Long-term Coal Linkages

8/4/2019 Long-term Coal Linkages

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ONG-TERM COAL LINKAGES

LONG-TERM COAL LINKAGES During the year 2008-09, three meetings of Standing Linkage Committee (Long-term) were held. TheCommittee recommended issue of Letter of Assurance (LoA) by CIL/SCCL to various consumers, subjefurnishing of appropriate commitment guarantees.-

Name of Sector Number of LoA approved Capacity approved

Power Utilities 8 4460 MW

Captive Power Plants includingCement CPPs

28 944 MW

Independent Power Producers 35 24915 MW

Total 71 30,319 MW

COAL PRODUCTION, DISTRIBUTION AND MARKETING

COAL PRODUCTION

Through sustained programme of investment and greater thrust on application of

modern technologies, it has been possible to raise the production of coal from a level of about 70 milliontonnes at the time of nationalization of coal mines in early 1970's to 492.95 million tonnes (All India –including Meghalaya) in 2008-09.

Coal India limited and its subsidiaries are the major producers of coal. 403.73 milliontonnes of coal was produced by Coal India Ltd. and its subsidiaries during 2008-09 as against theproduction of 379.459 million tonnes in the year 2007-08 showing a growth of 6.4%.

Singareni Collieries Company Limited (SCCL) is the main source for supply of coal tosouthern region. The company produced 44.54 million tonnes of coal during 2008-09 as against 40.604million tonnes during the corresponding period last year. Small quantities of coal are also produced by

TISCO, IISCO, DVC and others.COAL DISTRIBUTION AND MARKETING

The Marketing Division of CIL coordinates marketing activities for all its subsidiarieCIL has set up Regional Sales Offices and Sub-Sales Offices at selected places in the country to cater to tneeds of the consuming sectors in various regions.

Linkage Committees

Two types of linkage committees function for deciding the long term and short term availabilicoal and distribution to the consumers belonging to Cement, Power & Steel including Sponge Iron Unit

(i) Standing Linkage Committee (Long - term)(ii) Standing Linkage Committee (Short - term)

Standing Linkage Committee (Long-term)

Standing Linkage Committee (Long-term) for Power, Cement and Sponge Iron considersrequirement of coal of consumers at the planning stage and links the requirement in the long-termperspective from a rational source after examining factors like quantity and quality required, time framlocation of the consuming plants, transport logistics, development plan for the coal mine etc.

The Long-term linkage Committee is presently being Chaired by Special Secretary, Ministry o

ttp://www.coal.nic.in/cpddoc.htm (1 of 10)6/24/2011 1:07:03 PM




Coal and has representatives from Ministry of Power, Ministry of Steel, Ministry of Commerce & IndusMinistry of Railways, Department of Shipping, Central Electricity Authority, Coal India Limited, CMPDand Singareni Collieries Company Limited (SCCL).

In addition to above there is another committee known as Standing Linkage Committee(Shorterm), an inter Ministerial Committee consisting of the representatives of Ministry of Power, CentralElectricity Authority, Railways, Department of Industrial Policy and Promotion and coal companies.This Committee allocates coal to consumers of Power and Cement Sector on quarterly basis taking iaccount coal production and logistic involved therein. The short-term linkages to power and cement

industries are granted once every quarter. SLC also takes care of mid term deviations. Coal India LimiteKolkata, decides allocation to Sponge Iron Units.

Linkages of coal to thermal power stations are allocated by Standing Linkage Committee (ST) quarterly basis keeping in view the recommendation made by the Central Electricity Authority (CEA). CEA recommendations are based on the power generation programme, ground stock withindividual power houses etc. Factors for deciding the linkages are power generation programme,availability of coal and carrying capacity of Railways as well as feasibility of movement by other mo

New Coal distribution Policy has introduced the concept of “Letter of Assurance” (LOA) , wprovides for assured supply of coal to developers, provided they meet stipulated milestones. Once milestones as stipulated in the LoA are met by the developers, LoA holders would be entitled to enteinto Fuel Supply Agreements (FSAs) with the coal companies for long-term supply of coal. The quantitycoal to be supplied along with other commercial terms and conditions are covered in the FSA itself.

STEEL PLANTS

The allocation of coking coal to steel plants was earlier made by the Coal Controller. Howeverafter deregulation of coking coal, the supplies of coking coal are being made by the coal companiesthemselves on the basis of linkages established by the SLC(LT) or on the basis of their existingcommitments.

During the year 2008-09, CIL and SCCL supplied the following quantities of coal to various

consumers: COAL INDIA LTD.

(Million Tonnes) (Provision

Sector Target Offtake Actual Offtake Supply % against Target

Power 327.10 320.54 97.82%

Steel 13.43 10.98 81.8%

Loco 0 0 0

Cement 8.78 9.06 103.1%

Fertilizer 2.54 2.48 97.6%

Others 41.53 48.62 117.1%

Colly.Cons. 0.74 0.74 100%Total 404.97 401.41 99.12%

SINGARENI COLLIERIES COMPANY LTD.

(Million Tonnes) (Provisional)

Sector Target Offtake Actual Offtake Supply % against Target

Power 30.87 32.68 105.86%

Steel (Sponge Iron) 0.75 0.00 0.00%

Cement 4.65 6.00 129%

Fertilizer 0 0 0





Others 5.12 5.73 119%

Colly.Cons. 0.12 0.13 104.2%

Total 41.51 44.54 107.2%

POWER HOUSES

Off-take of coal by thermal power stations during the year 2008-09 (April-March) from CIL &

SCCL was 325.66 million tonnes as against 309.874 million tonnes during the same period in 2007-08.

CEMENT PLANTS

The despatch to cement plants from CIL and SCCL during 2008-09 (April-March) was 15.053million tonnes as against 14.989 million tonnes during the same period in 2007-08.

MODE OF TRANSPORT Important modes of transport of coal in CIL are Railways, Road, Merry-go-Round Systems (MGR),Conveyor Belts and the Multi Modal Rail-cum-Sea Route. The share of these modes of transport in the movement of coal is approximately as under:

(a) Railways(Including Rail-cum-sea)

56%

(b) Road 17%

(c) MGR System 23%

(d) Others(Belt Conveyor Ropeways,Rail-cum-Sea Routes etc.)

4%

100%

PROGRESS MADE UNDER NEW COAL DISTRUBUTION POLICY

Prior to introduction of New Coal Distribution Policy in October,2007, the consumwere broadly classified in two categories to Core and Non Core Sector. The basis for earlier classifyinconsumers was solely based on there role in economic development. However, the erstwhileclassification of the consumers under New Coal Distribution Policy has been dispensed with. This powas formulated in view of the direction of the Apex Court and came in force w.e.f 18.10.2007.

Under this Policy each sector/consumers have been treated on merit, keeping in viethe regulatory provisions applicable thereto.

Earlier Standing Linkage Committee (Long Term), inter alia, granted long-term coal linkage power utilities, IPP, CPP and Cement units with firm commitment of the coal quantity and the identif

sources of coal supplies. However, it was observed that many of the power projects, which were grantlong-term coal linkage, did not come up as planned resulting in preemption of coal linkage. Thereforeunder New Coal distribution Policy it was decided to introduce the concept of “Letter ofAssurance” (LOA) , which provides for assured supply of coal to developers, provided they meetstipulated milestones. Once the milestones as stipulated in the LoA are met by the developers, LoAholders would be entitled to enter into Fuel Supply Agreements (FSAs) for long-term supply of coal.

Progress made by CIL/SCCL in implementing the provisions of NCDP 2007 issummarized below: COAL INDIA LIMITED





(a) Classification of consumers into core and non-core sector has been dispensed with(b) Linkage system has been replaced with Fuel Supply Agreement (FSA) and accordingly of 1223 existing valid linked consumers, 1168 consumers have already signed FSA with the ccompanies in categories other than Power Utilities.

SECTOR WISE POSITION OF FSA UNDER NCDP(up to 31-3-09)

No. of linked

consumers

No. of FSA

signed

CPP 140 137

Sponge Iron 247 240

Cement 48 47

Paper 45 45

Aluminium 4 3

Briquette 68 68

SSF 40 40

Cokeries 147 142

Others 484 446

Total CIL 1223 1168

** others exclude power utility

(c) The policy for issuance of LoA in respect of all the new consumers who have been

recommended by SLC(LT) has been implemented. 505 new consumers in the power, steel ancement sectors who have been recommended LoA by SLC(LT) have been issued letters ofAssurance (LoA). Subject to completion of milestones specified in the LoA, they would be elito execute FSA and thereafter draw coal, once the plants are commissioned.(d) For supply of coal to small and medium consumers, 8 MT of coal has been earmarked bCIL for allocation to agencies nominated by the State Governments / Union Territories. So farStates / Union Territories have nominated their agencies and 20 State agencies have alreadysigned FSA and are drawing coal accordingly.(e) Steps have been taken in order to enforce discipline and economy in use of coal as perNCDP directions, including stipulation of detailed terms for sale of coal under e-auction,applying strict cross-checks in use of coal under FSA and detailed scrutiny of the milestones

before executing FSA

(f) Scheme for Forward e-auction was introduced in 2008, but the same have been held uptemporarily as only a few consumers have registered for participation in the scheme. The Schis being reviewed and is due to be re-launched soon

SINGARENI COLLIERIES COMPANY LTD (SCCL) (a)Out of 200 existing valid linked consumers, SCCL has executed FSAs with 181 consumers. The remaconsumers have been provided draft FSA and are yet to come forward for signing FSA (b)SCCL has signed FSAs with 5 cement consumers and 24 sponge iron units who were recommended





by SLC(LT) (c)All the existing FSAs with major cement customers were renewed w.e.f. 1st April 2008 at 75% of theinormative quantity as stipulated in the Policy(d)Govt. of Andhra Pradesh has nominated SCCL as nodal agency for supply of coal to small and tinyconsumers whose annual consumption is less than 4200 MT.(e) E-auction scheme was launched in December 2007.

DISTRIBUTION OF COAL TO SMALL & MEDIUM CONSUMERS

The New Coal Distribution Policy also specifically addresses the issue of supply of coal toconsumers in small and medium sector since the classification of the consumers as core and non coresector has been dispensed with under the New Coal Distribution Policy.

Under this policy, the State Governments are required to work out genuine requirement of suunits in small and medium sector like Smokeless fuel, brick kiln, coke oven units etc. in a transparent ascientific way and distribute coal to them accordingly. The State Governments are to take appropriatesteps to evaluate the genuine consumption and monitor use of coal. The cap has also been enhanced 4200 tonnes per annum from 500 tonnes for the targeted consumers under this category. In order to mthe enhanced cap fixed for such consumers, the quantity earmarked for distribution by State nominatedagencies would be increased to 8 million tonnes annually to start with. This quantity would be allocatfor distribution to those units/consumers in small and medium sector across the country whoserequirement is less than 4200 tonnes per annum and are otherwise not having any access to purchasecoal or conclude Fuel supply Agreement (FSA) for coal supply with coal companies.

The earmarked quantity would be distributed through agencies notified by the StateGovernments. These agencies could be State Govt. Agencies/Central Govt. Agencies (National Co-operative consumers Federation (NCCF)/National Small Industries Corporation (NSIC) etc) or indusassociations, as the State Govt. may deem appropriate. The agency so notified will continue to distribcoal until the State Govt. decide to denotify it.

The FSA would be based on firm commitment and compensation for default in performance either side. The State Government/Central Govt. agencies would be free to devise their own distribumechanism. However, the said mechanism should inspire public confidence and should result indistribution of coal in a transparent manner.

The price charged to such agencies would be the notified price as applicable to other consumeentering into FSA. The agency would be entitled to charge actual freight and upto 5% margin as servicharge, over and above the basic price charged by the coal company, from their consumers. Theconcerned State Governments and Central Govt. Deptt. having administrative control over the agencwould be responsible to ensure that coal allotted for targeted consumer is distributed in a fair andtransparent manner and appropriate action taken to prevent its misuse.

CIL has informed that so far 24 States / Union Territories have nominated their agencies fordistribution of coal to the small scale industries, out of which 16 States have already started drawing counder FSA. So far 30 State agencies have been nominated by the States, of which 20 state agencies haveexecuted FSA for a quantity of 3.08 million tonnes. 5 States / Union Territories have intimated that the crequirement for small consumers is not significant and therefore, they do not require coal under the abodispensation. 8 States are in the process of execution of FSA. Further follow up is being done with otherStates for nomination of agencies.

FSA WITH STATE AGENCIES UNDER NCDP AS ON 31ST MARCH 2009





1 NO OF STATES /UTS 35

2 QUANTITY EARMARKED ( LAKH TONNE) 80.00

3 NO OF STATES NOMINATED AGENCIES 24

4 QTY ALLOCATED TO STATES / NOMINATEDAGENCIES( LAKH TONNE)

58.29

5 FSAs SIGNED SO FAR 20

6 ACQ COVERED UNDER FSA (LAKH TONNE) 30.87

7 NO OF STATES IN THE PROCESS OF EXECUTION OFFSA

8

8 NO OF STATES STARTED DRAWING COAL UNDERFSA

16

9

NO OF STATES INTIMATED NIL REQUIREMENT OFCOAL(DELHI, HARYANA,CHANDIGARH, ANDAMAN &NICOBAR, DAMAN & DIU)

5

E-AUCTION OF COAL

Coal distribution through e-auction was introduced with a view to provide access to coal for sconsumers who are not able to source coal through the available institutional mechanism. This schemewas however, discontinued in view of observations and directions of the Apex Court in case of M/s AshStainless Coal India Ltd Vs Union of India and Others. Thereafter, an interim arrangement captioned “E

booking” was introduced to ensure supply of coal to such consumers. The new modified scheme of e-auction has now been introduced from November, 2007 in terms of New Coal Distribution Policy whiccame into force w.e.f. 18.10.2007. During the year 2008-09, 488.74 lakh tonnes of coal was n allocated byunder E-auction against the offer of 919.57 lakh tonnes.

COMPANY WISE E-AUCTION APR- MAR’09

COMP OFFER QTY.(Lac Tonnes)

ALLOCATION QTY(Lac Tonnes)

% Increase on Noty.Price.

ECL 40.24 22.61 45.8

BCCL 76.86 36.99 32.0

CCL 167.46 59.26 59.5

NCL 22.79 21.30 75.8

WCL 68.84 55.62 61.7

SECL 115.84 93.07 89.3

MCL 422.96 195.56 45.7

NEC 4.58 4.33 72.7





CIL 919.57 488.74 58.1

IMPORT OF COAL

As per the present Import policy, coal can be freely imported (under Open General Licence) by

consumers themselves considering their needs based on their commercial prudence.

Coking coal is being imported by Steel Authority of India Limited (SAIL) and other Steel

manufacturing units mainly to bridge the gap between the requirement and indigenous availability andimprove the quality. Coast based power plants, cement plants, captive power plants, sponge iron plantindustrial consumers and coal traders are importing non-coking coal. Coke is imported mainly by Pig-Imanufacturers and Iron & Steel sector consumers using mini-blast furnace.

Details of import of coal and products during the last five years is as under:

(in million tonnes)

Coal 2003-04 2004-05

2005-06

2006-07 2007-08

Coking Coal 12.99 16.93 16.89 22.00 22.02

Non-coking Coal 8.69 12.03 21.70 23.00 27.76Coke 1.89 2.84 2.62 3.80 4.24

Total Import 23.57 31.80 41.21 48.80 54.02

COAL CONSUMERS COUNCILS

For redressal of consumer's grievances and monitoring of complaints received from the consumers, oneRegional Coal Consumers Council has been set up for each coal company. An Apex body viz. NationaCoal Consumers Council has also been set up at the Headquarters of Coal India Limited. In case thecomplainant does not receive a reply within a month or the complainant is not satisfied with the reply oCoal Company, he may prefer a complaint to the National Coal Consumers Council. These Councils ha

been reconstituted during the year 2008-09 with the introduction of many new members . The meetingthese councils are also being held regularly.

INTERNATIONAL CO-OPERATION (i) Republic of South Africa A Working Group between India and South Africa was constituted in 2003 headed by Secretary, Minof Coal from Indian side and Director General (Coal & Mines) on South African side. The first meetingthe Working Group was held on 29th July, 2008 in New Delhi. South Africa has agreed to provideassistance to CIL. Certain areas have been identified for co-operation with South Africa includingmechanization of underground mines, development of Coal Bed Methane, formation of joint venture b

CIL with BEE companies etc. Both sides have agreed that India would assist South Africa in developingroad map for their coal sector.

(ii) Mozambique

The Coal Working Group between India and Mozambique has been constituted and first meeting ofGroup was held in Maputo in April,2007. 2nd Meeting of the Group was held on 30th March 2009 in NDelhi. The Group reviewed the progress made in terms of the decision taken in the 1st meeting. India aoffered to assist Mozambique in carrying out study of coal resources and preparing road map fordevelopment of coal sector including prospecting and exploration of coal blocks.





In February 2009, Govt. of Mozambique have granted concession for prospecting and exploration of twcoal blocks in Tete Province to CIL. CIL is taking necessary action for exploration and mining of these

blocks.

Representatives of Ministry of Coal also participated in the 2nd Session of the Indo-Mozambique JointCommission meeting held on 19th February 2009 in New Delhi.

MULTILATERAL COOPERATION

India is one of the partner countries Under 7 countries Asia Pacific Partnership on Clean CoDevelopment and Climate (APP). India is also the Co-Chair of Coal Mining Task Force (CMTF) createPolicy and Implementation Committee (PIC) of APP. Out of 18 projects identified initially for cooperat

India had proposed 7 projects. The 4th meeting of CMTF took place in Las Vegas, USA in September 2in which three more new projects were proposed by CIL. As Co-Chair of CMTF, representatives ofMinistry of Coal also participated in the PIC meeting of APP held in Seatle, USA (March 2008) andVancouver, Canada (October 2008).

TREND OF DESPATCH TO POWER UTILITIES

(MILLION TONNES IN TERMS OF COAL & COAL PRODUCTS

2008-09 2007-08 2006-07

Planning Commission/MOC Target 291.41 278.31 273.40

SLC (ST) Linkage 321.25 321.35 295.95

SLC (ST) Linkage in excess of target (%) 10.2 15.4 8.2

Dispatch 296.04 280.04 261.81

% Achieved in respect of target 102 101 96

% Achieved in respect of SLC (ST) 92 87 88

Growth in absolute term 16.0 18.23 5.37

Growth in % 5.7 6.9 2.0

TREND OF DESPATCH TO POWER UTILITIES (MILLION TONNES IN TERMS OF COAL &COAL PRODUCTS)

2008-09 2007-08 2006-07

Planning Commission/MOC Target 291.41 278.31 273.40





SLC (ST) Linkage 321.25 321.35 295.95

SLC (ST) Linkage in excess of target (%) 10.2 15.4 8.2

Despatch 296.04 280.04 261.81

% Achieved in respect of target 102 101 96

% Achieved in respect of SLC (ST) 92 87 88

Growth in absolute term 16.0 18.23 5.37

Growth in % 5.7 6.9 2.0

SECTOR WISE POSITION OF FSA UNDER NCDP(up to 31-3-09)

No. of linkedconsumers

No. of FSAsigned

CPP 140 137

Sponge Iron 247 240

Cement 48 47

Paper 45 45

Aluminium 4 3

Briquette 68 68

SSF 40 40

Cokeries 147 142

Others 484 446

Total CIL 1223 1168

** others exclude power utility

COMPANY WISE E-AUCTION APR- MAR’09

COMP OFFER QTY.(Lac Tonnes)

ALLOCATION QTY(Lac Tonnes)

% Increase on Noty.Price.

ECL 40.24 22.61 45.8





BCCL 76.86 36.99 32.0

CCL 167.46 59.26 59.5

NCL 22.79 21.30 75.8

WCL 68.84 55.62 61.7

SECL 115.84 93.07 89.3

MCL 422.96 195.56 45.7

NEC 4.58 4.33 72.7

CIL 919.57 488.74 58.1

FSA WITH STATE AGENCIES UNDER NCDP TILL MAR’09

1 NO OF STATES /UTS 35

2 QUANTITY EARMARKED ( LAC TONNE) 80.00

3 NO OF STATES NOMINATED AGENCIES 24

4 QTY ALLOCATED TO STATES / NOMINATED AGENCIES( LAC TONNE)

58.29

5 FSAs SIGNED SO FAR 20

6 ACQ COVERED UNDER FSA (LAC TONNE) 30.87

7 NO OF STATES IN THE PROCESS OF EXECUTION OF FSA 8

8 NO OF STATES STARTED DRAWING COAL UNDER FSA 16

9

NO OF STATES INTIMATED NIL REQUIREMENT OF COAL(DELHI, HARYANA,CHANDIGARH, ANDAMAN & NICOBAR,DAMAN & DIU)

5

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Long-term Coal Linkages