses could have been reduced.

I will hold dialogues with three or four states very shortly. We are in continuous dialogues to work out an integrated plan on how we can draw up a roadmap to provide power to everybody. It is the responsibility of the government, whether at the state or Central level, to ensure quality power to the people and only then we will be able to clean up some of the past mess.

You said one of the reasons for low coal supply is the delayed monsoon. However, in the last few months we have seen over 50 power plants with less than seven days of coal stocks. Would you agree that there is a coal and power crisis in the country?

There is no delayed coal supply. There is no low coal supply either as you have tried to attribute to the situation. Actually, there has been materialisation of coal as per the plan

and this has been happening during the last few years.

However, the fact that coal production has not increased is a reality, which I have inherited. I cannot increase coal production in 100 days to the extent we require. We still import 170 million tons (mt).

But the fact is that by using the coal available both in stocks and supplied in the current period, we have increased electricity supply by 21.5- 22 percent, and this is only coal-based power. However, the supply of coal has gone up by only 5-6 percent. The stocks are bound to fall because we have used the stocks for power generation.

We are getting rainfall in greater measure and coal supply is continuing to grow as we are working hard for it. We will be able to recoup some of these stocks. During this period the increase in coal-based power generation is on the basis of indigenous coal. Imported coal supplies have remained stagnant over the last three months.

Maharashtra’s elections are knocking at the door. Many from the state’s sugar belt have submitted their projects on bagasse-fired power plants but there are clearance roadblocks due to policy-related issues. Are you thinking of improving such policies?

As you know, the sugar belts suffer from scarcity in gas. The gas quantum available in the country has fallen so much that it is not available to the installed gas-based power plants. And this is a problem we inherited.

There is no question of giving permission for new plants based on gas, but if your are talking about bagasse-based plants we have installed a 41-MW bagasse-based power plant in the last 100 days. During the same period of the previous financial year, we had not added even a single mega-watt of bagasse-based power plant. So, we have started working on this matter. But, there are CERC-related issues and I expect that this (CERC), being an autonomous body, will give a quick verdict so that there will be acceleration in setting up of bagasse-based power plants.

You mentioned in your speech that usage of peak-hour gas lines will be increased but there is a lack of indigenous gas. So how are

fact that coal materialisation is taking place as per plan!

However, he was quick to point out that, in the last three months, since the new government took charge, in June, July and August, coal-fired power generation went up 20.8 percent, 20.8 percent and 22.6 percent respectively. Average of these three months of coal-fired power generation under the new government was 21.4 percent compared to the corresponding period of the previous year, this being a record in itself.

Last year, the growth of coal-fired power generation in the same months stood at 3.5 percent, 5.5 percent and 5.5 percent. In 2012, the growth was 17 percent, 11 percent and 11 percent. In 2011 it was 7 percent, 10 percent and 5 percent.

Addressing logistics bottlenecks, Goyal has activated three critical railways in mission mode. Simultaneously CIL will invest `5,000 crore and buy 250 rakes whereas today it gets only 200 rakes a day. All such moves are aimed at achieving the long-term goal of 1 billion tons of coal in 2019 and ensuring that the Ministry of Coal will not be dependent on the Ministry of Railways for transporting coal.

And to replace plants older than 25 years, which are not fit in terms of environment, the new government has assessed a new policy of automatic transfer of clearance of coal linkages. With this, older plants, producing around 32,000-35,000 MW of power, can be replaced with modern, super-critical plants.

The minister, to mark the end of 100 days of the Narendra Modi-led BJP government in office, met newspersons to lay bare his combined ministries’ blueprint for the future, upholding accountability as a key pre-requisite. Rakesh Dubey of Coal Insights was there.


of money will only be considered by us. Plants which do not have coal linkages would also not be considered by us.

Why would we buy a plant, if we do not have any advantage? We have not come to do any charity to anybody as that is not our job.

Of the total applications received, none are state-owned plants but beyond this I would not like to comment further.

Once the due diligence is done, it will come to the board for taking a call. We will mainly look at those plants which can be started immediately. If a plant is going to come up in four years, we will not consider it because we can set up one on our own in four years!

Also, we will not consider those plants if their cost is higher, because, for example, if we can set up a plant at about `5 crore per MW, we will not benefit by buying a plant which has a per mega-watt cost of more than `5 crore. So, it should be less than that and at the same time bring in some advantage to consumers too.

Will coal linkages be the pre-condition for acquisition?

Yes. If there is no coal, there is no point in acquiring the plant.

Many have been seeking feedback from us on the recent Supreme Court directive on captive coal blocks. We have gone through the order but not in absolute detail. However, we find that it is not adverse to NTPC at all.

But, the necessary clarifications will come from the Supreme Court…. I want to put to rest concerns with respect to NTPC that the coal mine operations will proceed, its capacity-addition and coal mining targets etc are on schedule.

Because our prices are regulated by the Central Electricity Regulatory Commission (CERC), if I pay a higher price for a plant, our cost of generation would become higher and we would have to sell the electricity at a higher price. I cannot do windfall profiteering and that is why my coal mines are safe.

What about your coal linkage for the Katwa project in West Bengal?

The West Bengal government has given

Should acquire some plants by March 2015: NTPC

Power generation behemoth NTPC, which is aiming to ramp up its capacity to 128,000 MW by 2032, is also charting out solar

energy plans to add 3,000 MW in less than two years’ time. The PSU is close to homing in on some worthwhile acquisitions and deals should be brokered by the end of the current fiscal while the controversial Katwa project in West Bengal should also see the light of day sometime in the

future, with the possibility of even a third unit in place. Rakesh Dubey of Coal Insights caught up with Arup Roy Choudhury, Chairman, NTPC, to discuss a slew of topics that included the burning issue of the day – the dynamics of coal demand and supply, its quality and imports.

Please take us through your solar energy plans.

At present, we have started very aggressively in getting into solar energy. You must have heard that we recently advertised for expressions of interest (EoI) from domestic solar manufacturers to install 1,000 MW of solar power. We are talking to states like Andhra Pradesh, Madhya Pradesh and Rajasthan, which are very keen that we set up solar parks in their states.

Very soon, you will come to know in which state we will set up a project first. We are progressing towards 3,000 MW of solar power which will happen in the next one to one and a-half years. That is as far as solar energy is concerned.

What about the inorganic growth route?

With regard to the inorganic growth route, we floated an EoI and received

34 applications, totalling about 55,000 MW. The due diligence is on for almost all and we are about to appoint a mergers and acquisitions consultant. Our board has constituted a sub-committee which is looking into the matter. We presume that by this fiscal, ie, March 2015, we should be able to pick up some power plants which are either already in operation or will soon be.

Realistically, how many plants or how much capacity can be acquired?

Around 8,000-9,000 MW. We will acquire only those plants which have financial problems. Plants which are nursing basic issues like lack of environment clearances, lack of land etc will not be considered by us.

Plants which have achieved financial closure and are ready, but are stuck at the last level of bank loans etc, where things can be made viable by investing small amounts

InTERvIEw


Power, informed BSE that “Tata Power had two coal blocks jointly allocated to it, along with other co-allocatees. We understand that the Supreme Court by its order today has cancelled all but four blocks. Tata Power would study the order and discuss the same with the board before having a viewpoint.”

The company further said that it would look forward to opportunities of having a new, legally enforceable framework by which coal blocks could be awarded, “perhaps at an early time”.

The disappointment over the outcome was apparent in user-segments such as steel, sponge iron and cement, but officials of companies that held captive blocks were tight-lipped about the development.

A notable exception was Reliance Power. In a statement issued immediately after the court’s verdict, the company said, it was happy to note that the company’s programme of developing and executing the Sasan UMPP (3,960 MW) and the Tilaiya UMPP (3,960 MW) is unaffected and remains on course. The company further noted that it has won the pit-head based UMPPs with captive coal blocks under an international competitive bidding process.

Centre, unions welcome verdictIn stark contrast to the industry, especially those losing blocks, the government at the Centre was happy that the judgment gave a body blow to elements of crony capitalism.The verdict was in accordance with the NDA government’s stand and would help it to make a “fresh start” in coal sector reforms, according to Law and Telecom Minister Ravi Shankar Prasad.

Another party that hailed the development was the trade unions of Coal India Ltd (CIL). While welcoming the judgment, the CITU-backed AICWF called for a nationwide demonstration on September 26 to demand the “immediate transfer” of 214 coal blocks to CIL.

However, this was not the case with the state governments of some mineral-rich states. In fact, a number of states such as Jharkhand, Odisha, Chhattisgarh and Madhya Pradesh, had reportedly written to the Centre (before the verdict), requesting it not to consider re-allocation of coal blocks in its suggestions to the court, as it would lead to escalation in the cost of mining.

Lull after the storm

Supreme Court verdict jolts India Inc.

Coal Insights Bureau

To many, the outcome was along expected lines. Barely a month after observing the captive coal block

allocation process as “illegal”, the Supreme Court of India, on September 24, cancelled 214 blocks of the 218 blocks allocated between 1993 and 2011. The apex court, however, spared four blocks allotted to state-owned Steel Authority of India (SAIL), NTPC and two ultra-mega power projects (UMPP) of Reliance Power, namely Sasan and Tilaiya.

All the 214 cancelled blocks may be re-auctioned by the government or allotted to central firms, the court said. For the 46 blocks which have either started production or are ready to commence so, the court gave a six months’ breathing space to wind up. The holders of these blocks, however, will have to pay a fine of `295 per ton of coal mined.

The court observed that the allocation of captive blocks by the screening committee “suffers from the vice of arbitrariness” and that “there was no transparency and it (the committee) had adopted a pick-and-choose policy”.

The verdict came as a huge blow to India’s top private and government companies. According to an estimate, the decision may impact potential investments of more than `200,000 crore in key industries such as power, steel and cement. Companies that take a hit include Jindal Steel & Power, JSW, Vedanta, Essar, NTPC, SAIL and HINDALCO, among others.

While the captive block ‘losers’ were generally reluctant to talk about the verdict and gave “guarded” reactions, a leading industry association expressed concern about the possible disruption in domestic coal supplies in the near-to-medium term.

One of the affected entities, Tata

In fOCus


situation and initiate effective steps. One such step could be “electricity tariff

rationalisation,” said T K Lahiry, chairman-cum-managing director of Bharat Coking Coal Ltd (BCCL). As part of its effort to rationalise coal linkages, the government should also go for tariff rationalisation so as to enable coast-based power plants run their operations entirely on the basis of imported coal.

As for coal block allocation, India could look at Australia and Canada to “re-do some of our processes” for giving licences, said

Indian Coal Markets Conference 2014

‘Bring structural changes, re-do processes to end India’s coal woes’

Coal Insights Bureau

Staring in the face of mounting supply gap, the Indian coal industry must bring in structural changes, remove the

known obstacles and adopt best practices in vogue in countries like Australia and Canada. These were the three-point prescriptions offered by the experts that took part in the 8th Indian Coal Markets Conference held in Kolkata on September 14-16.

Altogether, more than 300 delegates took part in the three-day proceedings. The event was organised by mjunction services limited, HIS McCloskey and the Coal Consumers’ Association of India.

In the backdrop of the NDA government’s stress on power sector expansion and the Supreme Court’s observation on coal block allocations, the industry urged the government to take a pragmatic view of the

ICMC award winners ♦ Imported Coal Trader of the Year:

Adani Enterprises Ltd ♦ Domestic Coal Trader of the Year:

Indermani Minerals India P Ltd ♦ Coal Inspection Agency of the

Year: Geo Chem Laboratories Ltd ♦ Coal Mining Contractor of the

Year: Essel Mining & Industries Ltd

♦ Coal Port Performer of the Year: Mundra Port

♦ Coal Trade Finance Bank of the Year: IDBI Bank

♦ Coal Transporter of the Year: KCT Coal Sales Ltd

EvEnTs

Tear

alo

ng th

e do

tted

line

Tear

alo

ng th

e do

tted

line

Coal Insights, September 201458

Documents

Coal Insights, September 2014