ipr presenttion

Energy Sector: CoalInfrastructure Policy and Regulation

Prepared By: Sural Jani Yash Jani Ishan Trivedi

Introduction to Energy Sector

• India is the fourth largest consumer of energy in the world after USA, China and Russia and its need for energy supply continues to climb as a result of the country’s dynamic economic growth and modernization over the past several years.

• This sector includes information about resources and status of sub-sectors like Petroleum Natural gas Coal Power (including thermal, hydro, nuclear, as well as transmission and distribution)

Institutional Structure of Energy Administration in IndiaGovernment of

India

Ministry of power Ministry of petroleum and natural gas

Ministry of new and renewable energy

Ministry of coalDepartment of atomic energy

1) 6 P.S.Us2) Central Electricity authority3)Bureau of energy efficiency

1) 15 P.S.Us2) Directorate general of hydrocarbon3)Petroleum planning and analysis cell4) Petroleum conservation research association

3 P.S.U.s 1) 5 P.S.Us2) Several research institute

1) Indian Renewable Energy development agency2) Several research institute

Note: PSU = Public Sector Undertaking refers to state-owned enterprises in India.

Energy intensity

Period Energy Intensity*

(kgoe/US$**)1981 1.09

1991 0.99

2001 0.85

2011 0.62

Sr. no

Country Energy intensity

(kgoe/US$)1 United

kingdom0.102

2 Germany 0.121

3 Japan 0.125

4 Brazil 0.134

5 USA 0.173

6 China 0.283

7 South Korea 0.189

8 India 0.191

* Energy intensity indicated is energy required to produce a unit of GDP.** kgoe: Kilograms of oil equivalent. Source: Planning Commission

Energy intensity for total primary energy Energy intensities

Source- World Energy Outlook 2011.

• Energy intensity, defined as the energy input associated with a unit of Gross Domestic Product (GDP), is a measure of the energy efficiency of a nation’s economy.

• The decline in energy intensity over past decades could be attributed to increased availability of clean fuels and replacing traditional fuels such as wood and cow dung cakes to meet household energy needs.

• Table shows energy intensity of some select countries for the year 2010, with GDP measured in terms of 2010 USD Purchasing Power Parity (PPP). India’s energy intensity using PPP GDP is 0.191, which is on par with the world average but higher than most of the European countries. China’s energy intensity is roughly 1.5 times that of India.

Source:12th Five Year Plan

2000-01 2006-07 2011-12 2016-17(P) 2021-22(P)64

65

66

67

68

69

70

71

0

2

4

6

8

10

12

14

16

18

66.38

70.65

68.53

67.52

66.82

16.18

12.9111.55

8.87

6.7

12.14

10.52

12.6

15.8 16.04

3.1 3.71 3.32.68 2.652.14 1.86 2.48

3.524.67

0.06 0.331.55

2.233.12

Percentage Share in Energy Production

Coal and Lignite Crude Oil Natural GasHydro Power Nuclear Power Renewable Power

68.53

11.55

12.6

3.32.481.55

Energy Production Share 2011-12

Coal and Lignite

Crude Oil

Naural Gas

Hydro Power

Nuclear Power

Renewable Power

Source:12th Five Year Plan

Govt. intends to promote renewable power and nuclear power against coal and crude oil.

Coal is major source of energy production currently.

Introduction to Coal Sector

• Coal is India’s primary source of energy, and the country was the third-largest global consumer in 2012.• The Indian coal industry was nationalized in the early 1970s. While the production of coal increased

from 70 MT at the time of nationalization to 556.402 MT in 2012-13.• To take care energy requirements central government nationalized the coal industry in 1970s and within

2 years it acquired almost all the coal reserves in India from BCCL(Bharat coking coal limited) and CMAL(coal mines authority limited) and a single holding company was formed i.e. CIL(Coal India Limited).

• The objectives of re-organizing and restructuring of coal mines were to eradicate:– existing unsatisfactory mining conditions, – violation of mine safety norms, – industrial unrest, – inadequate capital investments in mine development,– reluctance to mechanize the mining, etc.

• It also aimed at meeting the long range coal requirements of the country.

Growth of Indian coal SectorYear Coal

(Million Tonnes)

Growth(%) Over Previous Year

2003-04 361.25 5.9

2004-05 382.62 5.9

2005-06 407.04 6.4

2006-07 430.83 5.8

2007-08 457.08 6.1

2008-09 492.76 7.8

2009-10 530.04 8.0

2010-11 532.69 0.1

2011-12 539.95 1.4

2012-13 556.40 3.0

CAGR 2003-04 to 2012-13 (%)

4.6

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-130

100

200

300

400

500

600Coal (Million Tonnes)

Coal (Million Tonnes)

Source: Ministry of Coal, Ministry of Statistics and Programme Implementation

Key Players in Coal Sector

Policy

Production

Central

MOC

CMPDIL

Coal controller

State

State Government

Private

MOC

CIL NCL

SCCL JVs

State Government

SCCL GMDC

Captive producers

Power Iron

Cement Others

Source : Ministry of Coal

Current statusYear Reserve

(Mn. Tonne)

Consumption(Mn. Tonne)

Production (Mn. Tonne)

Import Export

Qty (Mn.

Tonne)

Qty(Mn. Tonne)

2007-08 106,653 529.973 532.887 54.042 1.724

2008-09 111,083 624.291 567.086 60.884 2.994

2009-10 115,944 698.563 608.077 75.610 2.632

2010-11 120,148 669.631 610.671 70.408 5.059

2011-12 124,325 724.671 621.523 105.218 2.645

2012-13 129,362 800.613 644.578 148.866 3.644 2007-08 2008-09 2009-10 2010-11 2011-12 2012-130

100

200

300

400

500

600

700

800

900

0

20

40

60

80

100

120

140

160

Import(M.tonne) Consumption Production

Source: Coal Directory 2012-13

Net Import

1.) Mines and mineral act 1957:The act aims at regulation of mines and development of minerals under control of central government. Moreover, the Act empowers the Central Government to make rules for regulating the grant of reconnaissance permits, prospecting licenses and mining leases with respect to Coal and Lignite.

2.) Coal mines act 1973: The purpose of the legislation was to acquire the existing mines at the time and the provisions relate to taking over the management, accounts, and compensating the owners of the mines. The key provision of the Act which is still relevant today is Section 3(3)(a) of the Act. The said provision prohibits any person other than –

(a) the central government, government company, or corporation, (b) a sub-lessee of the government, or (c) a company engaged in (i) production of iron and steel, (ii) generation of power, (iii) washing of coal, (iv) such other uses as may be

specified, from carrying on coal mining operations in any form.

3.) Coal bearing areas act 1957: It intends to establish grater control over coal mining industry and its development by providing for the acquisition by government of unworked land containing or likely to contain coal deposits or right over such lands by modifying or extinguishing current agreement ,lease, license etc..

4.) Colliery control act 2000:The Colliery Control Order and the Colliery Control Rules contains identical provisions save for a penalty provision and exemptions for acts in good faith which are included in the Rules.

Acts relating to coal sector

Source: Report on Competitiveness of the Coal Sector For Ministry of Affairs

5.) Land acquisition act 2013:The Government is empowered to use the provisions of this Act to acquire private land for a public purpose. Under the provisions of the Land Acquisition Act, the following procedure is required to be followed:

- identification of land - notification of land - declaration of land - acquisition of land - payment and ownership of land.

6.) Environment protection act 1986 : The Act has been formulated by the Central Government for the protection and improvement of the environment in India and for matters connected there with. The Act also prohibits any person carrying on any industry, operation or process from discharging or emitting or permitting to be discharged or emitted any environmental pollutants in excess of such standards as may be prescribed.

7.) Forest conservation act 1980: In case forest lands are involved, the mining lease can be executed only after obtaining the forest clearances. The Act provides that no State Government or any other authority shall authorize, without the prior approval of the Central Government.

Source: Report on Competitiveness of the Coal Sector For Ministry of Affairs

(i) Blocks already identified for development by CIL/ SCCL/ NLC where adequate funding is on hand/in sight should not be offered to private sector.

(ii) The blocks offered to private sector should be at a reasonable distance from existing mines and projects of CIL/ SCCL/ NLC in order to avoid operational problems.

(iii)The areas where CIL/ SCCL/ NLC have invested in creating infrastructure for opening new mines should not be handed over to the private sector, except on reimbursement of costs.

(iv) Blocks that are explored in detail and where Geological Report with assessment of extractable reserves is available should normally be put in the offer list. Public/private sector company to whom the block is allotted shall bear the full cost of exploration in blocks. However, now regionally explored blocks are also offered for captive mining.

(v) For identifying blocks, the requirement of coal for about 30 years or such other period as may be decided in the Ministry would be considered.

(vi) The other requirements were:- a)Approval of mining plan as required under the Mines and Minerals(Regulation and Development) Act, 1957. b)Inspection for an appropriate enforcement of conservation measures by the Coal Controller under the Coal Mines(Conservation

and Development) Act, 1974 with a view to ensuring scientific mining. c)Enforcement of safety regulations by the Directorate General of Mines Safety.”

Guidelines for Allocation of Coal Blocks

Source: Standing Committee on Coal and Steel,(2013-14) ,MoC

• In respect of fully explored blocks, geological data may be obtained from CMPDIL, NLC or the State agency concerned, as the case may be, on nominal charges. However, full cost of exploration and geological reports would be reimbursed to the agency concerned within six (6) weeks of date of issue of allotment letter.

• Where only regionally explored blocks are offered for allocation, the detailed exploration/prospecting in the said blocks shall be done by the allocattee company under the supervision of CMPDIL.

• Replacement of linkage with coal to be produced from the allocated captive coal block can be permitted by the Screening Committee subject to safeguarding the interest of CIL and its subsidiaries.

• In order to promote scientific and proper mining the larger blocks shall not be sub blocked into smaller ones. Only natural sub-blocks will be formed.

• Allotment of Captive blocks to consortium of group of companies(i) If requirement of coal by an applicant does not match with the reserves in a natural block then clubbing of requirements may be resorted to and in case a number of applicant companies form a consortium for utilization of a block for their captive use, the same may be considered for allocation under a legally tenable arrangement.(ii) More than one eligible and deserving companies will be allowed to do captive mining of coal by forming a joint venture coal mining company. The constituent applicant companies would hold equity in the joint venture company in proportion to their assessed requirement of coal and the coal produced would be exclusively consumed in their respective end use projects. Distribution of coal would be in proportion to their respective assessed requirements.(iii) One or more companies (to be called leader companies) from amongst the selected, could be allowed to do mining of coal in one or more captive blocks and the other companies (to be called associate companies) would get coal from the captive block in proportion to their assessed requirements. The local Coal India subsidiary could facilitate this arrangement by taking a nominal service charge. Leader companies will deliver coal to associate companies at a transfer prices to be determined by the Central Government.

• The Company shall obtain the geological report (in respect of fully explored blocks), on payment of requisite charges, from CMPDIL, NLC or the State Government agency concerned, as the case may be, within six weeks of the date of issue of allotment letter.

• In respect of a fully explored block, the company shall submit a mining plan for approval by the competent authority under the Central Government within six months from the date of issue of the letter of allocation.

Guidelines for Allocation of Coal Blocks

Allocation of Coal Blocks

• Coal blocks are allocated based on coals and mines act,1973 through competitive bidding to public as well as to the private companies

• Out of 218 coal blocks 138 blocks has reserves of 30.77billion tonnes.

.

S.No

Sector To Govt. Companies

To PrivateCompanies

To UMPPs/ Tariffbased

bidding

Totalblock s

No. of Blocks No. of Blocks No. of Blocks

1 Power 55 28 12 95

2 Commercial Minings

41 - - 41

3 Iron and steel 4 65 - 69

4 Cement - 8 - 8

5 Small and isolated

- 3 - 3

6 CTL - 2 - 2

Total 100 106 12 218

Source: Annual Report 2013-14, Ministry of Coal

Coal Pricing History

• Coal pricing has huge impact because it serves large number of end-users, prime industries like steel and cement, also major source of electricity in India.

• Prior to 1996 coal prices were fixed grade wise and colliery wise by complete authority of Central government only under colliery control order 1945.

• After deregulation from 1966 coal prices are fixed by CIL and it’s subsidiary companies after consulting Ministry of Coal


Coal Pricing in Deregulated Regime

• The basic pricing objective of CIL and subsidiary companies is to ensure generation of sufficient surplus after meeting its revenue requirement to facilitate financing fresh investments with reasonable return.

• CIL also aims to keep coal prices within general inflation level and competitive to international market rates.• From 2000 to 2012, coal prices have been revised six times and annualized rise in coal price in 4.64% as

compared to average inflation rate of 5.89% during this period.


• CIL and subsidiaries have been failing in producing coal enough to meet the demand, thus due to shortage of coal, in order to fulfill Fuel Supply and Transport Agreements(FSTA’s) the supply Imported coal on cost plus basis.

• 20% of total coal produced by CIL is to be sold by e-auction in order that small industries can also get a fair chance.


Consumers of Coal Sector

• Consumers of coal has been classified by CIL in two categories:– Regulated Sector(Power, Fertilizer, Defense)– Unregulated Sector(Steel, Cement)

• Here as major economy driving sectors are dependent on coal, great care is taken in coal price hike as it leads to inflationary pressure on economy.

Coal

Power Sector-66% of power

plants are coal based

Defense Sector

Steel and Cement

Industries-Basis of

infrastructure sector

Fertilizer Industries-

Coal is prime fuel in this industries


• CIL has changed the price distribution from 7 grades of Useful heat value(UHV) basis to 17 grades of Gross calorific value (GCV).

• Analytically, GCV is computed from the heat value released by coaly matter present in coal and therefore, can be ascertained for all varieties of coal, irrespective of high ash and high moisture or low ash and low moisture.

• On the contrary, UHV is computed by applying penalties on Ash & Moisture on to the Heat Value of the coaly matter and cannot be determined analytically.

• Bandwidth under GCV classification has been reduced to 300 Kcal/kg to incentivize the improvement in supply quality.


• The Union Cabinet in June, 2013 gave its approval to the proposal for setting up of an independent regulatory authority for the coal sector and also approved the introduction of the Coal Regulatory Authority Bill, 2013 in Parliament aiming to help in the regulation and conservation of coal resources.

• The Authority shall specify methods of testing for declaration of grades or quality of coal, monitor and enforce closure of mines, specify principles and methodologies for price determination of raw coal and washed coal and any other by-produce generated during the process of coal washing, adjudicate upon

disputes between parties and discharge other functions as the Central Government may entrust to it.

Coal Royalty

• Royalty is an amount payable by a lessee to the lessor for removing or consuming a mineral. Coal royalty is paid by coal companies to coal producing states.

• For fixing the rate of royalty on coal/lignite, The Ministry of Coal constitutes a study group headed by the Additional Secretary for fixing the rate of royalty on coal.

• R = a + bP – Where R = Royalty (Rs./Ton). – a = Specific (Fixed) component (Rs./Ton). – b = ad valorem (variable) component (Rate of royalty). – P = Price of Coal (Rs./Ton).

• Here Ad valorem component provides benefit of price rise in coal to coal producing states

Countries Royalty RatesAustralia 5% to 8.2%

South Africa 1% to 3%

India 11% to 13%

Indonesia Upto 13.5%


• Royalty rates are fixed by Central government, and thus there is always a Central-state dispute over it. Many states have thus started levying cess on coal thus leading to non-uniformity in prices of coal across the india.

• The major coal producing States are only seven i.e. State of Jharkhand, Orissa, West Bengal, Maharashtra, Madhya Pradesh, Uttar Pradesh and Chhattisgarh, whereas all the States in the country are coal consuming States, directly or indirectly. The cost of coal is a major input in the energy cost. As the royalty is paid by the consumers directly to the coal producing States, an upward revision in royalty rates would affect all the coal consuming States in terms of increase in cost of power.


• stagnating domestic production and inadequate infrastructure for coal have caused serious bottlenecks in India’s energy supply

• The near monopoly of two public enterprises has blocked the needed increase of coal production, causing a serious fuel shortage in the power sector

• Private companies that are currently allowed only in captive production should be able to engage in commercial mining, and bring technical improvements and more efficient management to the coal sector.

Issues in coal sector

• There is a possibility of converting various units of Coal India into independent companies, and making respective state governments equity holders to help speed up land acquisition and other such processes, a top Coal India official said. 24 th sept 2014

• recently announced the nationalized coal industry would be opened up to allow private firms to compete with Coal India, which accounts for 80 percent of the country's output.24 sept 2014

• For state requirements, coal mines will be allocated to state-owned organizations like NTPC and state electricity boards. However, for private consumption a pool of mines will be thrown open to auction. "E-auction of coal mines will be for actual users of steel, cement and power for private sector firms," he said i.e arun jaitley-20 th oct 2014,economic times

• "The proceeds of these auctions will go entirely to the state government where the mines are located. State governments will benefit from the revenue generation through e-auctions, the central government will not get any share from the proceeds," Jaitley said. oct 2014,economic times

• Jaitley went on to clarify that the process of offering mines to private players will not impact the structure of Coal India. "All mining requirements of Coal India both for present and future will be adequately protected," he said. "This is not de-nationalisation of coal mining, the original 1973 Coal Nationalisation Act remains," Jaitley clarified. oct 2014,economic times.

Press Releases

• CIL blames delayed environment and forest clearances for the slow growth in production. aug 27 2014• "The government has decided to set up a Coal Regulatory Authority. Apart from determining the pricing

methodology, the objectives and functions of the Authority are to specify regulation methods of testing for declaration of grades or quality of coal; to monitor and enforce closure of mines as per approved mine project plan towards closure of mine; to ensure adherence of approved mining plans; to call for information, record or other documents from the entities and publish statistics and other data in relation to the coal industry," the minister said in a statement.12th aug 2013

• The CAG HAS COME TO CONCLUSION the gov decision to not to auction coal blocks from 2004 to 2011 the country lost a huge amount of revenue. India today

• Actually if the procedure of the auction of the coal blocks would have been figured out by 2006 then this loss could have been avoided…moreover the large company like essar, tata steel etc got the block on the nomination basis instead of competitive bidding. India today

ipr presenttion

Documents