coal insights - jul 2012

Dear Readers,

There is a time for everything, it is said. A bamboo shoot takes more time to germinate than, say the humble chickpea. But when it grows, it grows a little too fast, say a couple of inches every hour. The same seems to be the case with the Indian coal industry. For decades together there was hardly any change, either in government policies or in the archaic mining practices. Decades later, things are changing really fast. Every other month, there are some new announcements, mostly on policies but also on the practices.

The latest to this list is the price pooling of imported and domestic coal. The proposal has been doing the rounds for some time now, but nobody seemed to take it seriously. It was not until the coal ministry took a firm stand, all of a sudden (as usual), that the stakeholders gave any credence to the thought. The same haste with which the GCV based pricing was introduced is seen here too. The coal minister has said he wants to close the matter by August. We only hope the collective confusion as seen in the case of GCV is not repeated.

That said, and while welcoming the pro-activeness of the ministry, we must come to terms with the fact that this system actually establishes the strategic role of coal imports in Indian power sector. Will it raise the energy costs? Will it act as a disincentive to Coal India’s struggle for raising production? Will it bring another set of price rise, albeit indirectly (as was the case with GCV), even for the consumers of domestic coal? We have to wait till August to get answers.

And there is more to come, the minister said, including the finalisation of the Fuel Supply Agreements (FSA) with power utilities. The point to note here is that in everything that is being done in the coal sector, the importance of Coal India’s voice is getting diluted. Given an opportunity, it is presumed, the coal monolith would not have gone for such fundamental changes; not all at a time, not so fast.

Interestingly, in everything that is being done, the voice of the consumers is also getting overlooked. This is evident from the fact that the commissioning of a regulator, for which the consumers are clamouring for a while, is not seeing the light of the day.

All in all, there are rapid fire changes coming in coal. We only hope they will prove beneficial for the final users of the commodity, the common man, you and me…!

Happy reading

(Rakesh Dubey)

EDITORIALChief EditorRakesh Dubey, Tel: +91 91633 48159, Email: [email protected]

Executive EditorArindam Bandyopadhyay, Tel: +91 91633 48016Email: [email protected]

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COAL INSIGHTS 4 JULY 2012

COnTEnTs

24 | FEAturELights out in the tunnel? Notwithstanding clichés coming from CIL top brass, underground mining in India is dying a slow death.

30 | FEAturECIL sceptical on price pooling schemeThe coal ministry is in haste, but Coal India seems not all convinced with the new system.

48 | SpECIAL rEportCoalgate: A mountain or a molehill?Coal fraternity thinks the CAG report went a little overboard with allegations of windfall gains by block allocattees.

06 | CovEr StoryExpect changes in a year’s time: S Narsing raoThe signs of improvement are already apparent at CIL, but the new chairman has more exciting ideas and asks to wait.

16 Thermal coal prices remain flat in July

18 Spot coking coal prices ease in July

20 CIL production target for FY13 may be revised

28 CIL exploring new ways to increase production from UG mines

34 CMPDI eyes commercial UCG projects

38 India’s June power generation exceeds target

41 DRI sector survival woes continue

44 May cement production up 13.52% y-o-y

46 Coal crisis hits Indian paper industry

52 No irregularity in allotment of captive blocks: Jaiswal

56 ICVL constituents vacillate, firm eyes Aussie mines

58 Tata Power’s generation capacity crosses 6,000 MW

59 Indiabulls set to ride on power bandwagon

60 Polycab develops fire-survival cables

61 Anupam Ind bags Rs 40 mn order from HEC

62 Good governance the need of the hour

64 Coal pricing discussed threadbare

66 US power sector coal consumption to remain flat in 2013

67 India’s H1 coal imports from RBCT up 27.3%

68 Traffic handling by major ports down 5.49% in April-June

70 Govt forms panel to expand inland waterways

72 Railways commodity freight revenue down in June m-o-m

73 Port data

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54 | tECHNoLoGyA new method of carbon dioxide reductionThe conventional methods of CO2 reduction have their pitfalls which can be overcome by the use of a reagent.

Global CO2 emission


COvER sTORy

He spent the early years of his service life in forests and tribal habitats, trying to bring light to the dark underbelly of the subcontinent. Years later, he holds a portfolio that is just as crucial to providing electricity even to the enlightened parts of it.

Hailing from a nondescript village in Karnataka, 54-year-old S. Narsing Rao has an inspirational story to share. A 1986 batch IAS officer, Rao had an eventful career in civil administration, the major part of which he spent for the uplift of the less privileged, not only in India but also in countries like Myanmar, Nepal and Bangladesh. Twenty years into service, the boy from Medak village was given charge of Singareni Collieries Company Limited (SCCL), an assignment he considered “tougher” than the present job at hand. It was in SCCL that Rao gained a reputation as a go-getter and came to be known for his action-oriented approach.

Call him the ‘man who delivers’ or ‘the workers’ chairman’, Narsing Rao is actually the man of the moment. On April 24, he took charge of Coal India Ltd (CIL), the world’s

largest coal miner which was in the news for all the wrong reasons. Three months into the job, Rao has already ensured that the winds of change start sweeping across the

organisation. On the occasion of his completing 100 days at the helm of CIL, Coal Insights caught him in a candid mood for a tête-à-tête, and was amazed to note

how minutely he remembers his promises and keeps them too.

‘Expect changes in a year’s time’‘Expect changes in a year’s time’Rakesh Kumar Dubey


COvER sTORy

Excerpts:

Let us begin at the very beginning. Tell us a bit about your days before you joined the coal fraternity.I belong to Medak, a small village in Andhra Pradesh nearly 50 km from Hyderabad and studied in a neighbouring village school, within the district mofussil town. I came to Hyderabad for my post-graduation.

I joined the IAS in 1986 and before that I was in forest service for about two years. After the training, I worked at various places in various districts, but mostly in the interior tribal areas – Sreekakulum, Visakhapatnam, East Godavari. I was district collector of Chittor and then also Vizag. Till 1999, I worked with the government in various places.

Then I went to the United Nations offices. I worked as Chief Technical Advisor to the United Nations, initially in Burma, where I lived for two-and-a-half years, again in tribal areas like Kachin, Chin, Shan, Karin. For two years, I worked there and then moved to the Kuala Lumpur United Nations office as senior portfolio manager, managing the UN funded technical cooperation projects in various countries including Bangladesh, Bhutan, Myanmar, Maldives and Nepal. All these projects were essentially for rural development, poverty alleviation, tribal development, banking, micro-finance and irrigation. It was a six-year stint in total in Burma, Kuala Lumpur and Bangkok.

I came back to the government in 2005. I was the secretary (information and technology) for seven to eight months and the commissioner (Rural Development Office) for six months or so before I joined Singareni (SCCL) on September 18, 2006. I worked there for five and a half years.

You are credited with the revival of SCCL. During your tenure, production increased from 34 mtpa to 52 mtpa. What was your success mantra for this turnaround?Singareni perhaps was a tougher challenge than Coal India Ltd (CIL). The coal reserves there are in difficult terrain and getting forest clearances was even more difficult. In case of Central government companies there is a relaxation, but in states you have to provide compensatory land for forestry.

For instance, if you have to divert thousands of acres of forest land, in Singareni or any other state government territory,

you have to secure thousands of acres of land equivalent to the forest land, hand it over to the forest department and only then you can start the project. In comparison, Coal India has the advantage of paying money to compensate for the land loss.

At Singareni, I first identified the constraints through different discussions and one of the biggest impediments seemed to be the delay in obtaining forest clearances and mainly because compensatory land had to be given. So I first quietly created a land bank. From my own experience of working in places like Srikakulum, Vizag, East Godavari, Krishna, Mehboobnagar and Chittoor, I knew myself where degraded land will be available.

We managed to identify quite a bit of degraded non-forest government land, and I expedited the process of handing it over to the government so that the clearances would be expedited in the process. Then for all our pending projects, starting from 2006 to 2013-14, we got the pipeline projects tied up. So later, land was not a constraint at all.

I also went ahead aggressively with project approvals and procurement related issues. For example, procuring Adriala Longwall was not an easy decision. It involved complicated processes, but then I took the risk and decided to diligently follow all the procedures. I studied the underground equipment to improve it, steadied the opencast equipment and improved productivity.

That was the equipment part of it. As for the workers, I used to have direct dialogues with them. There was no strike in SCCL during my tenure. Although Telengana movement had affected production at later stages, it was actually a political movement.

Do you feel human resource management was a crucial part of your success?I definitely feel so. I would personally interact with the workers and in many cases, the management would take the unions into confidence. That really helped since the ultimate objective was to safeguard the interests of the workers. By having the unions on our side, we were on the same page as the demands they would make and we would agree to them.

For example, when I first joined Singareni, I ensured that all the contract workers are extended medical facilities in our hospitals. Take the case of junior level workers such as cutters

– these are mostly illiterate or semi-illiterate people and traditionally depend on employment in mines. After working in underground conditions, at 45-50 years of age they become old and want their children to get a job, again as badli fillers and so on.

I would urge them to change their mindsets and educate their children so that they can take up other professions and not remain stuck and satisfied with a mine worker’s job. Every year we admitted around 150-200 children into coaching schools, so that they could take the entrance exams and pursue some other profession, instead of becoming a coal filler or badli

As far as production is concerned, I am not very worried as there is already so much of ground stock. Right now I would say offtake is our major concern.

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COvER sTORy

filler. For the parents also it was a matter of pride and this gave them the feeling that the management thought of their welfare and that boosted their morale.

Having said that, I must admit that in Coal India it is a different situation. It is different in terms of size, complexity and its level of commitment.

It is nearly 120 days since you have joined as chairman of CIL. What have been the high and low points so far?A period of 120 days is too small to have any significant impact on something as vast as coal mining or for that matter, CIL. Maybe some changes can be brought about in a year or so.

All I can say is that our performance in the last couple of months has been very good. Unfortunately, performance in July is not as good as it was projected to be, or as good as we would have liked it to be.

Scattered rains in mining areas and low wagon availability are affecting our offtake in July, but still our aggregate cumulative rate of offtake is 5.5 to 5.6 percent higher, which is not bad.

In the first quarter, we saw a growth of about 6.5 percent in

offtake, but it slipped to 5.5 to 5.6 percent as on July 19 because there has been no growth in July. In fact, literally there is a zero or less than 1 percent growth in July compared to the same period last year.

It’s not only rains, but also the wagon availability which has brought down the offtake rate lately. It is not as per expectation. The current wagon availability is around 177 wagons per day while we were expecting something around 190 wagons per day in July. So there was a shortfall of 13 rakes a day which had a huge impact.

As far as production is concerned, I am not very worried as there is already so much of ground stock. Right now I would say offtake is our major concern.

Singareni perhaps was a tougher challenge than CIL. The reserves there are in difficult terrain and getting forest clearances was even more difficult.

An underground mine of CIL in operation


COvER sTORy

Immediately after joining CIL, you had said that your focus will be on increasing production and getting forestry and environmental clearances for new projects. What has been the journey like so far?On the environment front, there is better realisation and better appreciation in the Ministry of Environment and Forests (MoEF). Normally it takes six months to one year to get environmental clearances and thus three months is too early to say anything. But on the environment side there is definitely some improvement.

But I cannot say the same about forest clearances, most of which are stuck at state levels. The process of forestry clearance is usually cumbersome. Regardless of whether it is a dense/heavy/virgin forest, there are too many steps involving the DFO, conservator, chief conservator and others in the state government before the final clearance is awarded. Therefore the delays happen mostly at the state government level. Often state governments are not so sensitive about the projects, which also contribute to the delay in clearances.

On the other hand, most of the work in environment clearances happens at Pollution Control Board (PCB) offices, which work at a reasonably comfortable pace. Compared to the process involved in obtaining forestry clearances, the process for environment clearances is far less complicated. Once we submit our application to MoEF, an EAC is conducted as per Terms of Reference (TOR). After that is approved it is sent to the Pollution Control Board (PCB), which works at a relatively swifter pace.

The PCB takes an appointment for public hearing from the district magistrate which is published in all newspapers. Once the public hearing is over, they sent it as it is, without any recommendation, and with details of whatever has happened

in the public hearing. After this stage, it is the environment ministry which takes all the decisions.

You also said that to increase production you will look at MDO route. Have you started the process?It takes some time, but we are on the job and that’s our priority – both underground and opencast. We want to do it on a large scale. We plan to identify some projects for development through MDO route and hope to go for tendering of at least seven to eight projects during the current financial year.

After that we will complete the tendering process, may be in a year’s time, and then opencast projects can start. But underground projects will take some time as it is slightly complicated. Some scientific studies regarding the type of mining or the suitability of equipment, roof safety studies etc., need to be done before production begins.

What about infrastructure development? You just said that offtake is a major concern.As for developing logistics infrastructure in association with

the Railways, there has been some work but not at a level where I could talk about it. We held meetings with the chairman of the Railway Board and also with state governments. For a long time nothing was happening, but now that has changed.

There are consumer complaints regarding heavy penalty by Railways on overloading and underloading. Who should be responsible for addressing these problems – the Railways, consumers or coal companies?We need to modernise our coal handling plants

Our overseas acquisition plans are not on hold. It is just that we are not aggressively pursuing the plan right now.

An opencast mine in operation


COvER sTORy

or silos as only then the problem of overloading or underloading can be solved. This facility needs to be introduced particularly at places where loading is more than 2-3 million tons per annum to make them viable, as about `30-40 crore will be needed to set up each facility.

In a trial and error or manual system, loading of exact quantity of coal as per specification or directive of Indian Railways is not possible, but we need to modernise and Coal India should do that.

We can charge the consumers for setting up the state-of-the-art silos, but ultimately it is logical that CIL should modernise. I will take this up with the subsidiaries as this will also protect environment by stopping open handling of coal and prevent dust emission during loading.

However, it will take some time for them to build modern silos. I hope that in the next two to three years, the company should be able to modernise as much coal loading arrangement as possible.

Can we say that CIL’s earlier plans to acquire coal properties abroad, particularly in less developed countries, are right now on hold?Our overseas acquisition plans are not on hold. It is just that we are not aggressively pursuing the plan right now.

However, we are continuing with our exploratory activity in Mozambique. We have received around 11-12 EOIs from companies in response to our notice. Some international companies, including from Australia, have also submitted the bids, but I am not aware of the exact number and details of bids. We will evaluate the bids and then ask for price bids from selected bidders.

It has been found that overseas exploration companies are not willing to come to India in a big way. What could be the possible reason behind this?One of the reasons is that they find it difficult to obtain forest clearances. They have to take the rigs to forests for drilling and most of the coal blocks in India are in forest areas. Now our requirement is 20 borewells per square kilometer. In 1 sq. km unless you put 20 borewells density, you will not get a crystal clear picture of what coal seam is likely to be underground.

For an underground mine, it is not acceptable. So it is not even called detailed exploration. If they are permitting only one or two borewells per square kilometer, it is not possible to prepare a workable detailed mine plan based on the incomplete exploration data.

There are apprehensions that they will cause damage to the forests in case they get permission.

Are there problems related to the high population density and tribal issues as well? It is not a problem as far as exploration is concerned, but it is definitely so in case of land acquisition.

As I said you need only 20 borewells per square kilometer. It means for 1,000 metres you need 20 borewells and if there is house or some structure you can leave 50 metres. But yes, for coal production it is a problem.

In countries like Australia, there is no habitation at all for long stretches. If you travel to coal producing areas of Australia, you will hardly find any population. If you travel for 300 kilometers at a stretch you hardly come across two to three cars. They have a population of something around Kolkata in such a big country and the entire population is confined to around four to five big cities.

Recently CIL had given option to all types of consumers to lift coal from its pithead on as is where is basis. What has been the response so far?It has been almost a month (as on July 20) now since the offer was made in mid-June. But I do not expect companies to respond so fast. They have to think about it and then come out with some tenders for transportation of coal. They will also have to develop sidings and locate a place where they can dump the coal.

For Mahanadi Coalfields (MCL), I am told some of the independent power producers (IPPs) have said that they will take 2-3 million tons. In Central Coalfields Ltd (CCL) too, Rosa, Jhajjhar, Lanco, Sterlite and KPCL have the expressed desire to lift coal on their own. They are showing some interest, but there is no specific progress as of now.

I would expect to clear around 8-10 million tons of stock through this scheme. My best bet would be about 8-10 million tons during this financial year.

This is an attempt from CIL to give additional coal apart from what it is already loading. Today we are loading around 175-180 wagons per day and out of this around 135 wagons are going to the power sector. Even if they load five rakes per day in addition to what we are loading that is extra. However, if they do not load there is no harm. We are only making an attempt.

Finally, the post GCV price review is still pending. Do you think it is the right time to go for a price hike?I cannot say whether it is the right time or not, but we are not contemplating any increase in price at this stage.

Our current focus is to increase production as we have to produce as per plan to meet the demand from consuming sectors, particularly the power sector.

I cannot say whether it is the right time or not, but we are not contemplating any increase in price at this stage.


Thermal coal prices remained flat in July as exports from Indonesia and Richards Bay continued to outstrip demand from Asian countries.

Lack of demand from utilities acted as a deterrent in India. Indian buyers and end-users of imported coal continued to exercise restraint as they waited for a further fall in prices.

In the international market, Australian thermal coal of heating value of 6,300 kcal GAR is currently being offered at around $88.35 per ton as of July as against $84.30 per ton in June. Offers of South African thermal coal of heating value of 6,000 kcal NAR rose marginally to $86.65 per ton in July as against $84 per ton in June. Offers of Indonesian coal of heating value of 5,900 kcal GAR is hovering around $71.30 per ton in July, down from $78.60 per ton in June, while that of heating value of 5,000 kcal GAR is at $55 per ton in July as against $60.50 per ton in June.

Traders said deals are struck only if the commodity is required on an urgent basis. No one is buying to stock coal, and small power projects are also buying low grade coal with high ash. The surge in supply comes as Chinese importers of thermal coal asked traders to defer cargos. Chinese coal imports, nonetheless, are running well ahead of the levels of last year.

Coal executives believe that as much as 10 percent of the production serving the seaborne market could be losing money at current prices. US utilities are consuming less domestic coal as they shift to cheaper natural gas, triggering a wave of exports that is depressing the Atlantic coal market.

In India, enquiries have been few and far between, sources

said. Power companies have shown interest in 5,200 kcal/kg GAR coal and above but are insisting on discounts of $8-9 per ton to Indonesian prices.

According to traders, South African coal enquiries were received but below current market levels of $86-87 per ton FOB. Buyers want to wait till prices fall to the range of $80-81 per ton FOB levels.

According to industry experts, physical prompt coal prices remained flat tracking weaker oil and macro anxieties. The macroeconomic factors such as Spain heading for a bailout also impacted sentiments. Despite strong Chinese coal imports in June, China remained largely out of the spot market for thermal coal.

Stories of fresh Chinese forced price renegotiation are circulating in the market, dissuading some suppliers from chasing Chinese business at present because of what is perceived as a high level of performance risk.

China’s coal imports surged by 65 percent in June, compared with year-ago levels, to 22.53 million tons (mt), according to official customs data, but much of the surge was coking coal rather than thermal.

A few players who had been active buyers for the Chinese market are now selling prompt cargoes unwanted by China at a large discount to current prices, traders said. The lack of buying interest in these prompt cargoes (aside from the dissuasive element of counterparty risk) indicates that the Richards Bay market is coming under increased downward pressure from cooling Asian demand, suppliers said.

A few trades were reported – an October delivery ARA cargo traded at $89 per ton because European spot demand has remained minimal despite strong coal consumption. Utilities had already bought more coal than they will need but are likely to return to the spot market for limited Q4 tonnage.

DefaultsReports of defaults continued to rock the thermal coal market with sources stating that some Indian buyers had refused to take delivery of three Capesize cargoes of Richards Bay material and a few Indonesian cargoes.

Sources said they had heard of three Capesize vessels of Richards Bay 6,000 kcal/kg NAR coal that were stranded off the east coast of India after buyers refused to take delivery amid falling prices.

COAL mARkET funDAmEnTALs

Thermal coal prices remain flat in JulyCoal Insights Bureau

Steam coal CFR India ($/ton)

DateWest

(6,300 kcal/kg GAr)

West(5,900 kcal/

kg GAr)

West(5,000 kcal/

kg GAr)

East(6,300 kcal/

kg GAr)

East(5,900 kcal/

kg GAr)

East(5,000 kcal/

kg GAr)7 June 103.25 93.20 74.25 105.15 92.70 73.70 11 June 97.85 90.50 71.10 99.35 90.00 70.60 12 June 97.45 90.00 70.60 98.95 89.50 70.10 13 June 97.95 89.80 70.40 99.45 89.30 69.90 14 June 97.40 89.30 69.65 98.90 88.80 69.15 19 June 98.55 88.40 69.50 100.05 87.90 69.00 20 June 100.15 87.60 69.55 101.65 87.10 69.05 26 June 103.65 85.05 67.85 105.15 84.55 67.35 28 June 104.75 84.25 67.25 106.25 83.75 66.75 5 July 107.05 83.40 66.65 108.65 82.90 66.15 11 July 101.15 82.00 64.75 102.55 81.40 64.25 18 July 102.65 81.40 64.35 104.10 80.70 64.00

Source: Insights Research


COAL mARkET funDAmEnTALs

Spot coking coal prices eased lower in July on low buying interest from both China and India. Premium low-vol prices were quoted at $208 per ton FOB Australia. In

China, large mills received offers from coal producers for premium low-vols at $200 per ton CFR.

Market sources said Chinese coking coal prices have dropped very rapidly in the domestic market. If producers still want to occupy the Chinese market, they must drop their prices as well.

Low offers were similarly heard within the Indian domestic market. Australian premium HCCs were heard offered at `12,000 per ton delivered to mill in east India. This equates to approximately $204 per ton CFR East Coast India after deducting `400 per ton for land freight, `200 per ton for port charges and `50 per ton for duties.

However, despite the low offer price, no taker was forthcoming. Market sources said they were not surprised by the low offers. There is too much pessimism and the market needs a correction, they said. Sources believed that prices would not stabilise at current levels and would drop even further.

Elsewhere, Canadian HCC with 65-70% CSR, 23.50% VM, and 0.45% sulfur was still heard offered at $190 per ton CFR China with no takers.

Meanwhile, settlement of BHP Mitsubishi Alliance labour unrest has proven to be detrimental to the interests of Australian miners. This is so because the hitherto tight supply had kept the levels afloat in the background of Posco Anglo deal at $225 per ton last month.

Sources said the major purchasers from India and China have been reticent owing to monsoon and cheaper availability from domestic and Mongolian sources. However, the reticence in the market is not expected to last long as the Indian

majors cannot postpone buying for more than a month with inventory levels depleting fast. Meanwhile, the US offers have also started hardening with miners becoming fastidious and curtailing production with poor domestic demand.

Spot business too followed the same trajectory drifting south of the quarterly benchmark. Australian producers say they are not willing to sell spot tons at these levels.

Going against the trend, some Indian companies have been quick to grab this opportunity in a soft market. SAIL has issued a fresh tender for 50,000 tons of low ash metallurgical coking coal while Metals and Minerals Trading Corporation of India (MMTC) issued two tenders for 120,000 tons of coking coal. It can be termed as testing the market before they come up with major requirement.

It is expected that July might be the turning point in coking coal market with buying expected resurge after monsoon and European holidays. Even the Chinese market is expected to pick up in autumn as the mercury drops. Construction activity and demand typically picks up in China in Q3. Host of construction and infrastructural projects will start execution in Q3 and Q4 thereby increasing demand for steel and raw material.

Met coke Lack of buying appetite continued to characterize the metallurgical coke market. Coke with 12.5% ash was quoted at $360 per ton CFR east India. Sources saw the tradable value of 62% CSR and 12.5% ash coke at $358-360 per ton CFR.

ICVL eyes opportunityWith sharp drop in coking coal prices, ICVL, a consortium of five major PSUs, is eyeing mines in mineral-rich countries like Australia and New Zealand at competitive valuations. The company is carrying out due diligence in Australia, New

Zealand and Mozambique. Industry experts expect further fall in coking coal prices

contending that the present prices even after 30 percent decline since 2010, are not sustainable as demand from China – a major coal consumer – has come down.

ICVL, which was formed in May 2009, wants to be ready with the spadework so that it can go for acquisitions when a right opportunity arises.

Aimed at acquiring coal mines abroad to meet the growing domestic need, ICVL was set up as a joint venture among five state-owned firms with SAIL and Coal India Ltd, each holding 28 percent stake and RINL, NMDC and NTPC with 14 percent each.

The ICVL board can take investment decisions up to `1,500 crore on its own. It aims to own of 500 million tons of reserves by FY20.

Spot coking coal prices ease in JulyCoal Insights Bureau

Coking coal FOB Australia ($/ton)

Date HCC peak Down region

premium Low vol

HCC 64 Mid vol

Low vol pCI

Low vol 12 Ash pCI

Semi Soft

7 June 222.00 222.50 183.00 151.00 127.50 120.50 11 June 222.50 223.00 182.50 151.00 128.50 120.50 12 June 224.00 224.50 180.50 151.00 129.00 114.50 13 June 224.50 225.00 179.50 151.00 127.00 113.50 14 June 225.50 226.00 179.50 151.00 126.50 110.50 19 June 225.50 226.00 179.00 148.00 128.00 109.00 20 June 226.00 226.50 179.50 148.00 128.00 109.00 26 June 225.00 225.50 179.50 147.50 130.00 110.50 28 June 221.00 221.50 176.50 147.50 127.50 108.50 5 July 219.00 219.50 175.50 145.00 127.50 109.50 11 July 215.50 216.00 171.00 143.00 128.00 105.50 18 July 210.00 210.50 170.50 139.50 126.50 104.50



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Buoyed by the first quarter production growth by Coal India Limited (CIL), the coal ministry (MoC) is considering revising the annual target of 464.1 million

tons (mt) given to the coal miner. CIL has clocked a 6.4 percent growth in production to 102.46 mt during April-June 2012, compared to the same period last fiscal. With this, the company achieved 100 percent of the production target set for the quarter.

“In the first quarter, the company has achieved 100 percent production target. We are hopeful it will achieve 100 percent of the annual target as well,” coal minister Sriprakash Jaiswal said while announcing the quarterly performance at CIL headquarters in Kolkata.

While congratulating the company management and workers for the remarkable growth, the minister said, “This is good news for the economy and capital market…the Prime Minister is keen to see the economy returning to 8 percent growth level. The coal sector is ready to help achieve that goal.”

However, there is no room for compliance, the minister noted, as he said the coal monolith will be given “some other targets” shortly to help meet the coal shortage in the country. While the targets were not spelt out, there were indications that the annual production target may be revised upward from the current level. “Any revision in targets can be only

CIL production target for FY13may be revised upward

Coal Insights Bureau

June production up 8%Coal Insights Bureau

After a heady start to the new financial year (2012-13), Coal India Ltd (CIL) has achieved 8 percent growth in production in June 2012.

Total production during the months stood at 33.08 million tons (mt) as against 30.64 mt in June 2011, company chairman S. Narsing Rao said.

This showed an increase of 2.44 mt in absolute terms. In percentage terms, June growth was the highest year-on-year growth so far this year. However, when compared to the previous month (May 2012), the June figure showed a marginal decrease.

Overall, the first quarter production stood at 102.46 mt, compared to 96.31 mt achieved during the same quarter last year.

CIL production in Q1, 2012-13 (in mt)April May June Q1

2010-11 32.65 33.02 30.64 96.312011-12 33.80 35.58 33.08 102.46

Source: CIL


upwards,” said CIL chairman S. Narsing Rao, commenting on the minister’s statement.

Industry sources maintained the production target may be revised if the company reports similar performance in the second quarter. CIL has apparently taken precautionary measures for the monsoon.

“We have taken precautions so as not to lose production due to rains in the second quarter. In fact, we expect production to be in the normal range,” a company director said.

The company’s coal production rose to 435.84 mt in 2011-12, up 1.05 percent from 431.32 mt recorded in 2010-11. Offtake increased by 2.02 percent to 433.08 mt from 424.50 mt. Overburden removal in 2011-12 stood at 745.55 million cubic meter (mcm), up 1.83 percent from 732.13 mcm in 2010-11.

Q1 offtakeCIL’s coal offtake stood at 112.92 mt in Q1 of FY13 against 106.18 mt in Q1 of FY12, registering a growth of 6.3 percent. The company achieved around 99 percent of its offtake target given for the quarter.

CIL’s coal supply was 10.46 mt more than its production in Q1. The entire additional coal came from its pithead stock so the company was able to liquidate its ground stock to the extent of 10.46 mt.

CIL began the fiscal with a stock of 70.88 mt which stood at 60.34 mt at the end of June 2012. In June 2012, CIL supplied 36.26 mt of coal against 34.11 mt in 2011, which translated into a growth of 6.3 percent. The increase in absolute terms stood at 2.15 mt.

During Q1 of FY13 the average loading of rakes by Coal India Ltd stood at 179.2 rakes per day as compared to 164.3 rakes per day during the same period last year, registering an increase of around 15 rakes per day, a growth of 9.1 percent. In 2012-13, CIL has been given a total offtake target of 470 mt, slightly higher than its production target of 464.1 mt.

410415420425430435440445450455460465

2009-2010 2010-11 2011-12 2012-13

Actual

Target

CIL production vs target (in mt)

Note: 2012-13 target fig. is projected Source: CIL

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Six years after Coal India Limited (CIL) promised to revive underground (UG) mining in the country, the performance of UG mine production continues to show

a steady decline, putting to question the future of UG mining in India, at least in a medium term horizon.

Barring the marginal growth in 2007-08 and 2008-09, production of coal from UG mines registered a year-on-year drop during the last decade. According to data provided by the coal ministry, the fall has been sharp during the three consecutive years starting 2009-10 and the trend is likely to continue this year.

According to industry experts, the decline in UG coal production was due to increased focus on opencast production to meet the country’s demand. “But this play-it-safe approach may prove to be counter-productive in the long run,” they warn.

Production from UG mines dropped by 0.76 percent in 2009-10, by 6.27 percent in 2010-11 and by another 5.51 percent in 2011-12, the data revealed.

According to the data, production from UG mines in 2009-

10 fell to 58.253 million tons (mt) from 58.972 mt in 2008-09. It declined further to 54.855 mt in 2010-11 and finally stood at 51.832 mt in 2011-12.

Also, productivity in terms of output per manshift (OMS) showed a similar trend. While productivity increased marginally in opencast (OC) mines of CIL in 2011-12 to 10.54 tons from 10.06 tons in 2010-11, it declined to 0.75 tons from 0.77 tons in 2010-11 for UG mines. Overall OMS of CIL was estimated at 4.92 tons in 2011-12 compared with 4.74 tons in 2010-11.

For OC mines of Singareni Collieries Company Ltd (SCCL), OMS increased substantially to 13.23 tons in 2011-12 from 11.98 tons in 2010-11, while for UG mines, OMS improved only marginally to 1.13 tons from 1.10 tons in 2010-11. Overall OMS of SCCL improved to 3.93 tons from 3.59 tons in 2010-11.

Mine conversion Apart from a drop in production, the number of UG mines in the country is also expected to witness a steady decline over the years, thanks to the closure and conversion of UG

UG mining in India

Lights out in the tunnel?Coal Insights Bureau

COAL INSIGHTS 26 JULY 2012COAL INSIGHTS 26 JUNe 2012

mines into OC mines. As of 2011, CIL had 467 active mines, of which 273 are UG mines, 164 OC mines and the remaining 30 mixed mines. SCCL has 50 mines, including 35 UG mines and 15 OC mines.

The number of CIL mines has more or less remained unchanged in the last couple of years, but there are talks of closing down some UG mines due to high cost of operations. As for SCCL, the number of UG mines has dropped from 56 in 2000-01 to 35 in 2012-13. The number of OC mines, over the same period, has increased from 11 to 15.

The main reason for closure of UG mines is the high cost of operation. A recent report shows CIL is incurring significant operating losses from a sizeable number of blocks, mainly due to the high cost of UG mining. As of June 2010, CIL’s mining cost (per ton of raw coal produced) for UG mines was around `3,230.97, nearly six times the cost of production from OC mines (`581.74), according to the Red Herring Prospectus. There were around 30-40 UG mines which were losing `3,000 or more per ton of coal. Currently there are about 120-130 loss-making UG mines out of the total 273 UG mines. This cost

factor had prompted former chairman N.C. Jha to state that UG mining, given the current technology and practice, is not viable in India.

As a result, the company is looking to close down its loss making UG mines. Although such a move contradicts CIL’s earlier stance (announced in the Prospectus) of reviving 18 old UG mines and opening new ones, the economic compulsion is likely to hold sway.

Meanwhile, a number of UG mines of CIL are being converted into OC mines up to a reasonable depth. In fact, CMPDIL, the Ranchi-based R&D subsidiary of CIL, is looking for research partner for safe parting between UG and OC workings for simultaneous mining. A detailed scientific study is required for evolving guidelines for maintaining safe parting in such cases, CMPDI sources said.

Untapped reservesInterestingly, some former top executives of CIL are the staunchest critics of the company’s selective approach. There is a huge reserve of coal lying below 300 metres of depth which cannot be mined through surface mining, they point out. In the absence of UG mining, India’s estimated coal reserves would come down dramatically, industry sources add.

Besides, there are substantial coal reserves blocked in developed pillars and these cannot be mined through conventional methods. CMPDI is seeking external expertise to mine such reserves too.

Private sector companies, however, are more aggressive in their outlook on UG mining. With modern technology and proper project design, a senior mining professional said, UG mining can be nearly as economic and productive as surface mining is.

“India is not exploiting the advanced UG technologies which are available now. There are large contract miners who can lend their expertise in this regard. But the attitude needs to change,” he said.

Production of raw coal from OC and UG mines in last 10 years

yearopencast underground raw Coal

CIL SCCL All India All India oC Share (%)

All India oC Growth (%) CIL SCCL All India All India uG

Share (%)All India uG Growth (%) production Growth

(%)2002-03 242.272 20.428 278.113 81.49 5.76 48.416 12.808 63.159 18.51 -2.56 341.272 4.112003-04 258.819 20.54 298.493 82.63 7.33 47.445 13.314 62.753 17.37 -0.64 361.246 5.852004-05 276.534 22.329 320.266 83.7 7.29 48.041 12.974 62.349 16.3 -0.64 382.615 5.922005-06 297.572 23.427 346.074 85.02 8.06 45.817 12.711 60.965 14.98 -2.22 407.039 6.382006-07 317.591 25.831 373.134 86.61 7.82 43.322 11.876 57.698 13.39 -5.36 430.832 5.852007-08 335.918 27.959 398.182 87.11 6.71 43.541 12.645 58.9 12.89 2.08 457.082 6.092008-09 359.771 32.459 433.785 88.03 8.94 43.959 12.087 58.972 11.97 0.12 492.757 7.82009-10 387.997 38.46 473.519 89 9.16 43.262 11.969 58.523 11 -0.76 532.042 7.972010-11 391.303 39.705 477.839 89.7 0.91 40.018 11.628 54.855 10.3 -6.27 532.694 0.122011-12 397.443 41.572 488.108 90.4 2.15 38.39 10.639 51.832 9.6 -5.51 539.94 1.36

Source: Ministry of Coal

fEATuRE

-7

-6

-5

-4

-3

-2

-1

0

1

2

3UG production growth rate

Source: Ministry of Coal


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Faced with a situation where coal production from underground (UG) mines has declined consistently during the past 35 years since nationalisation, Coal

India Ltd (CIL) is exploring new ideas to increase its UG coal production.

India’s coal production stood at around 75 million tons per annum (mtpa) in the early 1970s when coal companies were nationalised and almost entire production then was from UG mines. In 2011-12, on the other hand, India’s coal production from UG mines stood at around 38 million tons, which means there was a decline of around 1 million ton every year post nationalisation.

“We have some challenges as far as UG mining is concerned because of issues like surface rights, viability and cost of production. To overcome this, we have to explore different models,” CIL chairman S. Narsing Rao told Coal Insights. “We will explore whether it will be possible to conduct UG mining operations without having surface rights as this will reduce our complication significantly,” he said.

Rao said if the proposal goes ahead they would take lease of the surface land for 10-15 years instead of acquiring the land. He pointed out that a lot of coal is wasted under the pillars during UG mining because the rules say that to extract coal beneath the pillars, the company should have surface rights. And for surface rights, the company first has to acquire the land which is a big hurdle.

Explaining the idea, Rao said, “Suppose farmers have a land in an area beneath which coal reserve is available and that reserve can be mined through UG means. In such areas, we will offer to pay such farmers an amount which is slightly higher than his existing annual income for 10-15 years and will return the land to them once the coal is extracted.”

The agreement can be drafted in such a way that in the unlikely event of subsidence during or after the mining, CIL could pay the damages at a mutually agreed price, Rao said.

“Today we have the technology like numerical models, 2D, 3D and those through which you can predict where there will be subsidence and where there will be not. Wherever there is a possibility of subsidence, we can enter into an agreement with people either to restore it or pay them more on a per acre basis if subsidence occurs. But the farmers can use the land once the UG mining is over and there is no subsidence,” the chairman said.

He, however, said the proposal may not be viable in densely populated areas where large scale production will be unviable as a large number of people will have to be rehabilitated.

“We are just exploring these ideas. Obviously these are all

new ideas, but how much they will be successful has to be seen. It will also depend on how they respond,” Rao added.

“UG coal mining is a must for the nation. There is no choice here,” he asserted. “If we do not do anything right now, the country will face a huge crisis. Once production from opencast mining starts declining, we cannot afford to immediately switch to UG mining unless the process is started much earlier,” Rao said.

Mine reopening plan Meanwhile, CIL may scrap its earlier plan to reopen 16 closed mines, mainly UG mines, through joint venture route, Rao indicated.

“The earlier plan to reopen the mines did not take off. The joint venture partners were expecting that coal to be produced from these mines should be allowed to be used by them. But when the law and the procedure did not permit such a thing then it did not really take off,” he said.

Asked if there was any possibility of revival of earlier plan to reopen the closed mines through JV route, Rao said, “I am not sure about the revival under that model. Now we can go only through mine developer and operator (MDO). Through the MDO model, like per ton basis of mined coal, can be an option, but we should also do it on our own because we have competencies. We are pursuing that and are hopeful. Some contracts have been awarded by BCCL,” he said.

Rao said the MDO model can also work for UG mines, but the company should also do it on its own. “It should be a joint effort where the MDO as well as department model can be introduced to produce more coal. It is our hope, our resolve and our commitment,” he added.

CIL exploring new ways to increase production from UG mines



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Pressure is mounting on Coal India Ltd (CIL) to shed its doubts and get involved in the “price pooling” for domestic and imported coal; but the coal monolith

remains sceptical. In no unclear terms, the company’s top brass have expressed reservations against the new system. The coal ministry, however, remains unaffected.

“It (price pooling) is not a magic wand,” CIL chairman S. Narsing Rao told Coal Insights when asked to comment on the merits of this new formula. Later, he added, “It is not a question of my being favourable or not (to price pooling), but certainly it will not happen at the cost of CIL’s financial interests.”

“We have said that there are some risks involved with implementing pooled price mechanism and any consequences arriving out of the proposal should have to be handled by the Power Ministry and Central Electricity Authority (CEA) as it they who have advocated the proposal,” Rao added.

Interestingly, in a recent decision, the Prime Minister’s Office (PMO) has asked CIL to decide the pooling of coal price mechanism. Pooling formula of coal prices is determined by combining the prices of both imported and domestic coal to offset the impact of high import costs. The outcome should be a drop in import prices and increase in domestic prices.

CIL’s opposition to price pooling is not new. Earlier

CIL sceptical on price pooling schemeCoal Insights Bureau

The board of directors of Coal India Ltd (CIL) will meet on July 31 to discuss, among others, the proposal of a pooled price mechanism that has been

advocated by the power ministry in a letter to the Prime Minister’s Office (PMO).

Coal India chairman S Narsing Rao, however, said the company has not received any formal communication from the PMO regarding pooled price mechanism. “But we are aware of the discussions that have taken place at the government level. I believe there is a general consensus among the state and central power utilities,” he added.

The Planning Commission and the power ministry are in favour of supply of imported coal by CIL so that plants that came up after April 2009 do not suffer as they will effectively get around 60 to 70 percent of their total coal requirement from indigenous sources and will have to depend on imports for the balance.

As per the present policy of CIL, the power plants that had come up before April 2009 are supposed to get 80 percent of their total coal requirement from CIL whereas for the plants that have come up after April 2009 and will come up till March 2015 will get only around 60 percent of their total coal requirement from CIL.

So the burden of imports will be much more on the plants that came up after April 2009 as they will have to import around 40 percent of their total requirement compared with the plants that were in operation before April 2009 which will have to import around 20 percent of their requirement.

“The logic behind the pooled price mechanism is to spread the gap in prices of imported coal for the two sections of plants among all the others, so that the latecomers are not penalised,” Rao said.

He explained that even if the pooled price mechanism is introduced, the net kitty to the government or the country will not change.

For example, if CIL is required to supply around 350 million tons (mt) of domestic coal and 20 mt of imported coal to the power sector and if the total cost of 350 mt of domestic coal is around `35,000 (at an average price of `1,000/ton) and the cost of 20 mt of imported coal is around `12,000 crore (at average price of `6,000/ton), the total cost of coal to be supplied by CIL will be around `47,000 crore.

Instead, under the pooled price mechanism, the cost of imported coal to power plants might be reduced to, say, around `8000 crore against the actual cost of `12,000 and the cost of domestic coal might be increased to `39,000 crore as against the estimated average cost of `35,000 crore.

Rao, however, felt that raising the price of domestic coal so that users of imported coal get subsidised rates may not be accepted by plants that had come up before April 2009.

The CIL chairman said “It is not for me to say whether the mechanism will take off or not. But as far as CIL is concerned, it will not make any money and at the same time will not subsidise anyone.”

Asked about the mechanism of implementation of pooled prices, Rao said, “Financial mechanism is not a major issue because a pool account or notional pool account can be opened where the additional money charged for supply of domestic coal can be kept. That can be utilised to fund the gap arising out of supply of imported coal at a lower price. But the operational mechanism of who gets what quantity of imported coal will be an issue till the time the system can be stabilised.”

CIL board to discuss pooled price mechanism on July 31


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too, the idea of aggregation of imported coal with domestic resources was opposed by independent directors. When asked to comment on that, Rao said, “Whatever decision was made is to be seen as a collective decision. You shouldn’t single out anyone….This time also, whatever will be done will happen by consensus. But you shouldn’t consider it (price pooling) a magic wand.”

States give nodMeanwhile, the states have agreed to implement price-pooling mechanism of coal, coal minister Sriprakash Jaiswal said.

“A major hurdle has been sorted. The Central Electricity Authority (CEA) has communicated that states have agreed to a price pooling mechanism for coal prices. They do not have any problem,” he was quoted as saying.

The CEA discussed the issue with the state electricity boards (SEBs) in early July. It was estimated that price pooling between indigenous and imported coal may lead to an increase in electricity generation cost by 7-8 paise for every unit. The SEBs, which are reeling under severe financial stress, were initially against any rise in prices because they are not able to pass the burden to end-consumers.

Jaiswal said that price pooling is a complicated issue and has never been tried in the country. “If it is good for the country, the ministry will implement this. The mechanism has to be discussed with the ministry of power,” he said.

Meanwhile, coal ministry sources said that some states may object to the proposed formula of pooled price mechanism as this might lead to increase in cost of domestic coal by about 10 to 20 percent. According to an unofficial estimate, the pooling will increase the price of domestic coal by about `100/ton.

As of now, it is not yet clear as to how the costlier import will be subsidised and to what extent. Also, how the move will be received by the market and especially the traders. The biggest question is who is going to sacrifice on prices and by how much?

CIL unlikely to importAlthough the company could not do much about price pooling, the PSU seems to be determined not to go for imports unless there is a value proposition involved.

“The fact is that the country is facing shortage of coal. The power sector alone is facing a shortage of 80-90 mt. But if we (CIL) have to import and supply at the same price, there will be no value addition. We’ll just add another layer only,” said Rao.

The CMD suggested that instead of CIL, other PSUs such as MMTC and STC may be given the onus for importing coal. “We will address it to somebody who has already developed experience and expertise.”

Even the coal minister was not very insistent on the issue. “If required, the government will ask CIL to import,” he said. The ministry sources, however, had earlier reportedly said that CIL may be asked to import up to 30 mt this fiscal.


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CMPDI eyes commercial UCG projectsCoal Insights Bureau

The Central Mine Planning and Design Institute (CMPDI), on behalf of Coal India Ltd (CIL), is undertaking several initiatives for commercial development of underground

coal gasification (UCG) in India. The company has initially identified two blocks under Central Coalfields Ltd (CCL) and Western Coalfields Ltd (WCL) where it will join hands with existing players to exploit the resource.

“Two blocks have been identified under CCL and WCL where these projects will come up. Once these projects become successful, similar projects will be taken up at other places,” CMPDI sources told Coal Insights.

CMPDI had recently floated a tender for the two identified blocks, seeking bids from interested parties. However, the tender was cancelled later on and will be floated afresh after some modifications in the tender document.

“We got an encouraging response. About seven to eight parties from abroad, all big global players, had expressed interest. There was also participation from India. We hope to get a similar response once the tender is floated afresh,” the sources said. The company, meanwhile, is positive about the project outcomes, and takes inspiration from the sudden interests shown by the industry in India. Already companies like Reliance, JSPL and RCF have started working on UCG projects in Odisha and other places.

“This is a huge opportunity lying untapped. If we can utilise this resource, we can do justice to the huge underground coal reserves that the country is bestowed with,” the sources said.

UCG is the in-situ gasification of coal seam under controlled combustion which yields synthetic gas or syngas as the main output. Syngas is a mixture of hydrogen, carbon monoxide, methane, carbon dioxide and higher hydrocarbons. It has a calorific value of 850-1100 kcal/m3 for air injection and has multiple uses in power generation or as feedstock in fertilizer and chemical industries.

Previous attemptsCMPDI had earlier tried to take up similar ventures but did not taste success due to various constraints. In the 1980s, the company took up a UCG project at Merta Road Lignite Block which was found technically feasible. With technical support from the erstwhile USSR, CMPDI tried to set up a pilot project at the site. However, the fear of groundwater contamination stalled any further progress.

There were similar other attempts made for UCG during the 1980s, but none of them yielded any positive results, mainly due to technological challenges and concerns about groundwater contamination.

According to CMPDI sources, the recent technological advancements have addressed those issues and a number of PSU firms, along with private companies, are pursuing exploration of UCG all over again. These include Neyveli Lignite Corporation (NLC), Rajasthan State Petroleum Corp. (RSPC), ONGC and CIL/CMPDI.


fEATuRE

Recently, the company under a JV with ONGC has generated UCG-specific data through exploratory drilling at Kasta block in Raniganj coalfield. ONGC has generated additional data on the Vastan lignite block, Gujarat for taking up pilot projects.

However, there are issues to be sorted out and full-scale commercial UCG project may not be a reality in the near future, top CMPDI officials said. Moreover, unless a number of sizeable units are established, the gas may not be economically viable.

India’s steam coal reservesDepth (mtrs) reserves (bn tons) %

0-300 156.15 620-600 6.1 3300-1200 88.65 35

India’s lignite reservesDepth (mtrs) reserves (bn tons) %

0-150 8.7 210-300 2.6 6150-300 10.8 27>300 18.8 46

OpportunitiesIn India, reserves below the depth of 300 metres are not considered economical for mining. The vast deposit of steam

coal (used for power generation) and lignite below the viable depth of 300 metres provide a significant opportunity for UCG in the country, CMPDI sources said.

In recent past, the government issued Gazette Notification and guidelines for commercial development of UCG. This was another major step and helped address regulatory issues, thereby opening up the sector for private investments.

“At this juncture, all that we need is a successful pilot project, which may lead to successful implementation of commercial projects,” they said.

R&D partner Meanwhile, CMPDI is also looking for a R&D partner to undertake various upcoming research projects under S&T scheme of Ministry of Coal. The company has invited Expressions of Interest (EoI) from established research institutes, academic institutions and other organisations engaged in manufacture/supply of mining equipment/accessories or related mining and allied services/activities.

The various studies to be carried out include extraction of coal reserves standing on pillars below infrastructure/developed area without stowing and safe parting between underground and opencast workings for simultaneous mining. Introduction of water jet cutting technology and coal bed methane (CBM) estimation for coalfields are among other areas where scientific research will have to be undertaken.


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India’s power plants generated a total of 76,305.69 million units (MU) electricity in June 2012 and surpassed the target of 73,752 MU set for the month, according to provisional

data of Central Electricity Authority (CEA).With this, the actual generation during the first three

months of current financial year stood at 229,976.35 MU, 3.36 percent higher than the target of 222,489.00 MU.

The generation in June 2012 was also higher compared to 70,600.67 MU generated during the corresponding month of the previous year. The target set for June 2011 was 69,259.33 MU.

Electricity generation in May 2012 was 78,945.41 MU against the target of 76,899 MU, whereas April generation was 74,725.25 MU against the target of 71,838 MU set for the month.

Of the total generation in June 2012, the thermal sector accounted for 61,908.52 MU, while 2,723.47 MU was generated by the nuclear sector. The hydro sector contributed 11,233.93 MU. Bhutan imports accounted for the remaining 439.77 MU.

The target for generation in thermal sector for the month was 59,553 MU, while that for the nuclear and hydro sectors was 2,602 MU and 10,986 MU, respectively. The target for Bhutan import stood at 611 MU.

In June 2011, the achieved figures of power generation by various power sectors stood at 55,588.29 MU for thermal, 2,502.39 MU for nuclear and 11,884.59 MU for the hydro sector. The remaining 625.4 MU was contributed by Bhutan imports during the month.

Capacity additionA total of 2,376 MW of power generation capacity was added

in India during the month of June 2012 taking the total installed generation of the country to 205,083.03 MW, according to provisional data of CEA.

With this, India added a total of 5,206 MW of electricity generation capacity during the first quarter (April-June) of 2012-13 against a target of 3,807 MW. The capacity addition during the corresponding quarter of 2011-12 was 3,509 MW and the target for the period was 4,016 MW.

The actual capacity addition in May 2012 was 1,070 MW and that in June 2011 was 2,224 MW. The capacity addition target for June 2012 was 2,862 MW.

In June 2012, capacity added in the thermal sector was 2,145 MW while the capacity addition in hydro and nuclear sectors stood at 231 MW and nil, respectively. However, capacity addition targets for thermal, hydro and nuclear sectors stood at 2,770 MW, 92 MW and nil, respectively.

Of the total capacity added during the month, 231 MW of hydro power came in Himachal Pradesh, 250 MW in Delhi, 600 MW in Gujarat, 795 MW in Chhattisgarh and 500 MW in Madhya Pradesh. A total of 1,160 MW was added by NTPC, 231 MW by NHPC, 600 MW by Essar Power and the remaining by two other companies.

Critical coal stockInadequate coal supplies by domestic coal companies and lower imports by power utilities have led to critical coal stock position at a number of Indian power plants.

India’s June power generation exceeds target Coal Insights Bureau

81%

3%

15%

1%Thermal Nuclear Hydro Bhutan Import

Source: Central Electricity Authority

Categorywise energy generation inJune 2012 (in %)

Capacity addition in June 2012Sl. No. unit Name State Company type

Capacity Added (In MW)program Achievement

1 Chamera-III H.P. NHPC HY 77 772 Sipat - 1 C.G. NTPC TH 660 660

3 Kasaipalli TPP C.G. ACB TH 135 135

4 Chamera - III# H.P. NHPC HY 77 77

5 Vindhyachal STPS - IV# M.P. NTPC TH 500 500

6 Pragati CCGT - III# Delhi PPCL GT-3 250 250

7 Salaya TPP# Gujarat Essar power TH 600 600

8 Chamera - III## H.P. NHPC HY 77 77

Total 2,376 2,376# Units preponed from second quarter; ## Unit preponed from third quarter


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According to data available with Coal Insights, a total of 31 plants of the total 89 in the country were faced with critical coal stock position of less than seven days as on June 28.

The data further shows that out of the 31 plants facing ‘critical coal stock’ position, 20 were facing ‘super critical’ coal stock position of less than four days.

On June 14, out of the 33 plants (out of 89 plants) facing critical coal stock position of less than seven days, 21 were facing ‘super critical’ coal stock position of less than four days. Plants in Maharashtra, Bihar, Andhra Pradesh and West Bengal were the worst sufferers.

Plant load factorThe Plant Load Factor (PLF), a measure of the output of

a power plant compared to the maximum output it could produce, for the country for the month of June 2012 stood at 72.05 percent against the planned 71.46 percent. The PLF was 73.89 percent and 75.21 percent for May 2012 and April 2012, respectively.

The PLF of power plants of central sector run companies such as NTPC and DVC in June 2012 stood at 82.33 percent compared whereas the figure achieved in May 2012 was at 85.54 percent. In June 2012, the plants in the private sector recorded a PLF of 66.26 percent against the planned 71.93 percent.

The worst performer was Muzaffarpur TPS, MPL and SVPPL, all three of which recorded nil PLF against a target of 18.31 percent, 57.41 percent and 46.3 percent, respectively. ACB which recorded a PLF of 48.1 percent against a target of 77.16 percent continued to be a poor performer.

Power supply positionIn the month of June 2012, the country’s peak power demand was estimated at 85,382 MU, but actual availability was only 78,031 MU, reflecting a shortfall of 7,351 MU or 8.6 percent.

Earlier, in the month of May 2012 the country’s peak power demand was estimated at 84,162 MU, but actual availability was only 77,888 MU, reflecting a shortfall of 6,274 MU or 7.5 percent.

An interesting observation is that despite overall peak shortage of power in the country in June 2012, Lakshadweep did not have any peak power shortage, according to data made available by CEA. Uttar Pradesh, however, faced the highest shortfall among all states during peak period with a total shortfall of 1,281 MU.

Tamil Nadu recorded the second highest shortfall during the month under review. The state recorded total shortfall of 1,034 MU in June 2012, against 956 MU in May 2012. Haryana continued to be a poor performer recording a shortfall of 528 MU against 484 MU in June 2012. Maharashtra recorded a shortfall of 437 MU against 391 MU during May 2012 whereas Madhya Pradesh (355 MU versus 259 MU in May) also faced major peak period shortfall during the month.

0

500

1000

1500

2000

2500

3000

Thermal Hydro Nuclear

Target

Achievement

Achievement vs target in capacityaddition (in MW)


0

10

20

30

40

50

60

70

80

90

Central State Sector Pvt. Utl.Sector

All India

Program

Achivement

All India PLF in June 2012 (in %)


Indian power utilities’ June coal import up 4.4%

The import of steam coal by Indian power utilities, including imported coal based plants, in June 2012 stood at 4.23 million tons (mt), up 4.44% from 4.05 mt in May, as per provisional data of Central Electricity Authority (CEA) available with Coal Insights.

The import in June was lower than the target of 4.61 mt set by CEA for the month, but 1.72 mt higher than 2.51 mt imported in June 2011, the data revealed.

During June 2012, imported coal based plants had brought in 1.99 mt of coal whereas during the previous month, the figure stood at 1.89 mt.

The import during the first quarter of 2012-13 stood at 12.67 mt, 22% lower than the target of 16.27 mt set for the period. However, imports during the first quarter of current financial year were up 11.93% compared with 11.32 mt imported during the corresponding quarter of 2011-12, according to the data.

Of the total import during the Q1 of FY13, 6.71 mt was by indigenous coal based power utilities and 5.96 mt by imported coal based plants.


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The sponge iron industry in India, which has been facing a strong headwind over a year now, fears that things may turn further worse in the coming days. With no solution

in sight, the sponge iron makers bank hopes on a dramatic improvement in market conditions, which they know is least likely to come by.

According to industry sources, there is an acute problem arising out of iron ore and coal availability. This is being coupled with the surging prices of raw materials required for the manufacture of direct reduced iron (DRI). The combined effect of these factors, they said, is worsening the situation further, making it extremely uncomfortable for DRI makers to survive amidst crisis.

Flat demand Demand for sponge iron has remained flat for the last few months with slight deteriorations on a sporadic basis as demand from the real estate sector has gone down significantly over the past few months.

“Almost all the DRI manufacturers have slashed their

production and are operating at only 40-50 percent of their installed capacity. Hence, production have gone down by that extent throughout the country,” a Chhattisgarh based DRI maker told Coal Insights.

“Out of the 61 sponge iron plants in the state of West Bengal, seven have completely shut down of late while the rest have slashed their production to a large extent and are now operating at 35-40 percent of their installed capacity,” said S. Bhattacharjee, secretary of the West Bengal Sponge Iron Manufacturers’ Association (WBSIMA).

“Although demand for sponge iron is not very poor, acute dearth of raw materials like iron ore are posing great problems. In addition, input prices having gone up manifold and this has worsened the situation further,” he added.

However, Bhaskar Sen, CMD, United Bank of India (UBI) told Coal Insights that sponge iron sector has shown slight improvement so far in FY13 as compared to the previous financial year. UBI is a prime lender to the sponge iron sector in the eastern region of the country.

DRI sector survival woes continueSanjukta Ganguly


DRI production in 2011-12 (in tons)

Month (2011-12) total gas based total coal based Grand total

April 561,876 1,399,327 1,961,203

May 501,440 1,463,195 1,964,635

June 513,951 1,433,178 1,947,129

July 559,601 1,325,530 1,885,131

August 518,692 1,328,723 1,847,415

September 404,641 1,275,571 1,680,212

October 341,718 1,177,838 1,519,556

November 311,031 1,154,222 1,465,253

December 325,005 1,203,951 1,528,956

January 377,046 1,200,446 1,577,492

February 346,049 1,202,103 1,548,152

March 388,968 1,243,561 1,632,529

Total 5150,018 15,407,645 20,557,663

Source: SIMA

Export of sponge iron (in tons)Company 2011-12 2010-11

Tata Sponge Iron Limited 23920 24650

Welspun Maxsteel Ltd 35733 92051

Monnet Ispat & Energy Limited 56506 38794

Total 116,159 155,495

Source: SIMA

Prices may dipIn view of the falling steel prices and low production of sponge iron, NMDC may consider slashing iron ore prices for domestic steel mills which may bring some relief to the sponge iron sector. There is an anticipation that the July-September quarter prices may go down by `300-500/ton on disparity between sponge and iron ore prices, as international markets are also down. Currently, 6-20 mm of 65% Fe is offered at `5,540/ton (basic prices, royalty and taxes extra) ex Kirandul mines of NMDC located in Chhattisgarh. Also, improved supply and comparatively lower prices from Odisha miners, NMDC might consider price cut.

However, an official of NMDC said the company will take a call on second quarter prices in a board meeting to be held this month. He also indicated that there may be a cut in prices due to weak trend in the international market and low demand from steel makers.

With the possibility of iron ore prices going down slightly, the sponge iron makers are seeing a little ray of hope for a slight increase in production as well. However, without proper government policies, their survival crises are here to stay longer.

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Steelmakers vie forOdisha based DRI maker

Three Indian steelmakers and sponge iron producers have made separate open offers to acquire equity in Orissa Sponge Iron & Steel Ltd (OSISL). Bhushan Power & Steel Ltd (BPSL) has made an open offer to acquire 26 percent of OSISL. Offers from Bhushan Steel Ltd and Monnet Ispat & Energy Ltd (MIEL) are each for a 20 percent shareholding in the Odisha-based sponge iron producer, according to announcements filed with the Bombay stock exchange.

These offers follow similar attempts the three companies made in early 2009 to secure equity stakes in OSISL. The three were subsequently involved in a legal tussle and all three filed revised open offers earlier this week.

BPSL’s offer price is the lowest among the three, priced at `300/share. MIEL is offering `310/share and Bhushan Steel `360/share. Bhushan Steel’s sister company, Bhushan Energy Ltd, holds about 17 percent of OSISL, while MIEL is believed to hold about 15 percent.

Bhushan Steel is believed to be interested in securing iron ore and sponge iron from OSISL. Bhushan Steel is building a 6 million tons/year integrated steelworks at Odisha. The works hosts eight direct reduced iron (DRI) kilns, each with a capacity of 500 tons/day.

Some 180-200 km north of Dhenkanal, OSISL operates a 250,000 tons per annum (tpa) sponge iron plant and a 100,000 tpa billet works. It also has iron ore assets.

Going up in smoke


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India’s cement production by large plants, except ACC and Ambuja Cement, in May 2012 moved up 13.52 percent to 16.2 million tons (mt) compared to 14.27 mt in

the corresponding month of 2011, according to information made available to Coal Insights by a member of the Cement Manufacturers’ Association (CMA).

However, the production in May 2012 was 1.19 percent higher compared with 16.01 mt in April 2012.

The production by ACC and Ambuja in May 2012 was 2.02 mt and 1.88 mt, respectively and if their production is taken into account the total cement production of the country would be 20.1 mt.

India’s cement production by large plants, except ACC and Ambuja Cement during the first two months (April-May) in 2012-13 stood at 32.21 million tons (mt) as compared to 28.87 mt during 2011-12.

For the month of May, India’s cement despatches by large plants, except ACC and Ambuja Cement, stood at 16.26 mt, up 14.51 percent as compared to 14.20 mt in the corresponding month of 2011, as per the CMA member. The despatches in April 2012 stood at 15.5 mt, he said.

India’s cement despatches (except ACC and Ambuja) during the first two months (April-May) of 2012-13 stood at 31.76 million tons (mt), up 11.13 percent from 28.58 mt during the corresponding period of 2011-12.

Production by large firmsACC Ltd, India’s leading cement manufacturer, has reported a 6.1 percent fall in cement production during May 2012 at 2.02 mt compared with April production of 2.17 mt. The production during the month was, however, 0.49 percent higher compared with 2.01 mt produced in May 2011, the company said in a release.

The company had reported a 5.65 percent fall in cement production during April 2012 which stood at 2.17 million

tons (mt) compared with March production of 2.30 mt. ACC’s cumulative cement production between January and May 2012 stood at 10.89 mt, up 5.83 percent compared with 10.29 mt produced during the corresponding period of 2011.

The company’s cement despatches or sales in May fell by 0.97 percent to 2.05 mt compared with 2.07 mt despatched or sold in April 2012. The despatches in May were, however, higher by 3.01 percent than 1.99 mt despatched in May 2011, the release said.

Its despatches during the first five months of 2012 stood at 10.83 mt, up 5.56 percent compared with 10.26 mt despatched during the same period of 2011.

Ambuja Cements Ltd’s May cement production stood at 1.88 mt, down 1.57 percent from 1.91 mt produced in April. The production in May this year was, however, 8.67 percent higher compared with 1.73 mt produced in May 2011, the company said in a release.

Ambuja Cements reported a 12.79 percent fall in April cement production which stood at 1.91 million tons (mt) as compared to 2.19 mt produced in March.

The cumulative production during the first five months of 2012 (January-May) stood at 9.89 mt, up 8.32 percent compared with 9.13 mt produced during the corresponding period of 2011.

Ambuja’s cement despatches or sales during the month of May stood at 1.93 mt, up 12.2 percent compared with 1.72 mt despatched in May 2011. Despatches during April 2012 stood at 1.86 mt.

The company sold 9.88 mt of cement during the first five months (January-May) of 2012, up 8.57 percent compared with 9.10 mt sold during the corresponding period of 2011, the release said.

UltraTech Cement Ltd, an Aditya Birla Group company, reported cement production of 3.5 mt in May, up 6.38 percent compared with 3.29 mt produced in April. The company’s

May cement production up 13.5% y-o-yCoal Insights Bureau


fEATuRE

production in May was, however, 7.7 percent higher compared with 3.2 mt produced during the same month of 2011.

The cement production during the first two months (April-May) of 2012-13 stood at 6.79 mt, up 4.7 percent compared with 6.48 mt despatched during the corresponding period of 2010-11. UltraTech’s cement despatches or sales in May stood at 3.59 mt, up 12.54 percent compared with 3.19 mt despatched in April.

The cement despatches during the first two months (April-May) of 2012-13 stood at 6.78 mt, up 5.28 percent compared with 6.44 mt despatched during the corresponding period of 2010-11.

ABG Cement plansABG Cement, a part of ABG Group which is India’s largest ship manufacturing company in the private sector, expects to start its clinker and grinding units within the next one month.

“We expect to start production of clinker from Thumri unit, which is near the plant of Jaiprakash Associates and Sanghi Cement, as well as commence grinding unit at Hazira in Gujarat within the next one month,” a company official told Coal Insights.

The company’s clinker unit will have a capacity of 4.4 million tons per annum (mtpa) at Thumri while the grinding unit will have a capacity of 6.0 mtpa at Hazira.

“Our grinding unit will be the largest single location unit in Asia,” the official said.The company plans to transport cement from Hazira grinding unit to Mumbai, Cochin and Sri Lanka using bulk cement terminals, he said. To start with, ABG Cement will require around 1 mtpa of steam coal for its clinker and grinding units. “We are working on stocking coal from e-auction and will subsequently start using imported coal,” the official said.

ABG Cement also plans to set up grinding units in Katni in Madhya Pradesh and in Rajasthan.

“We plan to set up a 2 mtpa unit in Katni and 4 mtpa unit in Rajasthan, but that will take another about two years to come to operation stage,” the official added.

Chettinad Cement Chettinad Cement, a leading cement manufacturing company of India, has posted a net profit of `30.23 crore during Q4 of 2011-12 as compared to a net loss of `1.04 crore during the corresponding quarter of last year (2010-11), according to information available with Coal Insights.

The company’s total income during the quarter stood at `606.32 crore as compared to `432.51 crore during the corresponding period last year.

Total expenses of the company during the period stood at `423.92 crore while the figure stood at ̀ 293.38 crore during the same period last year.


Despite the increasing adoption of paper-less communications, demand for paper in India is growing at a robust pace. A huge demand base and

healthy outlook are likely to drive growth in coming years. However, lack of raw materials and low recovery rates for waste paper pose a serious challenge. Adding to this list are a shortfall in domestic coal supply and increased energy costs that may impede the growth, industry sources said.

As a thumb rule, paper demand grows in tandem with the growth in a country’s GDP. In India, the industry is witnessing a slightly higher rate of growth at around 8 percent, making the country the fastest growing market for the product. And yet, this is way below the potential, analysts estimate.

As of 2010, India’s per capita consumption of paper was 9.6 kg against the global average of 57.6 kg, industry data shows. Increasing population, improved life style and the government’s drive for universal education are driving growth. As a result, the paper and paperboards industry in India is expected to reach 20 million tons (mt) by 2020 and 40 mt by 2030.

It is expected that demand from the academic, corporate, industrial and retail paper segments will keep paper production upbeat. Moreover, demand for newsprint is also likely to remain strong due to a healthy outlook on the print media industry, new edition launches and also due to the intense competition among print media companies to increase circulation and capture a bigger pie of the market.

Stumbling blocksHowever, despite having such a pleasing growth story up its sleeves, the paper industry is not impervious to facing challenges when it comes to production of the material. The industry is highly fragmented with half a dozen mills commanding nearly 90 percent share of the newsprint market. While pampered by the robust demand, the industry faces major deterrents in terms of raw materials and energy costs.

According to Indian Paper Manufacturers’ Association (IPMA), cost of wood in India is much higher in global comparison. “Since there is conspicuous absence of government’s enabling policies favouring industrial/production plantation, securing future wood supplies will be industry’s biggest challenge.”

The low rate of waste paper recovery, at 20 percent versus 65 percent in developed countries, is another deterrent. The utilisation rate of recovered fibre is only 47 percent. This makes the paper mills heavily dependent on imported waste

paper which commands exorbitant price due to inadequate availability.

IPMA in its pre-budget recommendation had raised certain critical issues, which they felt the budget had failed to address. Excise duty was increased from 4 percent to 5 percent in Union Budget 2011-12. IPMA had recommended the same to be reinstated to 4 percent. It further sought that the rate of interest for delayed payment of duty which had been increased to 18 percent be reinstated to earlier 13 percent and for the sake of simplification it had suggested to collect all levies under one head.

Non-availability of coalWhile many of these are long standing issues, the recent dynamics of the coal market are posing newer challenges to the sector. The government has recently withdrawn the core sector status hitherto enjoyed by the industry, thus impacting further its prospects in the face of increasing energy prices.

For companies like Tamil Nadu Newsprint Limited (TNPL) and JK Paper, the impact of rising energy costs is significant. Also, the supply scenario with Coal India Limited is a major concern at present. Paper companies need power to run their factories, and thereby also experience the challenge of increasing coal costs and/or rising power tariff.

“Paper manufacturers usually get into coal linkages with Coal India to source their coal needs. However, due to the unavailability of coal domestically they have to import higher priced coal from overseas or buy it from open market at higher prices. This adversely impacts the paper companies' earnings,” a source at TNPL told Coal Insights.

In view of the pressing need for imports, the association in its pre-budget recommendation had asked to consider duty free import of coal to overcome the crisis. This recommendation by the association has, however, been taken into consideration by the government.

IPMA had also suggested that GST should be allowed at lowest possible rate for the paper industry and it should neutralise all input taxes, which are levied, by the Centre and States by providing for input tax credit seamlessly across the supply chain. It also strongly recommends that Central Sales Tax (CST) rate should be brought down from current 2 percent to 1 percent, as high CST is a cost for manufacturers leading to increase in prices. According to information available with

Coal crisis hits Indian paper industry Sanjukta Ganguly

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Coal Insights, imported coal used to attract customs duty of 5.15 percent. As a measure of relief to industry, it had been recommended that the paper and paperboard industry be allowed to import coal at "nil" rate of customs duty.

Coal price hikeIPMA has criticised the sharp hike in coal prices in recent past. The association saw such moves as an effort by Coal India Limited to pass on its own inefficiencies and cost increases. According to a statement by IPMA, the paper industry, which does not have core sector status, is largely dependent on imported coal as mills face erratic supply of quality coal from local collieries. However, the effective customs duty on coal and the depreciating rupee has deteriorated the situation for paper manufacturers.

“The prices of wood and other raw materials have already been moving up over the last year, putting pressure on the bottom-lines of paper companies. The sudden and unforeseen hike in coal prices, after a major price increase last February, will further add to the cost push of the energy-intensive paper industry. The industry finds it extremely difficult to absorb the second dose of price

increase by Coal India in less than a year,” said Madhukar Mishra, president, IPMA.

In fact, the coal price hike has been caused despite the Ministry of Coal terming the change over from the system

of Useful Heat Value (UHV) to Gross Calorific Value (GCV) as a price-neutral exercise.

Reacting to the shift to GCV based pricing, IPMA had said that it sees the move as a one-way process to transfer cost increases and cost inefficiencies to

the helpless customers because of the monopoly status of the coal miner.

Paper is an input-intensive industry, with energy costs accounting for 25-30 percent of the total input costs. With the increase in input and raw material costs, it is feared that the price hike might erode the Indian paper industry's price competitiveness. With the economic slowdown looming large in developed economies, such challenges are expected to assume increased proportion in the coming days as well. Therefore, a well thought out strategy is the need of the hour to combat such challenges and keep the growth trajectory of the industry intact.

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sPECIAL REPORT

Coalgate: A mountain or a molehill?Arindam Bandyopadhyay

billion). If you wonder what that figure means, you may consider this – $420 billion equals the combined GDP of more than 75 poorest countries of the world.

The latest addition to this list of dirty deals is Coalgate. At a whopping 1,070,000 crore (or $213.47 billion), the coal scam has really hit the top. This is much bigger than the alleged 2G scam and accounts for nearly half of the accumulated figure of loss available. After initial denial, the government has deployed Central Bureau of Investigation (CBI) to carry out a probe. And the prime minister has declared he would give up his public life, if proved guilty.

But wait! While a hawk-eye (read Comptroller and Auditor General) is always welcome to stop this looting,

not every observation it makes is pre-destined to be sacrosanct. Sometimes proper care must be taken

to avoid simplification, coal industry sources say. In this case, the industry argues, CAG perhaps

has acted in haste and drawn conclusions that could be placed as suggestions. Given the set of

information furnished in its draft report, they further add, the media perhaps went a little

overboard calling it ‘the biggest scam ever’ instead of poor management and policy…!

Mirror mirror on the wall,Tell me who’s the dirtiest of ‘em all…!

In the last 60 years, more than 150 cases of economic scandals were reported in the Indian media. Many of these cases, including the Bofors and Kargil coffin scams, have had been shrouded in mystery. In about 100 other cases, where a ball park figure could be attached, the aggregate loss to exchequer was estimated at around `2,126,613 crore (or $420


sPECIAL REPORT

The indictmentWhen the crux of CAG’s leaked draft report on coal mining in India was flashed in the media, there was a little confusion over the existence of such a report. This was due to the coal ministry’s disclaimer that it has not seen anything of this sort. However, the subsequent letter sent by CAG to the Prime Minister’s Office (PMO) after the alleged leakage of the report makes it clear such a report exists.

According to information available, there is no mention of the word ‘scam’ in the 110 page draft Performance Audit report of CAG; neither the words like ‘irregularity’ or ‘misappropriation’ is to be found. What it points to however is “windfall gains” of captive miners allotted blocks all but free (only the exploration cost was to be paid to CMPDIL).

Audit by CAG has also worked out the extent of the windfall gains, “although at a rather conservative basis”. And that conservative estimate was `1.07 million crore. The Audit has reportedly eluded how this figure was arrived at.

The difference in the sale price and cost of production was worked out for each of the captive coal blocks and the same was multiplied by the respective discounted reserves (90 percent of geological reserves) to arrive at the estimated total windfall gains accrued by different allocattees. This figure was calculated both at the rates prevailing at the time of transfer as also at current prices (31 March 2011).

The sale prices (basic) of different grades per ton of comparable mines of CIL (on the date of transfer of the block)

were considered to arrive at the windfall gains. To arrive at the cost of production, the cost of production of comparable CIL mines in the year of transfer was taken for each of the blocks.

This implies that if block A, allotted for captive use, is estimated to hold 100 million tons (mt) of reserve and the price of coal of CIL (comparable grade) is `1,000 per ton and cost of production for the same at comparable CIL mine is `500 per ton, the windfall gain for holder of block A = `(1,000-500) x 90 million (90 percent of reserves) = `(500 x 90) million = `45,000 million = `450 billion = $1 billion (approximately).

Based on this method, the Audit estimated windfall gains of `6.31 lakh crore (PSUs `3.37 lakh crore and private parties `2.94 lakh crore) based on the prices prevailing during the year of allocation on constant cost and price basis. As on March 31, 2011, the amount would work out to `10.67 lakh crore (PSUs 5.88 lakh crore and private parties `4.79 lakh crore).

Fallacies in argumentTo call it the biggest ever scam is not only an overstatement, but could also be a mis-statement. ̀ 1.07 million crore is not the amount the exchequer lost due to government’s generosity. From the calculation shown above, it’s clear that the amount quoted is the “potential” estimated gains the block holders could make.

There is no reason to think the bidding of these blocks, if conducted, would have raised so much revenue. This is simply because if an investor has to pay up the present value of all his


sPECIAL REPORT

future profits upfront, he is not left with any incentive to make that investment. Hence, it’s wrong to call it a `1.07 million crore scam, if it’s a scam at all.

A notional figure If there was any windfall gain made by the block allocattees, it was at best on paper or notional.

Altogether, 216 blocks have been allocated so far by the government since 1993. Out of the 216 blocks, 24 blocks were de-allocated (three blocks in 2003, two in 2006, one in 2008, one in 2009, three in 2010 and 14 in 2011) for non-performance of production by the allocattees and two de-allocated blocks were subsequently re-allocated (2003 and 2005) to others. Hence, 194 coal blocks with aggregate geological reserves of 44.44 billion tons stood allocated as of March 31, 2011. Of these 194 blocks, only 28 blocks have started production as of March 2011.

Of the blocks allotted during 2004-09, the period under review, only a handful has come to production stage. Moreover, the initial production, if any, has been minimal and is not allowed to be sold on commercial basis. For these blocks and also for other non-producing blocks, the costs of production and price of coal may vary substantially in future

years, when these blocks actually start production. So the net windfall gain could vary in a wide range (this, however, the Audit report acknowledged).

As for the time being, such gains exist only on paper.

A one-sided view?The idea behind captive allocation of blocks was to enable the consuming sectors secure their raw material needs. The move resulted from the fact that CIL was not being able to keep pace with the growth in demand for coal. It was not the case that private firms clamoured for captive dispensation, but the government decided to offer some blocks to mitigate the impending supply gap.

Even though many domestic consuming industries were allocated blocks during the period under review, only a few could come to production to date. Hence to meet coal requirement, these companies had to take recourse to e-auction and imported coal, prices of both of which are significantly higher than CIL coal. In fact, during the five years 2006-11, a whopping ̀ 150,000 crore was spent by the domestic industries for imported coal.

The Audit report alleges that free distribution of blocks enabled the allocattees to make hefty gains and this needs to be rectified by the government. Applying the same argument, could the companies importing costlier coal due to lack of supply of domestic coal (despite availability) claim compensation from the government?

Benefits to marketThe biggest argument against the Audit report, as maintained by coal ministry sources, is the benefit to market.

“The truth is that if these blocks were given on the basis of bidding, the price of power, cement, steel would have been much more than what they are today. Also, whatever minerals we have, how can we decide not to take advantage of those endowments? Instead you are asking to make domestic industry less competitive…this couldn’t have been a good policy,” said a top MoC source.

Estimated benefits to block holders

Calendar year of

allocation

Govt companies private companies total (Govt.+pvt.)

90% of Gr

Benefit extended as per rates prevailing in the year of allotment

Benefit extended as per rates prevailing

on 31 Mar ’11

90% of Gr



on 31 Mar ’11

90% of Gr



on 31 Mar ’11

in mt (ìn crore) in mt (ìn crore) in mt (ìn crore)

2004 1709 45087 56949 0 0 0 1709 45087 56949

2005 1388 34056 45561 1776 39146 85523 3163 73203 131084

2006 8660 185119 259547 3011 62085 111764 11671 247204 371311

2007 7000 64066 207098 1747 38284 51502 8746 102350 258599

2008 288 6704 7364 2682 54445 80137 2970 61149 87501

2009 303 2438 11285 4605 99735 150574 4908 102174 161859

Total 19349 337471 587803 13820 293695 479500 33169 631166 1067303Source: Draft Performance Audit: Allocation of Coal Blocks and Augmentation of Coal production by Coal India Limited: Report of the Comptroller and Auditor General of India, Union Government (Commercial) No. of 2011-12 (Performance Audit)

Allocation of blocks during 2005-10

year of allocation

Govt. companies private companies

ultra mega power projects total

No. of blocks Gr in mt No. of

blocks Gr in mt No. of blocks Gr in mt No. of

blocks Gr in mt

Up to 2005 29 6294.72 41 3336.88 0 0 70 9631.6

2006 32 12363.15 15 3793.14 6 1635.24 53 17791.53

2007 34 8779.08 17 2111.14 1 972 52 11862.22

2008 3 509.99 20 2939.53 1 100 24 3549.52

2009 1 337 12 5216.53 3 1339.02 16 6892.55

2010 1 800 1 800

Total 99 28283.94 105 17397.22 12 4846.26 216 50527.42Source: MoC


sPECIAL REPORT

The Audit report recognises this fact, but differs in opinion. While appreciating the constraints and the view point of the ministry, the Audit reportedly said that coal being a natural resource should have been allocated to private players on competitive bidding which brings more transparency and objectivity in the system.

While there is no denying that transparency is an essential cornerstone of any distribution system, industry sources said “There is a time for everything. If these initial blocks were given on bidding basis, chances are there the government could find it difficult to get bidders.”

Besides, the benefits these block holders would enjoy are minimal if you consider that CIL too get the blocks free of cost. These companies, just like CIL have to incur the cost of rehabilitation and land acquisition and hence the margin they garner vis-à-vis CIL is marginal, if any at all. In a sense, the allocattees would, once they start production, save only on the margin CIL charges from the consumers.

Whose coal is it anyway? A major argument centering access to natural resources is that whether these resources belong to the government or the country’s citizens. While it is a fact that the scarce natural resources cannot be offered free of cost, the idea of government earning revenues at the cost of masses is also contested from time to time.

One school of thought says making available such resources at a low cost would lead to higher margins / competitiveness and hence increased production of goods. The benefit thus accrued to the economy needs to be measured first and compared with the loss to exchequer. Taking a one-sided view is like being judgmental and prejudiced.

The draft report notes that in 2004 when the proposal of allotting blocks on the basis of competitive bidding first came up, the government was tentative in view of the opposition from trade unions, power sector and pending block applicants. Without going into further details, industry sources point out

that the government makes policies largely for the benefit of the masses (or consumers), or industry (when it comes to foreign competition) or employees (when it comes to job market). When all these elements – consumers (power sector), producers (block applicants) and workers (unions) oppose a move, why blame the government for buying time on it?

Take the argument a little backwards. “Why not take into account blocks allocated in the 1990s, or for that matter blocks given to CIL? The point is that it takes time to evolve a system. If you don’t take this into consideration, you can dig into history and bring out innumerable scams from all over the places,” industry sources said.

They further suggest, “Think of the economy as a whole, as a single account. Why bother if loss to exchequer benefits the consuming masses? After all, the exchequer is meant for the citizens of the country, and not the handful of people that represent them….All in all, this could be a case of creating a mountain out of a molehill.”

Disclaimer: The article is based on media reports and the draft Performance Audit report on Allocation of Coal Blocks and Augmentation of Coal Production by Coal India Limited by Comptroller and Auditor General of India, Union Government (Commercial) as available on http://timesofindia.indiatimes.com/realtime/Draft_CAG_report.pdf. The publication does not take any responsibility for the validity of either the media reports or the draft report in any form.

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Source: MoC


GOvERnmEnT

The coal minister, Sriprakash Jaiswal, has said that there was no irregularity in allotment of captive coal blocks even during the period between 2004 and 2009. He said

everything was done as per procedure and with the consent of the concerned state governments and stakeholders.

The clarification came in the aftermath of an accusation by a member of civil society that Prime Minister Manmohan Singh had a role to play in allotment of captive coal blocks between 2004 and 2009 which had benefited some private sector companies at the cost of the nation as they got coal blocks practically free of cost.

Jaiswal said allocation of coal blocks to private companies for captive use commenced in the year 1993 after the Coal Mines (Nationalisation) Act, 1973 was amended. This was done with the objective of attracting private investments in specified end uses.

Initially there was not much demand for such allocation and the applicants themselves would identify the coal blocks and seek allocation, but as the economy grew in size, the demand for coal also increased, particularly due to expansion in the energy sector. It was felt that Coal India alone would not be able to meet the growing demand and, therefore, the option of giving a bigger role to the private sector was explored.

“It is against this backdrop that we should appreciate the reasons for allocation of coal blocks to private parties for captive use during this period,” he said.

Jaiswal said while allocation of coal blocks began in 1993, it was only in 2004 that for the first time, the idea of making allocations through competitive bidding was mooted and in 2005 the government initiated a proposal to amend the Coal Mines (Nationalization) Act.

The delay of three years between initiating the process of legislative changes and introducing the amendment Bill in Parliament was mainly due to the time taken in consensus building among divergent views of the various stakeholders, he said, adding that state governments such as Chhattisgarh, West Bengal and Rajasthan were opposed to the amendment as they felt it would increase the cost of coal, adversely impact value addition and

development of industries in their areas and dilute their prerogative in selection of an allocattee.

The ministry of power, too, felt that auctioning of coal may lead to increased cost of coal. Legal issues of whether amendment was required in the Coal Mines (Nationalization) Act or Mines & Minerals (Development & Regulation) Act (MMDR Act) were to be carefully examined.

“It was only through multi-layered consultations and discussions that these issues were finally resolved and the amendment Bill could be introduced in the Rajya Sahba in 2008. The central government was always keen to quickly push through the changes. However, it could not have moved ahead without duly considering the concerns of various stakeholders,” the minister said.

Meanwhile, keeping in view the increase in applicants for coal blocks, the government evolved a consolidated set of guidelines to ensure consistency in allocation. In September 2005 the system was further improved bringing in greater transparency. In the improved system applications were invited through open advertisements against an identified list of coal blocks.

Jaiswal said even as the process of switching over from screening committee procedure to competitive bidding was

No irregularity in allotment of captive blocks: Jaiswal



initiated, it was felt that the required legislative changes would be time consuming. On the other hand, imperatives of economic growth required massive capacity addition and this issue was deliberated at length in the meetings of the Energy Coordination Committee that had recommended allocation of coal blocks to prospective power producers.

It would not have been prudent to disrupt the momentum of accelerated investments in coal sector, especially as it was felt that it would take time in bringing about the required legislative and the consequent procedural changes.

“If the coal blocks were not made available between 2005 and 2010, it would have resulted in higher imports causing outflow of foreign exchange and would have had deleterious effect on large investments in crucial sectors like power and steel. These were the main reasons for continuation of allocation of the captive coal blocks,” Jaiswal said.

Moreover, it may also be noted that no coal block was offered for allocation after introduction of the Amendment Bill in the Parliament. Whatever allocations have been made after 2008, are as a result of culmination of the process initiated before the introduction of the Bill, he said.

He further said that the allocation of coal blocks was never looked upon as a potential source for generating revenue for the Central Government. The intent of the government was to induce rapid development of infrastructure which was so very essential to keep the economy on a high growth trajectory. Hence the question of maximizing revenue does not arise at all.

The idea of introduction of bidding cropped up only in the wake of increasing demand for captive coal blocks and the consequent necessity of putting in place a process which is demonstrably more transparent, Jaiswal said.

The allocation of coal blocks to private sector companies is only for captive use and not for sale or commercial use of coal. Since the blocks are allocated to private companies only for captive purposes for the specified end-use the question of linking the blocks to the market price/CIL price of coal does not arise at all, he said.

Jaiswal further said the coal blocks for captive end use were allotted on the basis of recommendations of a screening committee which followed a fair and transparent procedure giving equal opportunity to all applicants.

The screening committee was a broad based body with representation from state governments at the level of the Chief Secretaries, concerned Ministries of the Central Government and the coal companies. The procedure adopted for allocation involved wide consultations with all stakeholders. The parameters and the guidelines for allocation were duly notified and followed by the committee while evaluating the applications, he said.

Comprehensive details about the applicant/the group, performance of the group, financial strength and readiness of the end-use plant among others were placed before the committee enabling it to assess the comparative merits of the applicants and make fair and just recommendations.

Details of each application were shared with the concerned

state government and the line ministry. The applicant was also provided an opportunity to present his case before the screening committee.

The screening committee assessed the applications regarding matters such as techno-economic feasibility of the end use project, status of preparedness to set up the end use project, past track record in execution of projects, financial and technical capabilities of the applicant companies, recommendations of the state governments and the administrative ministry concerned.

The process of allocation of blocks was equitable, fair and just which is borne out of the fact that there has never been any serious allegation against the working of the screening committee, Jaiswal said, adding that the move to introduce competitive bidding is to make the selection process demonstrably more transparent.

Captive production far below target in XIth Plan


India’s coal production from captive coal blocks grew consistently during the past 15 years, but failed to meet the target during each of the five years

of Eleventh Plan, according to a provisional data of Ministry of Coal.

The country’s coal production from 29 captive coal blocks stood at 36.17 million tons (mt) in 2011-12, much higher from 22.48 mt produced in 2007-08 from 15 blocks and only 0.71 mt produced in 1997-98, but the actual production as well as number of blocks targeted to come to production stage were far below the ministry’s target.

Production during XIth Plan (in mt)

year No. of blocks production

2007-08Targeted 28 22.48Achieved 15 21.25



2010-11Target 1 86 73Target 2 27 35.64Achieved 28 34.224

2011-12Target 1 93 104.08Target 2 38 38.25Achieved 29 36.167

Source: MoC

GOvERnmEnT


The concentration of carbon dioxide in

earth’s atmosphere has increased manifold over the last few centuries, and phenomenally in past few decades. As of 2012, the concentration level of carbon dioxide is approximately 400 parts per million (ppm) by volume. This figure rose by 2.0 ppm/yr during 2000–

2009. The current concentration is substantially higher than the 280 ppm concentration present in pre-industrial times, with the increase largely attributed to anthropogenic sources (or human activities). There has been a dramatic increase in carbon dioxide emissions as global population increased and the use of fossil fuels for transportation, heating and power generation expanded.

Carbon dioxide is a prominent greenhouse gas that leads to global warming. The present level of carbon dioxide concentration is higher than at any time during the last 800,000 years. It is also likely to be higher than in the past 20 million years, according to an estimate. The scientific community, therefore, are trying to find out various ways to reduce its concentration.

There are both theoretical and classical reduction methods developed over a period. These include thermal decomposition, reduction with metal, reduction with hydrogen and other methods. None of these however is without demerits, and there is search on for better options.

Thermal decompositionThe thermal decomposition process takes place at very high temperature and leads to chemical decomposition. In simple words, a compound breaks into various elements under the influence of heat. In this method, carbon dioxide breaks down into carbon monoxide and oxygen with no precipitation of carbon.

The thermal decomposition of carbon dioxide to carbon monoxide (CO) begins at 1500ºC, around 20 percent at 2500ºC and 90

percent at 3500ºC. In this method, the recomposition should be prevented so that the temperature must be suddenly reduced below 700ºC.

This method is not applied due to some technical difficulties.

Reduction with metalThe reduction of carbon dioxide to carbon can be carried out with magnesium at a temperature of 600ºC.

This method however is impractical because of the cost of the regeneration of magnesium oxide, which is exorbitant.

Reduction with hydrogenThese methods are common in many different versions. The methods of reduction with hydrogen differ in the hydrogen source, catalyst and products.

Hydrogen can be produced from water with electrolysis, and also from natural gas. The products are formic acid, oxalic acid, methanol, methane and carbon monoxide, among others.

The major pitfall of this method is that the source of energy is electrical energy or fossil fuel.

Other reduction methodsSandia methodSandia’s Sunshine to Petrol (S2P) technology uses the high temperatures generated by concentrating sunlight along

TEChnOLOGy

A new method for carbon dioxide reductionDr Endre Simonyi

Dr Endre Simonyi

Global CO2 emissions (million tons per annum)

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TEChnOLOGy

with a zirconia/ferrite catalyst to break down atmospheric carbon dioxide into oxygen and carbon monoxide. The carbon monoxide can then be used to synthesise conventional fuels such as methanol, gasoline and jet fuel.

Stanford methodA combination thermal/photochemical cell has also been proposed. The Stanford PETE process uses solar thermal energy to raise the temperature of a thermionic metal to about 800ºC to increase the rate of production of electricity to electrolyse atmospheric carbon dioxide down to carbon or carbon monoxide which can then be used for fuel production, and the waste heat can be used as well.

Demerit of these methodsThese two methods mentioned above use solar energy to

reduce carbon dioxide. Thus these methods can work only when there is enough sunshine in atmosphere.

In the temperate zone, the annual dispersion of the energy is not adequate. Most of the energy is needed in winter; however the sunbeams are the least effective in that season. In summer the number of sunbeams is too much; in winter it is too few. The situation is the same at the named energy producing areas too.

A new approach*There is a new approach to carbon dioxide reduction that does not use solar energy for the reduction process. Neither this method uses fossil fuel for the reduction. Instead, this energy comes from a reagent, which enables the reduction to be carried out in winter, too. The regeneration of the reagent can be done in summer because it can be stored for a long time.

Note: The views expressed here are those of the author and not of Coal Insights. The publication does not take any responsibility for the article in part or in full.

Dr Endre Simonyi has got two engineering diplomas (a chemical engineer – 1960, and a process control engineer – 1964, both from Budapest University of Technology and Economics) and a PhD degree. He worked, among other places, at the Research Institute of the Hungarian Academy of Sciences. Currently, he is lecturing at the Universitas Budensis and the Pázmány Péter Catholic University. His first patented innovation was presented in 1964. In 2007, the inventor made as many patent applications as the biggest Hungarian university. Other than his pursuits for new inventions, Dr Simonyi is associated with forensic sciences and with the Electrotechnical, Electronical and Infocommunicational Department of the Budapest chamber of forensic experts since its formation (1994).

* To know about this new method in detail, please contact the author at endresimonyi@gmail.


With a sharp drop in coking coal prices, International Coal Ventures Ltd (ICVL), a consortium of five major public sector undertakings, is eyeing mines

in mineral-rich countries Australia and New Zealand at competitive valuations.

It is the right time to venture for mines abroad as the valuations have come down and the ICVL is carrying out due diligence in Australia, New Zealand and Mozambique, ICVL chairman C.S. Verma has said.

In fact, Verma is expecting a further fall in coking coal prices. The present level of prices, though down by 30 percent since 2010, may not be sustainable as demand from China, a major consumer, has come down significantly.

ICVL wants to be ready with the spadework so that it can go for acquisitions when the opportunity arises.

“As and when there is a good opportunity, money is not a problem. But, we should have a good proposal. ICVL is trying to take advantage of the lower prices,” Verma said.

Aimed at acquiring coal mines abroad to meet growing domestic need, ICVL was set up in May 2009 as a joint venture among five state-owned firms, with SAIL and Coal India Limited (CIL) holding 28 percent stake each, and RINL, NMDC and NTPC having 14 percent each. Verma is chairman of two of these five companies. Besides SAIL, he also heads iron-ore miner NMDC.

The ICVL board can take investment decisions of up to `1,500 crore. It aims to own 500 million tons (mt) of reserves by 2019-20.

Several private sector players, including Tatas, Adani and GVK, have acquired assets abroad for strategic resources.

NMDC to stay, CIL doubtful Meanwhile, state-run NMDC is on the lookout for coking coal mine acquisition on its own, both in India and abroad, even as it continues to stay in the ICVL fold.

“NMDC is very much part of ICVL and there are no plans to quit from this consortium. It is pertinent to mention

that NMDC being a mining company is on the lookout for additional mineral resources including coking coal in India and abroad. This would not mean that NMDC is not a part of ICVL,” NMDC said in a statement.

A steel ministry appointed committee, constituted for studying the procedure for import of coking coal, however, said in a report that CIL, NTPC and NMDC are scouting around for acquisitions on their own as well, which invariably leads to a compromise in their involvement in ICVL. NTPC and CIL had reportedly said that they did not want to be a part of ICVL as the venture does not serve their purpose.

NTPC wants to go out of the ICVL fold as the consortium’s focus is more on coking coal and the need of the power major is of thermal coal. CIL also had in March decided to exit the

consortium saying that it was not advantageous for it as it involves financial burden without commensurate advantage.

Verma had said in March said ICVL was close to acquiring a coking coal asset in the Bowen Basin, but nothing has happened so far.

Meanwhile, the coal ministry sought to play down the issue of CIL’s possible exit from the consortium. Asked to comment on the issue, Coal Minister Sriprakash Jaiswal said on July 4 that the coal ministry has not yet taken any decision on CIL opting out of ICVL.

“Let the import policy be finalised first and only after that we can talk of the future of ICVL,” he said on his visit to CIL headquarters in Kolkata.

The import policy refers to CIL’s active participation in import of coal directly for distribution to the power sector consumers. While the coal miner has repeatedly expressed its reservations about being “another layer” in the supply chain of imported coal, the coal ministry was of the view that it would be done if the situation demands so.

Asked when the matter could be expected to be finalised, Jaiswal said, the ministry and CIL may come to a decision on imports by one or two months’ time (July-August). The future of CIL’s stake in ICVL will be taken up only after that, he reiterated.

ICVL constituents vacillate,firm eyes Aussie mines

Tamajit Pain

CORPORATE


Tata Power, India’s largest integrated private power utility, has surpassed a total generation capacity of 6,000 MW, thus reinforcing its position as the largest private power

producer in the country. The company, through its wholly owned subsidiary Coastal Gujarat Power Limited (CGPL), has recently synchronised its 800 MW sized Unit 2 of the country’s first UMPP in Mundra, Gujarat. The Unit 1 of Mundra UMPP was commissioned in March 2012. With synchronisation of Unit 2, the thermal power generation capacity of Tata Power stands at 5,247 MW and the generation through clean sources such as hydro, wind and solar stands at 852 MW.

“The synchronisation of Unit 2 of Mundra UMPP is a significant milestone given the power shortage in the country. Mundra power plant will not only provide affordable power but is also one of the most efficient and environment friendly plant due to super critical technology and various environment initiatives supporting this state-of-the-art power plant,” said Anil Sardana, managing director of Tata Power.

“With this development, Tata Power’s gross generation has crossed 6,000 MW, reinforcing its position as the largest integrated power company in India. It is also wished that the company would receive a viable framework in response to its petition at Hon’ble CERC,” he added.

The 4,000 MW Mundra UMPP is the first of the UMPPs that heralds the entry of 800 MW supercritical boiler technology in India. This technology and the choice of unit sizes helps save fuel for the project and cut down greenhouse gas emissions up to 15 percent as compared to sub-critical coal-fired power stations. In addition, the choice of coal significantly lowers sulphur emissions to virtually insignificant levels.

As compared to other subcritical plants in India, this project will use 1.7 million tons of less coal per year while generating the same quantum of power. This not only makes more coal available in the long run for power generation but also reduces carbon emissions, a company statement informed.

Apart from using super critical technology and low sulphur imported coal, the company has initiated many environment friendly initiatives to limit the environmental impact of the plant and reduce greenhouse gas emissions.

With a view to alleviating the possibility of fugitive emission from coal conveyors and stockpiles, CGPL has developed a unique 100 m wide peripheral green belt along the space between the boundary wall and coal yard. A nine-meter high wind barrier is being set up at the coal yard to control any possible coal dust fugitive emissions due to Mundra coastal region’s high wind speeds. Dry fog systems are also being used to control dust emission. CGPL has set up

covered coal conveyor with side wind shield to stop fugitive coal dust emission and continuously monitors for possible design related modifications that may be necessary to the conveyor. As a part of its solid waste management initiative for the project township, CGPL commissioned and is operating a biogas plant with capacity of 300 kg/day, according to information available with Coal Insights.

Efforts have also been made by CGPL to utilise solar power, through installation of Tata Solar Plant at the township, to cater to the hot water requirement for all the kitchens.

Tata Power’s generation capacitycrosses 6,000 MW


Tata Power signs pact with Indonesian co

Tata Power has signed a long term coal supply agreement with PT Antang Gunung Meratus (AGM), a subsidiary of the Indonesian company

PT Baramulti Sukses Sarana (BSSR), according to information available with Coal Insights.

In order to secure its coal supplies, the company, through its 100 percent subsidiary Khopoli Investments (KIL), has also entered into an agreement which gives KIL an option, subject to necessary approvals, to take up to a 26 percent stake in BSSR.

AGM and BSSR own approximately 1 billion tons of coal resources in south and east Kalimantan in Indonesia.

“As a strategy to support our growth agenda, we are happy to have signed this coal supply agreement. It would support our upcoming power projects based on imported coal to be developed over the next five years,” said Anil Sardana, managing director of Tata Power.

Tata Power’s existing Indonesia presence includes 30 percent equity stakes (the “Purchase”) in two major Indonesian thermal coal producers, PT Kaltim Prima Coal and PT Arutmin Indonesia, and a related trading company owned by PT Bumi Resources Tbk (“Bumi”).

As part of the purchase, Tata Power has signed an offtake agreement which entitles it to purchase about 10 million tons of coal per annum, the company said in a statement. In addition to this, a consortium comprising Tata Power, Origin Energy and PT Supraco is developing a geothermal project in Indonesia with approximately 240 MW of generation capacity, it added.

CORPORATE


Power is the name of the game. For a company that made debut on a wave (in financial services) and survived on a (realty) boom, Indiabulls group has made no mistake

in tapping the latest high in power generation. With the Indian power sector poised to take a leap in capacity addition in 2012-13, the power projects undertaken by Indiabulls Power Limited (IPL) is all set to play its part in the bandwagon.

Incorporated in 2007 and listed in 2009, IPL is scheduled to commission its first thermal power project shortly. Altogether, the company has lined up projects with an aggregate capacity of 5,400 MW. IPL has earmarked a total capital expenditure of `27,500 crore and has been assigned ‘BBB’ rating. The company has a net worth of `4,410 crore.

Current projectsCurrently, Indiabulls Power is undertaking four thermal power projects in the country. These include Amravati Phase I & II (2,700 MW), and Nashik Phase I & II (2,700 MW). All these projects have achieved their financial closure.

The first of these projects, Amravati TPP Phase I with a total capacity of 1,350 MW is being set up at Nandgaonpeth within Amravati district of Maharashtra. The power plant is located in the Additional Amravati Industrial Area in Amravati. According to information available with Coal Insights, Maharashtra Industrial Development Corporation (MIDC) has allotted 1,350 acres of Land to IPL for this project.

The primary fuel for the project is coal for which coal linkage has been granted and letters of assurance from South Eastern Coalfields Limited (SECL), Western Coalfields Limited (WCL) and Mahanadi Coalfields Limited (MCL) have been issued. Vidharbha Irrigation Development Corporation (VIDC), Nagpur has approved water allocation of 87.6 million cubic meters per annum to the project.

As the project has obtained all approvals from statutory authorities, evacuation of power from the power plant shall be done at 400 kV level. For transmission of generated power from Amravati TPP, the power plant shall be connected

to MSETCL/PGCIL, 400 kV line at Akola, Maharashtra. Environmental clearance has been accorded to the project by Ministry of Environment & Forest (MoEF). Phase-I Boiler Turbine and Generator Pkg has been awarded to BHEL and work is in progress. Financial closure for the Phase-I has already been done.

The other project, Nasik Thermal Power Project with a total capacity of 1,350 MW is being set up by Indiabulls Realtech Limited, a subsidiary of IPL, at Sinnar within Nasik district of Maharashtra. The project site is easily accessible from Nasik, Pune and Mumbai.

Approximately, 900 acres of land has been acquired by Indiabulls Realtech Limited at Sinnar for installation of this 1,350 MW capacity coal based TPP.

Coal, the primary fuel for this project, will be procured from Coal India Limited (CIL) for which linkage has been granted and letters of assurance from SECL, WCL and MCL have already been issued. Water required for the power plant has been sanctioned by Water Resources Department (WRD), Nasik and shall be taken from sewage treatment output discharge of Nasik Municipal Corporation.

The project has got all approvals from the statutory authorities and the power plant shall be connected with the State Transmission Utility (MSETCL) for evacuation of power for intra-State & inter-State sale, according to company sources.

The first phase of the project will be 5x270 MW (sub-critical) and the second phase will be 2x660 MW based on super critical technology. The project site is located on the State Highway 23, approximately 33 Km from Nasik city. Phase-I Boiler Turbine and Generator Pkg has been awarded to BHEL and work is in progress at site. In case of this project, financial closure for the Phase-I is in advanced stage, informed company sources.

Apart from these, Indiabulls CSEB Bhaiyathan Power Limited (ICBPL), a subsidiary of IPL, is developing a 1,320 MW coal-fired TPP at Bhaiyathan in Chhattisgarh. The Bhaiyathan Power Project is being developed through a PPP model with the Chhattisgarh State Electricity Board. The company was awarded to build, own, operate and maintain this Bhaiyathan project through a competitive bidding process.

Pipeline projectAnother power project, the Chhattisgarh Power Project will have 2 units of 660 MW super-critical technology. Indiabulls is also in the process of evaluating two 1,320 MW and 2,640 MW thermal power projects in Jharkhand and Chhindwara, Madhya Pradesh respectively, according to information available with Coal Insights.

It has also entered into MoUs with the governments of Jharkhand and Madhya Pradesh in this regard.

Indiabulls set to ride on power bandwagonCoal Insights Bureau

CORPORATE

Amrabati power project


CORPORATE

Polycab Wires Pvt Ltd, India’s largest wire and cable manufacturer, has developed special fire-survival cables that will help mitigate the damages caused to

property and lives during any fire incident. The company has also developed energy-saving products that help to save up to 30 percent electricity leading to significant saving on consumption and bill.

“Nowadays the new buildings coming up are all multi-storied. All these buildings need to use special cables that will minimise the damage caused by a fire. We have developed a product, which if it catches fire, will turn into ashes and not leave any metallic part,” said Group CMD Inder Jaisinghania.

The advantage of this product is that it does not emit any black smoke. “When this wire catches smoke, no black smoke comes out. Black smoke emits chlorine gas which leads to suffocation. The cable still continues to transport power and gives three to four hours’ time by when the eviction can be over.”

Other than developing fire-survival wires, the company is also trying to sensitise civil and urban bodies to go for underground cables replacing the overground wires. “In cities like Kolkata, wires are still found over ground in a lot of places. This increases the chances of fire.”

He also stressed of increasing the use of energy-saving wires and cables. “With good quality cable, 30 percent power can be saved. In metals, even five percent better purity saves a lot of power. In the era of energy efficiency, people need to be educated about how to save on power costs.”

Industry growth Jaisinghania said the cable industry in India has a robust growth potential. “This is a `22,000 crore industry, growing at a compounded annual growth rate (CAGR) of 7 percent.”

The growth visibility comes from the power shortage in many cities. Also, the realty growth and the ambitious expansion target taken by the government in power generation will lead to increased demand for cables in coming years.

Polycab has a 22 percent share in the Indian market. In western Indian markets, the company has a huge 65-70 percent share. It has a turnover of around `4,000 crore and produces its products at 16 facilities concentrated in western Indian state of Gujarat. The company has 5,000 channel partners across India and set up mother warehouses in all major cities like Coimbatore, Raipur, Indore, Mumbai, Baroda, Bangalore and Delhi.

In the eastern region, however, the company does not have a commanding presence. In order to tap this market, Polycab is setting up a mother warehouse near Kolkata and expanding its distribution network in eastern states. Altogether, the

company plans to invest `200 crore in near future to expand its distribution channels across the country.

Asked about capacity expansion, the chairman said, “We have expansion plans put in place. However, this will be done only at our Gujarat facilities.”

In fact, there is no plan to set up new facilities outside the state, he said. Instead, the company is focusing on strengthening the distribution network and improving transport facilities to increase its presence in the regional markets. Going forward, the chairman said, the company may use sea routes to transport its products to the eastern region. This would be facilitated by the upcoming ports in Gujarat, he said.

The company has an ambitious growth plans in topline as well. Sales turnover is aimed to reach at `5,000 crore by 2012-13. “We are also targeting to achieve a turnover of `20,000 crore by 2020.”

Other than the domestic market, Polycab is also focused on increasing its exports and is also looking for newer territories. Currently, the company exports cables to Middle East and Europe. However, with recession looming over European market, sales growth in that region is not very robust. The share of exports in total sales is around 9 percent, company sources said.

Polycab develops fire-survival cablesCoal Insights Bureau

CPRI/ERDA/BRE global tested Stranded Copper Conductor covered with layers of Mica Glass Tape, EPR/XLPE/Silicon/FR-XLPE insulated, cores laid up. Extruded FRLS/LSOH inner sheathed, Unarmoured/GI Armoured, extruded FRLS/LSOH Outer sheathed Fire Survival cables generally conforming to IEC 60331, BS 7846 & BS 6387 category CWZ.

Fire survival cables (FS)

Anupam Industries Ltd has bagged an order from Hyundai Engineering Co. Ltd. (HEC), Korea to supply four cranes and hoists worth `40 million.

The specialised cranes will be installed at HEC’s Geothermal Power Plant set up by Kenya Electricity Generating Company, Kenya. The geothermal power plant is based at Olkaria, Kenya, and the cranes will be used for the critical service and installation of steam turbines, pumps and generators, the company said.

HEC is an established global premier engineering company in the field of processing plant including oil and gas, LNG facilities, oil refinery and offshore facilities and next generation industry power and energy, environment, SOC and new transportation system. HEC provides full range of service in power and energy industry from consulting and feasibility study to detailed and basic design, procurement, construction, commissioning, supervision, and operation and maintenance.

Anupam cranes will be specially designed for the geothermal power station adhering to stringent requirements of HEC. All the iron material of crane will be gilded for preventing the corrosion and all external surfaces of crane and hoist will be resistant to deterioration from ultraviolet light. The fasteners and hardware will be 316L series of stainless steel. The electronic overload protector will have condition

monitoring system which provides safety and prevents the trolley hoist from unexpected breakdowns. This system counts each start and measures the usage of hoist in order to prevent the hoist motor from overheating and break wear.

All motors will have overheat thermal protection and warning indications. The painting will be of anti-corrosive and fully protective of the H2S gas environment. These cranes are designed to specially suit the power plant operations which require precise control of all movements in handling and positioning of large power plant machinery during overhaul periods. Anupam will supply two double girder 40T/10T cranes, two 5T hoists and two single girder 10T cranes.

“It is a prestigious and first ever order in geothermal sector for Anupam. We are proud to be a part of this project which would increase three fold the amount of power generated from geothermal sources from the current 150 MW to 430 MW in Kenya,” said Mehul Patel, managing director, Anupam Industries Ltd. “We are expecting to deliver these orders by December 2012. This order has reaffirmed our strong position in the power sector,” he said.

Anupam holds the largest market share in the Indian power industry for supplying TG Hall cranes and other customised cranes. More than 60,000 MW of power plants have been installed all over India and globally. Anupam cranes and components are specially designed to meet

challenging requirements of critical installations and maintenance at power plants. Anupam cranes are designed to tackle all challenges, and are equipped with high responsive controls to ensure accurate positioning of heavy loads and equipment.

Anupam Industries has evolved as the fastest growing “optimized lifting” company which provides international standard cranes for various applications to meet the requirements of core sectors in India and abroad – steel, power, heavy and general engineering, construction, ports, cement, shipyard, fertilizer and petrochemical. Within a span of 39 years it has supplied and commissioned more than 5,000 cranes up to 500 ton capacity.

bags `40-mn order from HECCoal Insights Bureau

CORPORATE



ExPERT sPEAk

Good governance the need of the hourJ.P. Panda

Amid all the confusion regarding the coal block allotment, there is another

very important aspect that is often ignored – that of non-governance, which is unfortunately a very serious issue in our country.

The CAG has projected a loss of `1.89 lakh crore for not opting for the auction route for the coal blocks. Perhaps they should also

calculate the losses caused due to lack of decision-making by the ministries of coal and environment as well as the pollution control boards.

The projected loss of valuable foreign exchange for import of 100 million tons (mt) of coal is nearly `50,000 crore, loss of revenue to state and governments by way of royalty is `10,000 crores, loss of sales tax and income tax `100,000 lakh crore, loss due to agitation etc. because of load shedding `10,000 crore, indirect losses due to poor growth of infrastructure, unemployment etc. is `100,000 lakh crore. The projected total loss is thus `270,000 crore.

And thus it seems the country is paying a heavier price for lack of governance than it is for the dilly-dallying regarding coal block allotment.

Therefore, to my mind the bigger malaise in the country is the cost of indecision.

How governance has come to a standstill will be clear from the facts stated below. As an example, I am taking the case of coal blocks allotted to different power, cement and steel plants etc. in the state of Odisha. Red tape is the bane of all captive coal blocks in the state.

There are about 27 coal blocks allotted in the state of Odisha. Out of these, which have been allotted from 2003 to 2008, only one mine has started production. Most of the blocks are awaiting EC (environment), FC (forest clearance), EMP

Status of coal blocks in Odisha

Sl. No.

Name of the block allocated Company Status

1. Baitarani West Coal Block OHPC EC, EMP, ML and LA

are pending

2. Bijahan coal Block BPSL EC, FC, ML and are pending

3. Bankhui Coal Block SIPCL EC, FC, EMP, ML and LA are pending

4.Chendipada & Chendipada - II Coal Block

MAHAGENCO EC, FC, EMP, ML and LA are pending

5. Dulanga Coal Block NTPCL EC, FC, EMP, ML and LA are pending

6. Jamkhani Coal Block BSPL FC stage II and ML are pending

7. Manhorpur & Dip of Manoharpur coal Block OPGC EC, FC, ML and LA

are pending

8. Meeinakshi, dip side of Meenakshi B Coal Block PFCL EC, FC, ML and LA

are pending

9. Mahanadi, Machhakata Coal Block GSEL & MSEB

EC, FC – stage II, EMP, ML and LA are pending

10. Mandakini Coal Block MIEL,IPL&TPCL EC, FC, EMP, ML and LA are pending

11. Mandakini B Coal Block MBCCL PL is pending, FC and LA pending

12. Naini Coal Block GMDC &PIPDICL EC, FC, EMP, ML and LA are pending

13. New Patrapara Coal Block

BSPL, AML, DSPL, OSIL, ACL, VSL & PGL

EC, FC, EMP, ML and LA are pending

14. North of Akrapal Srirampur Coal BlocK SETSL PL is pending, FC and

LA pending

15. Nuagoan Telisahi coal Block OMC & AMDC EC, FC, EMP, ML and

LA are pending

16. Radhikapur East Coal Block TSIL, SIL & SPSSIL EC, FC, EMP, ML and

LA are pending

17. Radhikapur west Coal Block RML, OCL, OIL EC, FC, EMP, ML and

LA are pending

18. Ramchandi promotional Coal Block JSPL EC, FC, EMP, ML and

LA are pending

19. Rampia and dip side rampia coal Block

SEL, GMR, AMIL, LGL, NPL & REL

PL, ML and LA are pending

20. Utkal B-1 coal Block JSPL FC, and LA are pending

21. Talabira-I coal Block HINDALCO Only running mine


ExPERT sPEAk

(environment management plan clearance), PL (Prospecting lease), ML (mining lease approval) and LA (land acquisition).

These 27 blocks are likely to produce about 200 mt of coal. The Odisha government, which is likely to benefit the most out of these mines, is one of the biggest stumbling blocks for the clearances.

Surprisingly, even the mines belonging to the Odisha government like Orissa Mining Corporation (OMC), Orissa

Power Generation Company (OPGC), Orissa Hydroelectric Power Corporation (OHPC) etc., are not being granted PL and ML. That is indeed very shocking.

If all the mines run, the government will get royalty, taxes of around `20,000 crore and employment of 10 lakh people and indirect revenue worth another `50,000 crore. The power problem of Odisha and many adjoining states will be solved. All the villages can be electrified. More industries will come up and more employment will be generated. Dependence on imported coal will be reduced and outgo of foreign exchange will be minimised.

It is indeed unfortunate that the government is turning a blind eye to all these advantages and instead getting caught in the mire of red tape. The good done by quick policy decisions will far outdo the harm done by delay in coal block allocations.

The author is managing director of Priya Mining Consultancy and Services Ltd, which provides consultancy on both underground and opencast coal mines, including EMP-EIA, forest clearance etc. The company has also produced CDs on a wide variety of subjects including all DGMS circulars from 1957 till December 2010, a history of disasters in coal mines for the last 100 years and safety and productivity improvement in both opencast and underground mining. He is presently senior advisor at the Rampia Coal Mine project of Rampia Coal Mines and Energy Pvt Ltd. The author can be contacted at [email protected]

Note: The views expressed here are those of the author and not of Coal Insights. The publication does not take any responsibility for the article in part or in full.

22. Talabira-II & Talabira-III coal Block L, MCL,HIL & NLC FC, and LA are

pending

23. Utkal A coal Block MCL, JSL, JSESL, SDRIL

FC, and LA are pending

24. Utkal B-2 coal Block MIEL FC stage II and ML are pending

25. Utkal C coal block UCL EC, FC, EMP and ML are pending

26. Utkal -D Coal Block OMC FC stage II and ML are pending

27. Utkal -E Coal Block NALCO EC, FC, EMP, ML and LA are pending

Sl. No.

Name of the block allocated Company Status


This month’s discussions on ICMW highlighted issues that affect coal trading and buyers’ experience at the ground level, both internally and externally. A crucial

factor in coal trade is of course coal pricing. Some members pointed out that the basis of pricing is often not clear. One reason for this is that pricing of coal, unlike pricing of other homogenous fuels such as oil, depends on the ash, moisture content, impurities (sulphur) and also the type of coal used.

Maze of pricingThe pricing issue is even more prominent, the members said,

in case of Coal India Ltd (CIL). Although the coal monolith shifted to the internationally practiced gross calorific value (GCV) based pricing with effect from January 1, 2012, there remain various issues unresolved, the lack of uniformity in coal quality

being a major concern. Also, the pricing norm is a little different.“The international practice is for trading of coal at GAR

(GCV on as received basis) which takes care of moisture correction, whereas Coal India has declared its prices at GCV (ADB), which does not correct the moisture,” noted Yogesh Agrawal, Sr. GM (commercial) at DSCL.

Another ICMW member commented, “If imported coal is being listed as GCV of 6,500, then on ADB basis it will be somewhat around 6,100-6,200 Kcal.”

The discussions touched upon the somewhat grey areas in coal pricing that need to be made clear and transparent. However, essentially, as a seller or buyer, there is no definite advantage or difference between the various measurements like GAR, NAR and ADB. They all are measuring the same coal and there are formulas to convert between them. The problem occurs when the quality promised is not delivered, which is sometimes the case with CIL subsidiaries.

Meanwhile, Coal India raised prices for coal produced by Western Coalfields Ltd (WCL). This again raised a few eye brows as CIL was supposed to take a holistic view at GCV pricing after April and go for a price review, if any. The latest price increase, market sources believe, are not indicative of such an across-the-board increase.

Coal from RussiaThe members of ICMW also talked about the reliability of Russia as a potential source of the dry fuel. The majority view was that Indonesia, one of the largest exporters of coal in the world, is a more trustworthy source of thermal coal for those new to market.

According to one member, the Russian coal miners are often found not reliable enough. And the problem of law and order in mining sector is a concern in that country. There however were opposing views that intended to allay such fears.

Incidentally, Indian import from Russia has been minuscule in the past. But as demand for coal continued to surge dramatically, leading to increased imports, Russia started emerging as an alternative source since last couple of years.

Chinese defaultAnother report that evoked interest among the members was

Chinese default on coal shipments. This happened in the second week of July, when a number of Chinese buyers renegotiated or defaulted on shipments in the market.

This prompted many sellers to adopt an increasingly cautious

approach in doing business with Chinese counterparts, an official of a leading South African coal miner said.

“It is very true. The miners I deal with do not offer CIF shipments any longer. FOB is starting to be the trend among sellers. The financial risk is just too much at this time,” said Julie Sanchez, President, JB Alliance International at Portland.

“Seeing the developments,” said Arvind Gupta, Director, Sharda Ma Enterprises (P) Ltd at Delhi, “We are looking (at) good small time miners for GAR 3,800-4,000 steam coal TM not more than 36%, on cash on jetty or loading port.”

Concern over basis of coal pricingCoal Insights Bureau

Coal Insights has recently started a group on LinkedIn called India Coal Market Watch (ICMW). The readers are welcome to join the group and participate in daily conversations and surveys conducted by ICMW on the online forum. Coal Insights may, at its discretion, publish the result of such surveys and discussions for the benefit of a larger audience.

sOCIAL BuZZ


InTERnATIOnAL

The US power sector’s growing interest in natural gas over coal may continue unhindered in 2013, irrespective of a marginal increase in natural gas prices, according to

the latest report by Energy Information Administration (EIA). The power sector’s coal consumption fell from 975 million

short tons (million s.t) in 2010 to 929 million s.t in 2011. Lower natural gas prices for electric power sector have led to a significant increase in the share of natural-gas-fired generation in both 2011 and 2012. In fact, EIA expects coal consumption in the electric power sector to be slightly below the level of 800 million s.t in 2012. Although EIA expects the price of natural gas (relative to the price of coal at electric utilities) to start showing year-on-year increases from early 2013, the agency’s projection for power sector coal consumption remains flat next year.

Coal supplyEIA forecasts that coal production will decline by 9 percent in 2012 as domestic consumption falls. Production for the first five months of 2012 was 25 million s.t (6 percent) below last year’s level (for the same period). EIA predicts that production will continue to decline in 2013, but at a slightly slower rate (6 percent). Despite declines in production, EIA projects that secondary inventories will increase in 2012, reaching near-record levels. Electric power sector stocks are forecast to be 200 million s.t by the end of the year (estimated stocks for April 2012 were 203 million s.t) and inventories will remain at elevated levels in 2013.

Coal trade EIA expects US coal exports to remain strong in 2012 and exceed 107 million s.t exported in 2011. The US exported 12.5 million s.t of coal in April, which is a monthly record based on EIA data dating back to 1973.

Although EIA projects coal exports to total 112 million s.tons in 2012, coal exports weakened slightly with year-over-year declines beginning in the fourth quarter of 2012. The major reasons for the decline in exports include China’s economic slowdown and high coal stockpiles, and increased exports from Indonesia and Australia. EIA expects that coal exports will fall by 16 million short tons (14 percent) in 2013. US coal exports averaged 56 million s.t in the decade preceding 2011.

Delivered coal prices to the electric power industry

had increased steadily over the last 10 years and this trend continued in 2011, with an average delivered coal price of $2.40 per MMBtu (a 6 percent increase over 2010). However, EIA expects the decline in demand for coal, combined with the large coal inventories, will put downward pressure on coal prices and contribute to the shut-in of higher-cost production. EIA forecasts the average delivered coal price in 2012 will be 0.4 percent lower than the 2011 average price. The agency further predicts the 2013 average delivered coal price to be $2.33 per MMBtu, or nearly 3 percent ($0.06) lower than the 2012 price.

Electricity generation & consumptionFor the first time since EIA began compiling monthly statistics, the share of total generation fuelled by natural gas in April 2012 rose to a point where it was nearly equal to the share fuelled by coal (about 32 percent for each).

However, this scenario is likely to be short lived. The year-on-year gains in the share of generation fuelled by natural gas should slow and eventually reverse as the higher natural gas costs projected for later in 2012 and in 2013, along with record coal stocks, encourage generators to increase their utilisation of coal-fired power plants over the forecast horizon.

EIA forecasts total generation by coal across all sectors will decline by 14 percent in 2012, followed by an increase of 1.3 percent in 2013. In contrast, total generation by natural gas is forecast to rise by 23 percent this year and then decline by 1.0 percent next year.

US power sector coal consumption to remain flat in 2013


US coal production

Source: EIA


InTERnATIOnAL

India’s coal imports from Richards Bay Coal Terminal (RBCT) of South Africa rose by 27.28 percent to 9,609,558 tons during the first six months (H1) of 2012 as compared

with 7,549,859 tons during the corresponding period of 2011, according to data made available to Coal Insights by one of the promoters of the terminal.

India accounted for 29.89 percent of total coal exported through the terminal between January and June 2012. The share was 27.53 percent during the same period of 2011. After falling continuously for three months, India’s coal imports from RBCT rose by 15.44 percent in June 2012 on higher demand and comparatively low prices prevailing during the month.

India’s coal imports from RBCT in June 2012 stood at 1,583,151 tons compared with 1,371,460 tons imported in May.

The imports in June were 31.22 percent higher compared with 1,206,449 tons imported during the same month of 2011, according to the data. Despite the rise in imports in June, India’s share in total exports through RBCT fell to 29.02 percent from 29.64 percent in May and 30.48 percent in April. India accounted for 25.26 percent of total coal exports through the terminal in June 2011.

In 2011, Indian companies had imported 16,132,140 tons of coal from South Africa, down 23.18 percent as compared with 20,999,761 tons in 2010.

India’s coal imports from RBCT during H1 (in tons)Month 2012 2011

January 1,255,412 1,514,421

February 1,915,301 865,548

March 1,906,978 1,480,596

April 1,577,256 1,217,071

May 1,371,460 1,265,774

June 1,583,151 1,206,449

Total 9,609,558 7,549,859Source: RBCT

Coal exports via RBCT up in H1Coal exports through RBCT during the first half (January-June) of 2012 stood at 32,147,064 tons, up 17.22 percent compared with 27,424,063 tons during the same period of 2011, according to data available with Coal Insights.

The rise in exports was attributed to a sharp rise in exports to India and China. After a continuous decline for two months, exports of coal through the terminal rose 17.86 percent in June to 5,454,166 tons from 4,627,648 tons in May.

RBCT coal exports in 2012 and 2011 (in tons)Months 2012 2,011January 4,463,987 4,389,925February 6,087,111 4,567,807March 6,339,413 5,353,497April 5,174,739 4,810,185May 4,627,648 3,526,751June 5,454,166 4,775,898

Total 32,147,064 27,424,063Source: RBCT

Asian and Atlantic countries’ imports downImport of coal by Asian countries, except India, from RBCT fell by 44.67 percent whereas import by the Atlantic countries saw a decline of 21.04 percent during the first six months of 2012 compared with the corresponding period of 2011.

Import by Asian countries between January and June 2012 stood at 14,950,559 tons compared with 27,022,906 tons imported during the same period of 2011, the data revealed.

On the other hand, total exports from RBCT to Atlantic countries stood at 7,539,064 tons between January and June 2012, compared with 9,547,855 tons during the corresponding period of 2011, the data showed.

The decline was attributed to lower imports by Israel, Brazil and Senegal. In contrast, imports by countries like Ireland, Spain, Italy and Turkey registered a handsome increase.

India’s H1 coal imports from RBCT up 27.3%Coal Insights Bureau


The 12 major Indian ports have handled 138.51 million tons (mt) of traffic during the first three months (April-June) of 2012-13, 5.49 percent lower than 146.56 mt

recorded during the same period last year. According to the data released by the Indian Ports

Association (IPA), the country’s major ports handled a total of 7.52 mt of coking coal in April-June period, down 11.04 percent as compared with 8.46 mt handled in the same period last year.

However, the movement of thermal coal through the major ports was up 10.98 percent to 13.41 mt during April-June, compared to 12.08 mt achieved in the same period last year.

Movement of iron ore through the major ports showed a significant drop of 33.34 percent in April-June due to restrictions imposed on mining and a hike in export duty on iron ore. The major ports together handled 12.96 mt of iron ore in the April-June period compared to 19.45 mt handled in the same period last year.

Mormugao port handled the highest volume of 7.26 mt of iron ore in April-June. This volume, however, was about 25 percent lower than the iron ore traffic moved through the port in the same period last year.

Movement of container traffic in terms of tonnage showed an increase in the April-June period, however, in terms of TEUs, it declined during the period. The major ports handled 30.66 mt of tonnage and 1.94 million TEUs in April-June period compared to 29.89 mt of tonnage and 1.95 mt of TEU in the same period last year.

Among the major ports, Paradip port had the distinction of handling the highest volume of thermal coal of around 4.33

mt in April-June period. New Mangalore port handled the highest quantity of 1.66 mt of coking coal during the period.

Movement of coking coal through Paradip, Kolkata, Visakhapatnam and Mormugao ports declined during the period when compared to the corresponding period last year. Seven major ports showed positive growth in traffic handling during the April-June period of the current fiscal, while the remaining five showed negative growth on a year-on-year basis.

In terms of growth, Ennore port topped the list with a record 34.72 percent increase in cargo throughput. Kandla port’s growth was lowest at about 0.09 percent during the period. In terms of traffic volume, Kandla port clinched the top rank with a cargo volume of 21.16 mt recorded for the period.

The Vishakhapatnam port registered the highest decline of 20.1 percent in traffic handling during the period due to fall in iron ore export.

LOGIsTICs

Traffic handling by major ports down 5.5% in April-June


Traffic handled at major ports(during April-June ’12* vis-a-vis April-June ’11)

(*) Tentative (in '000 tons)

portsApril - June traffic % variation against

prev. year traffic2012* 2011

KOLKATA

Kolkata Dock System 2743 3139 -12.62

Haldia Dock Complex 7270 8737 -16.79

TOTAL: KOLKATA 10013 11876 -15.69

PARADIP 11741 14637 -19.79

VISAKHAPATNAM 14895 18642 -20.10

ENNORE 4175 3099 34.72

CHENNAI 13652 15096 -9.57

V.O. CHIDAMBARANAR 7274 7007 3.81

COCHIN 4989 4385 13.77

NEW MANGALORE 8611 8531 0.94

MORMUGAO 9768 12102 -19.29

MUMBAI 15453 13586 13.74

JNPT 16785 16457 1.99

KANDLA 21163 21143 0.09

TOTAL 138519 146561 -5.49

Source: IPA

5

7

9

11

13

15

17

19

7-Jun

9-Jun

11-Jun

13-Jun

15-Jun

17-Jun

19-Jun

21-Jun

23-Jun

25-Jun

27-Jun

29-Jun

1-Jul

3-Jul

5-Jul

7-Jul

9-Jul

11-Jul

13-Jul

15-Jul

17-Jul

FOB

($

/T

ON

)

Richards Bay to India West Kalimantan to India West

Richards Bay to India East Kalimantan to India East

Freight rates



After prolonged delay, the government has finally formed a committee

to expand the scope of inland waterways in the country. The committee will be headed by the secretary, Planning Commission, and will primarily aim at scaling up private investment in the sector.

The proposed body will assess the investment potential of the sector and come up with approaches and proposals for scaling up private investment. It will also suggest mechanisms to have standardised Model Concession Agreements (MCAs) prepared quickly for possible areas of investment.

The members of the committee include the secretary, Ministry of Shipping, DG of Inland Waterways Authority of India (IWAI) and a representative of the Department of Economic Affairs. “This committee will undertake a systematic effort to identify new areas for private investment, both in infrastructure and in transportation. It will also identify multiple business models which could then be bid out through concessions. This will be supplemented by designing MCAs and other standardised documents for facilitating a rapid scaling up of investment,” official sources said.

Since January, PMO has identified and fast-tracked implementation of key projects in the National Waterways - 1, 2 and 3 (NW - 1, 2, 3). These are the Varanasi- Haldia stretch of the Ganga (NW-1), the Brahmaputra in Assam (NW-2) and

the inland stretch in Kerala (NW-3). IWAI has since moved forward on large scale private investments to transport coal and fertilizer on NW-1, foodgrains and coal on NW-2 and a lot of cargo on NW-3.

The development and regulation of the waterways which are declared as National Waterways are under the purview of the Centre, while the other waterways remain under the purview of the respective state governments. The government has been taking various steps to develop Inland Water Transport (IWT) which, inter-alia, includes ensuring targeted depth and width in the navigational channels, aids for day and night navigation, fixed/floating terminals at specified

locations for berthing and loading/unloading of vessels and intermodal connectivity at select locations. Besides these, the Central government also provides 100 percent grants-in-aid to the states in the north-eastern region for development of IWT.

As per the report prepared by RITES in the year 2009 titled “Total Transport System study on Traffic Flows & Modal Costs”, the share of Inland Water Transport (IWT) in the total domestic transport during 2007-08 was 0.24 percent compared to 50.12 percent for the road and 36.06 percent for the rail sector in terms of ton km.

Geonkhali-Charbatia stretch of East Coast Canal (217 km), Charbatia-Dhamra stretch of Matai River (39 km), Talcher- Dhamra stretch of Brahmani- Kharsua- Dhamra River system (265 km) along with Mangalgadi- Paradeep stretch of Mahanadi delta Rivers ( 67 km) having a total length of 588 km. in the States of West Bengal and Odisha have been declared as National Waterway (NW-5) with effect from November 25, 2008. Out of the total length of 588 km., about 497 km. of NW-5 is in the State of Odisha. The efforts to develop more commercially viable stretches of NW-5 under Public Private Partnership (PPP) mode with Viability Gap Funding (VGF) under India Infrastructure Project Development Fund (IIPDF) and PPP Pilot Project Initiative under the Asian Development Bank (ADB) Technical Assistance are in process. Department of Economic Affairs (DEA) has appointed a Transaction Advisor in this regard.

LOGIsTICs

Govt forms panel to expand inland waterways



LOGIsTICs

The Indian Railways’ revenue earnings from commodity-wise freight traffic fell month-on-month in June due to lower transportation of coal and cement.

Revenue earnings from commodity-wise freight traffic during June 2012 stood at `6,925.5 crore, down 3.75 percent compared with `7,195.62 crore earned in May, according to information available with Coal Insights.

The Railway’s revenue from transportation of coal fell to `3,017.4 crore in June from `3,194.66 crore in May. The Railways transported 39.26 million tons (mt) of coal in June compared with 41.62 mt transported a month ago.

Revenue from transportation of iron ore for exports, steel plants and for other domestic user in June fell to `672.1 crore, down 1.2 percent from `680.29 crore in May. However, the quantity of iron ore transported rose to 9.61 mt in June from 9.59 mt in the previous month.

Revenue from transportation of cement in June stood at `650.82 crore (8.15 mt) from `761.79 crore (9.53 mt) in May, while that from foodgrains transportation rose to `527.1 crore (3.74 mt) in June from `474.82 crore (3.33 mt) in the previous month.

The Railways revenue from transportation of fertilisers in June rose sharply to `338.27 crore (3.39 mt) from `253.16 crore (2.64 mt) in May.

Revenue from transportation of petroleum oil and lubricant (POL) in June stood at `415.3 crore (3.49 mt), while the same from pig iron and finished steel from steel plants and other points was `447.27 crore (2.89 mt). Revenue from container services was `296.58 crore (3.29 mt) and from transportation of other goods was `430.32 crore (5.32 mt).

Railways commodity freight revenue down in June m-o-m


Commodity-wise revenue

CommodityQuantity (In mt) Earning (`cr)

June’11 June’12 June’11 June’12

Coali) for steel plants 3.4 3.83 145.26 222.99ii) for washeries 0.15 0.1 2.05 0.98iii) for thermal power houses 23.14 25.26 1513.49 2101.51iv) for public use 8.97 10.07 499.86 691.92v) Total 35.66 39.26 2160.66 3017.4

raw material for steel plants except ore

1.19 1.29 87.61 130.34

pig iron and finished steel i) from steel plants 2.09 2.31 272.35 402.18ii) from other points 0.62 0.58 54 45.09iii) Total 2.71 2.89 326.35 447.27Iron ore i) for export 1.08 0.58 287.33 140.99ii) for steel plants 3.69 5.19 117.49 228.16iii) for other domestic users 4.04 3.84 257.82 302.95iv) Total 8.81 9.61 662.64 672.1

Cement 8.33 8.15 513.35 650.82

Foodgrains 3.37 3.74 332.67 527.1

Fertilizers 4.18 3.39 323.34 338.27

Mineral oil (poL) 3.55 3.49 311.12 415.3Container Service i) Domestic containers 0.66 0.63 68.07 65.46ii) EXIM containers 2.28 2.66 191.65 231.12iii) Total 2.94 3.29 259.72 296.58Balance other goods 5.69 5.32 382.54 430.32

total revenue earning traffic 76.43 80.43 5360 6925.5Source: Indian Railways


PORT DATA

Major ports through which coking coal arrived in India – March-May 2012

port Qty (in Tons)VIZAG 1,758,885MORMUGAO 1,666,173KOLKATA 749,315PARADIP 515,945NEW MANGALORE 323,014MUNDRA 286,249KANDLA 144,562CHENNAI 368Grand Total 5,444,510

Major coking coal supplier countries to India (through mentioned ports) – March-May 2012

Country of origin Qty (in tons)AUSTRALIA 3,891,871

UNITED STATES 624,140

SOUTH AFRICA 439,351

CANADA 207,851

OTHERS 281,297

Grand total 5,444,510

32%

31%14%

9%

6%5% 3%

0%

VIZAG MORMUGAOKOLKATA PARADIPNEW MANGALORE MUNDRAKANDLA CHENNAI

Major ports through which coking coalarrived in India – March-May 2012

72%

11%

8%4% 5%

AUSTRALIA UNITED STATES SOUTH AFRICACANADA OTHERS

Major coking coal supplier countries to India (through mentioned ports) – March-May 2012

Note: Figures are based on consignment lifted from these ports for which price details/break-up is available with Coal Insights teamNote: April figures have been updated

VIZAG 2,446,681NEW MANGALORE 1,190,136MUNDRA 1,180,638PARADIP 1,049,398KANDLA 913,124

MUMBAI 732,441KOLKATA 620,926MORMUGAO 482,478COCHIN 15,000Grand total 8,630,822

Major steam coal supplier countries to India (through mentioned ports) – March-May 2012

Country of origin Qty (in tons)INDONESIA 6,705,394SOUTH AFRICA 1,767,275AUSTRALIA 102,058SINGAPORE 56,095Grand total 8,630,822

Major ports through which steam coalarrived in India – March-May 2012

port Qty (in tons) port Qty (in tons)

28%

14%

14%12%

11%

8%

7% 6% 0%

VIZAG NEW MANGALORE MUNDRAPARADIP KANDLA MUMBAIKOLKATA MORMUGAO COCHIN

Major ports through which steam coalarrived in India – March-May 2012

1%1%

20%

78%

INDONESIA SOUTH AFRICA AUSTRALIA SINGAPORE

Major steam coal supplier countries to India (through mentioned ports) – March-May 2012

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