4 Coal Insights, August 2014

COnTEnTs

34 | INtERvIEw‘HR makeover to give CIL new look in 5 years’ Indian coal sector is staring in the face of a manpower shortage, says R Mohan Das.

47 | CoRpoRAtEwBMDtC eyes peak output in FY15 The state agency expects to start production from five other blocks by 2017.

18 | CovER StoRYFrom black to grey?The move to cut e-auction volume may spurt coal prices, bring back secondary market.

45 | GovERNMENtDuty debacleCoal traders seek government intervention to waive duty arrears on imported coal.

49 | INtERNAtIoNALChoking dragon plans to ban sale, use of coalChina’s latest move brings smile to the Greens, frown to the coal miners.

6 Spot steam coal prices remain stable in August

8 Coking coal prices ease marginally in August

10 CIL sees steady decline in production till July

12 Indian power sector’s July capacity addition at 768.67 MW

14 Coal stock levels at Indian power plants fluctuate widely

16 India’s cement production falls 3.08% in June m-o-m

30 ‘E-auction cannot replace long-term FSAs’

32 ‘Cut in e-auction volume to encourage secondary market’

41 Need to find ways to increase production’

46 Customs notification challenged

47 Adani in pact with POSCO for rail line in Queensland

48 CIL Q1 net profit up 8%

50 US 2014 coal consumption to grow 2.5% to 949 MMst

51 Coal handling by major ports at 26.26 mt in April-July

52 Railways’ coal handling up 3.22% m-o-m in July

54 E-auction data

56 Port data

12 Coal Insights, August 2014

fEATuRE

Sanjukta Ganguly

India’s power generation capacity addition in July 2014 stood at 768.67 MW against 978.67 MW recorded during

the previous month, according to provisional data from the Central Electricity Authority (CEA).

With this, the total installed generation capacity of the country stood at 250,256.99 MW as on July 31, 2014 while the same was at 248,509.64 MW during the last day of the previous month, revealed the data.

In July, the capacity-addition target was 1,020 MW for the thermal sector against which the achievement was 700 MW while for the hydro sector the target stood at 80 MW against which the achievement stood at 68.67 MW. Both target and achievement for the nuclear sector stood at nil during the month, as per the CEA data.

Meanwhile, in June, the capacity-addition target was 2,550 MW for the thermal sector against which the achievement was 910 MW while for the hydro sector the target stood at 68.67 MW against which the achievement also stood at 68.67 MW. Both target and achievement for the nuclear sector stood at nil during the month.

In July, in the thermal sector, capacity-addition took place at Rajpura TPP U#2,

(700MW in Punjab, commissioned by Nabha Power Ltd whereas in the hydro sector, capacity was added at Rampur U#3, (68.67MW) in HP, commissioned by SJVNL.

During June, in the thermal sector, capacity addition took place at Talwandi Sabo, TPP U#1, (660MW) in Punjab by Talwandi Sabo Power Ltd and Chhabra TPP 4 (250 MW) in Rajasthan by RRVUNL whereas in the hydro sector, capacity was added at Rampur, U#4 (68.67MW) in HP by SJVNL.

On the other hand, in the hydro sector, capacity was added at Parbati–III, U34, (130MW) in HP by NHPC.

India’s power generation up 1.19% in July India’s power generation in July 2014 stood at 89.49 billion units (BU), up 1.19% from 88.43 BU generated in June 2014, according to provisional data from the Central Electricity Authority (CEA).

Out of the total generation in July 2014, 71.97 BU (60.83 BU in July 2013) were in the thermal sector and 13.61 BU (15.89 BU in July 2013) in the hydro sector.

Generation from the nuclear sector in July was at 2.92 BU (2.76 BU in July 2013), while imports from Bhutan stood at 0.987 BU, down from 1.009 BU in July 2013.

Indian power sector’s July capacity addition at 768.67 MW

However, out of the total generation in June 2014, 72.91 BU (61.03 BU in June 2013) were in the thermal sector and 12.34 BU (12.15 BU in June 2013) in the hydro sector. Generation from the nuclear sector in June was at 2.64 BU (2.83 BU in June 2013), while imports from Bhutan stood at 0.55 BU, down from 0.82 BU in June 2013.

During the first four months of 2014-15, total power generation in India stood at 355.5 BU while it stood at 319.53 BU during the corresponding period of the previous fiscal.

Critical coal stocks According to data available with Coal Insights, 47 plants out of the total 100 in the country faced a “critical coal stocks position” of less than seven days as on July 31, 2014.

The data further shows that out of the 47 plants facing a “critical coal stock” position, 24 faced a “super critical” coal stocks position of less than four days.

On July 15, of the 46 plants (of the 100 plants) facing a critical coal stocks position of less than seven days, 28 were facing “super critical” position of less than four days. Plants in Chhattisgarh, Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh and Telangana were the worst sufferers.

Plant load factorThe plant load factor (PLF), a measure of the output of a power plant compared to the

0

200

400

600

800

1,000

1,200

Thermal Hydro Nuclear

Target Achievement

Achievement vs target in capacity addition (in MW)

Source: Central Electricity Authority

81%

3%15%

1%

Thermal Nuclear Hydro Bhutan Import

Categorywise energy generation in July 2014 (in %)

Source: Central Electricity Authority

Break-up of monthly capacity addition during FY’15, FY’14, FY’13

and FY’12 (in MW)Months 2014-15 2013-14 2012-13 2011-12

April 135 282 1760 735

May 2716.1 1570 1070# 550

June 978.67 660 2376 2224

July 768.67 0 950 1660

August 921 550 1200

September 1365 870 786.5

October 530 1400 345

November 1635 803 2807

December 1765 15 1158

January 700 877 895

February 2711 2863.8 972

March 5286.01 7028 5482*

Total 4998.44 17,425.01 20,562.8 18,814.5*

COvER sTORy

E-auctioning of coal was a novel delivery mechanism that served to weed out unfair practices in the coal supply chain and reach the fuel to small-time end-users at the right price. The recent government directive to reduce the sale of coal via the e-auction route, in a bid

to divert this very quantum to the power sector, has stirred up a hornet’s nest. User-industries wonder whether the move will yield any positive results at all. How will the small enterprises procure their share of the fuel? And at what cost? Will this additional coal be successfully channelled to the power sector against the backdrop of a rakes shortage? Will the power sector be in a position to actually acquire the additional coal? And, most importantly, will the move pave the way for the return of unscrupulous elements into the coal supply chain in a re-run of yesterday once more? Coal Insights takes a look.

From Black to Grey?

18 Coal Insights, August 2014

Arindam Bandyopadhyay & Priyalina Basu

Coal Insights, August 2014 19

COvER sTORy

It all started in mid-air talks in the Indian skies about a decade ago. Two gentlemen, unknown to each other, introduced

themselves to each other and struck up a conversation on the flight time. As is wont with gentlemen, they tried to arrive at a common point of interest, only to discover they come from two worlds as diverse as coal and e-auction.

In the normal course of things, the talks could have fizzled out soon. Not with these two prolific minds. Instead, they discovered something exciting. A burning problem in India’s coal supply chain – lack of access to coal for small consumers due to the presence of a grey market – could be solved by the adoption of a specific e-auction tool*. And thus the concept of e-auctioning of coal rolled out in India.

Over the next few years, this new distribution model supplied around 300 million tons (mt) of coal to thousands of small, micro and medium customers that didn’t have access (or limited access) to the dry fuel so far, earned revenues worth `25,000 crore for the country’s two major miners but, most importantly, brought the coal industry out of the clutches of a grey market and “black-marketing”.

Just when it was thought the stage was set for an efficient pricing mechanism, the Indian government announced plans to reduce the e-auction volumes, initially to half of the current levels and then a phase-out of the same altogether, if needed, so as to feed the unmet demand of the thermal power plants.

Coal Insights talked to various stakeholders – producers, suppliers, consumers and traders – and weighed the pitfalls versus merits of the measure. Stopping e-auction, the industry voiced, would only shift the coal supply-gap from the power to the non-core sectors but, in the process, impact the bottomline of miners.

Furthermore, it may bring back the grey market that had prompted the gentlemen on the flight – the then Coal India Chairman Partha S Bhattacharyya and mjunction services limited Managing Director Viresh Oberoi – to put in place a new distribution model!

Shifting shortfallPost-liberalisation, each government at the Centre came to power with a specific

economic agenda. If it was disinvestment under the P V Narasimha Rao regime (1991-96) and infrastructure for A B Vajpayee (1996 and 1998-2004), the overriding priority for the Narendra Modi rule government is the thermal power sector. This last agenda, however, is not something that the country hasn’t seen before. India has already missed its “power for all” deadlines twice before, including the Eleventh Five-Year Plan period (2007-12).

The difference between then and now lies in the propaganda and importance accorded. What has remained the same is the scarcity of the primary fuel, i.e., coal that feeds the boilers. To make the fuel available for thermal power plants (TPS), the new government has seemingly pushed all other coal-consuming sectors to the category of second-class citizens.

As per the Twelfth Plan (2012-17) target, the country was given a mandate to commission an additional generation capacity of 88,537 MW, which included 72,340 MW in thermal, 10,897 MW in hydro and 5,300 MW in nuclear power.

However, after two years, it is becoming increasingly clear that both the hydro and nuclear programmes would fall far short of the target. This puts the onus on the thermal sector to make up for the shortfall.

In the first two years, the average thermal capacity addition has been around 18,500 MW. Given the current scenario in other segments, the government would push for similar additions in thermal during the next

three years.Now, what does it translate into in terms

of incremental demand for coal? A back-of-the-envelope calculation

shows that each 1,000 MW thermal power capacity leads to incremental demand for around 5 million tons (mt) of Indian coal and 3 mt of imported coal*. Even if we consider the lower number (3 mt), the average annual addition of 18,500 MW capacity warrants incremental coal production of more than 55 mt. Against this, India’s coal non-coking production has increased by an average 10 mt in the last five years, leaving an additional shortfall of 45 mt. Some part of this could be met by stock liquidation, but the majority was to be met by increased imports.

No wonder, if the issue of this bulging gap is left unattended, it will soon go out of control. As a quick-fix solution to curb this bulging deficit, the government has decided to take away 25 mt of coal from e-auction (which primarily caters to the non-power sector) and supply the same to the power plants. This would imply that out of 55 mt of incremental coal requirement from additional thermal capacity, 10 mt could be met through increased production and another 25 mt from coal that could have been e-auctioned. Thus, the supply gap would reduce to around 20 mt. At the current levels of international coal prices, this drop in imports results in forex savings of about $2-2.5 billion.

Additional coal demand from power sector and supply gap (in mt)

27.333.75

57 60.3

50.1

29.7

-4.55.1

20

-0.9-2.4

38.3

51.9

40.3

51.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2009-10 2010-11 2011-12 2012-13 2013-14

Additional coal requirement from thermal power (mt)Non-coking coal production growth (mt)Supply gap (mt)

* Coal India had earlier tried a different model but failed to break the jinx.

* The numbers are estimated from factors such as average coal consumption by old and new TPS, total operating capacity, PLF etc.

34 Coal Insights, August 2014

InTERvIEw

How are things at present with no permanent chairman in the company?

Things are usual. There is no problem as such as routine activities are being carried out and in a hassle-free manner. In any case, an acting arrangement is in place and so board-level and related issues are being taken care of.

It is often stated that the mining industry in India is going to face huge skilled manpower shortage in the coming years as new mines come up. What are your views on this?

There is definitely going to be a shortage in skilled manpower. In fact, it is already being felt. Especially since, in mining, there are several statutory posts that need to be filled up. And these certifications are done by the Directorate General of Mines Safety (DGMS). Here, we find a shortage of people.

But that’s not where the problem lies … the issue is that we had not been recruiting for some time. Now we have resumed the process for recruitment. We are getting

applications for the open advertisements and the selection process is on. But that is as far as Coal India is concerned….

However, a lot of other mining companies and private players are coming in and indeed when that happens, then demand will definitely rise and there will be a mining manpower shortage.

However, now the Directorate General of Mines Safety (DGMS) is taking some action so that regular exams are conducted and a greater number of candidates appears for the exams and pass out successfully. If that happens, then, in a phased manner, the situation will automatically improve.

What measures will mitigate the crisis since new mines will be coming up and concrete steps are not visible at this point for bringing in the required number of personnel?

Being a public sector entity, we are finding it difficult to fill up certain statutory posts like that of a “mining sardar”, “overman” etc. We are not being able to get the appropriate

number of people from the reserved, backward communities as we have to fill up such posts from only these categories.

We are not getting enough number of qualified candidates from the community but that has to be encouraged.

At CIL, 2-3 years back, our board had given the approval for recruiting people from amongst the land-losers. The minimum qualification required was a matriculation or Class X pass certificate from a candidate. The mandate was to keep them under training for two years with a stipend of around `5,500 per month. The idea was to teach and train them in underground mining and other technologies and prepare them for an exam conducted by the DGMS. If they successfully cleared the exam, they could be given employment against the vacancies we have.

If they were unable to clear the exam, then they would have to go back to training. It was thus a training scheme in which the general public could not participate.

What has been the response to this scheme?

Unfortunately, it has not taken much shape in the company as the subsidiaries did not organise or implement any such programme. Now, only BCCL and ECL, to some extent, have started programmes with the help of MGMI.

With MGMI’s help, these two arms have prepared a syllabus and conducted some classes and we are now trying to encourage this so that we are able to get more candidates.

How many vacant positions do you have as of date?

I may not be able to give an exact figure as this data is with the subsidiaries. Recruitment of non-executives is done by subsidiaries but, definitely, that is a big number. I assume the total number would be at least 500 across all subsidiaries, but it can be even more.

Are you saying that the initiative to bring land-losers, who quite often come from the OBC category, is not getting implemented to a great extent?

The training portion. What we devised as a

HR makeover to give CIL new look in 5 years

A few years down the line, mining companies are likely to experience a challenge in the form of acute

manpower shortage and Coal India Limited (CIL) is no exception. However, the coal behemoth has been working on a new human resource policy that aims to usher in a change in the organisation’s culture and which will also be a stepping stone to retaining talent. Mentoring, a common induction programme, increased information technology usage etc will all be part of the

grooming agenda for the new management trainees, R Mohan Das, Director, Personnel, CIL, tells Rakesh Dubey of Coal Insights.

Coal Insights, August 2014 41

How has stock liquidation helped CIL meet demand from consumers?

We have supplied 33 million tons (mt) of coal (from stock). As we have supplied the coal after stock liquidation, naturally it has gone to both the power and non-power sectors. However, it is a fact that extra priority/importance has been accorded to the power sector because a number of plants were in critical condition in terms of coal stocks.

However, we have supplied coal to the non-power sector as well, despite there being some constraints.

Overall, there have been complaints that except for independent power producers (IPPs), no other players are being supplied coal. This may be because CIL is under pressure from the ministry to supply more coal to the power sector? But another reason could be shortage of rakes?

There is problem relating to rakes in the Ib Valley area of Mahanadi Coalfields (MCL). There is a scarcity to some extent in the supply of rakes. However, had there been enough rakes, we could have loaded more volumes in Ib Valley while, at Talcher, there are local law and order issues. There are also issues related to foresiding. So here we are doing through departmental means, but the efficiency is not that much here.

We face a problem of rake supplies from ECO Railways quite often, but this is not a perennial one. The main problem is with Ib Valley.

Are there problems at SECL?

Actually, there are problem with Ex-Service Men (ESM) at SECL and if this is streamlined, things will improve. There were problems with ESM with regard to sponsorship, which is likely to be settled soon. Thus, things have been streamlined to some extent, but will still take some more time.

Overall, what would be CIL’s excuse for lower coal supplies?

There is no excuse as such. If you compare with last year, there is a 2.4 percent growth in overall off-take. So, it cannot be said that we are lagging behind.

‘Need to find ways to increase production’

While Coal India Limited (CIL) is the power sector’s favourite whipping boy at present,

B K Saxena, Director, Marketing, CIL, stresses on the supply-side constraints. Lack of rakes availability being a major one and that end-users must make their own arrangements to lift the coal. In a

free-wheeling interview to Rakesh Dubey of Coal Insights, he also observes that power plants are aware of their own expansion plans and should have made arrangements to import coal as a security measure, especially since CIL’s commitment is only to the extent of 65 percent of the FSA signed with the units.

InTERvIEw

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58 Coal Insights, August 2014