Coal Insights - Aug 2012

Coal Insights, August 2012 3

Dear Readers,

Let’s start with the “moments of truth”. Or should we say the “days of truth”?

Yes, you guessed it right! Those two days the entire north India was brought to a grinding halt. The worst power outage in a decade, it is said, affected 600 million people. Interestingly, a year before the catastrophe, we warned a crisis is looming in the power sector. But frankly, we never thought it would show up so early.

More interestingly, one month on, nobody is sure exactly why did it happen! All sorts of explanations were put forth; all strings were pulled. And then when it came to holding a meeting with the new Power Minister to discuss threadbare the issues in grid discipline, several chief ministers chose to stay away. Should we issue a similar warning for 2013?

Meanwhile, the June IIP numbers have again come to disappoint the deputy chairman of the Planning Commission. Economic analysts fear to think of the July numbers, especially after the two days of darkness. So do we…!

But even before the memories of the power outage faded, the government became busy with the CAG report. The final report, as we know, is a diluted version of the ‘initial findings’, but exciting nonetheless. Apply a little thought into the case and you are sure to come up with interesting observations. Firstly, on the face of it, despite some minor aberrations, the system of block allocation as practiced by the government doesn’t appear to be entirely flawed. It was based on the recommendations of the state governments and the screening committee that allocations were made. The only omission was perhaps that reportedly no record was maintained on why some applications were rejected.

Secondly, till the time coal block allocations was done on the basis of state governments’ and screening committee recommendations there was hardly a complaint. Nobody had urged the government to change the system. And we wonder if CAG would have had any problem if the government still continued with the same practice? It appears that the government is being pulled up for failing to do an improvement that it had thrust on itself. Nothing against CAG allegations, but this will perhaps lead to delay in redress of real issues, real obstacles…the lack of grid discipline being one.

That said, we must admit the government is not exactly being able to take judicious decisions; at least not in the case of pooled prices. This is a move that may lead to further complexities in the already complicated scenario. And who knows if there would be another CAG report on it, a few years down the line….!

Happy reading,

(Rakesh Dubey)

EDITORIAL

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4 Coal Insights, August 2012

COnTEnTs

20 Thermal coal prices remain subdued in August

22 Spot coking coal prices ease sharply in August

36 Should foreign companies be allowed to mine and sell coal in India?

40 TCI drags Coal India, govt to court42 593 proposals awaiting environmental

clearance44 India’s July power generation below

target50 MoC snubs CAG on “flawed” report52 Coal ministry fixes task document for

2012-1353 Longwall tech most productive for UG

mines 57 CIL posts record Q1 profit58 Eurotire launches smartphone app to aid

in mining safety 59 Steps to increase UG production a must

for CIL62 US power sector’s 2012 coal

consumption to be lowest in 20 years 63 India to drive US coal export market64 Traffic handling by major ports down

4.9% in April-July66 Railways commodity freight revenue

down in July m-o-m68 Growth moderation may affect global

freight rates73 Port data

55 | In FoCuSPower outage revives n-power driveIndia plans to add 58,000 MW nuclear power generation capacity in next 20 years.

48 | SPECIAL REPoRTCAG doubts authenticity of India’s coal reservesThe statutory body slams government for delay in changeover from ISP to UNFC code for estimating reserves.

32 | FEATuREPooled price mechanism:A bitter pill to swallowThis may lead to yet another case of cross subsidisation in the power sector.

24 | InTERvIEwMeeting country’s coal demand the top priority: SaxenaTen years from now, CIL would be in position to meet the country’s entire coal demand.

6 | CovER SToRywill coal crisis sand India’s growth wheel?India’s growing dependence on a single fuel source brings it to the point of vulnerability.

Will coal crisis sand India’s growth wheel?

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Will coal crisis sand India’s growth wheel?

An economy is as good as its management is. This perhaps is what differentiates a post-war Japan from a post-independence India. However, in a world where natural resources are becoming scarce by the day, ownership of the same will play an equally crucial role in years to come.Over the years, poor management has reduced the Indian economy largely dependent on a single resource, ie coal. Although coal in India is not exactly a scarce commodity like crude oil is, its restricted supply makes it qualify for one. How best this resource is managed will decide if India will be a continued growth story or a shooting star.


Arindam Bandyopadhyay


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The Indian growth engine is losing steam. Despite the collective will power of a 1.2 billion population

and the cherished dreams of its leaders, the juggernaut is slowing down. And perhaps for once, the statistics is not lying.

Over the last eight quarters, India’s GDP growth rate has been steadily decelerating. In 2011-12, the country finished 13th among the high growth economies, behind minnows like Bhutan, Sri Lanka and Maldives. This year, economists predict a further fall to sub-six percent growth from sub-seven percent last year. A host of major private forecasters including Citi, CLSA, Crisil and Moody’s have trimmed their forecast to as low as 5.5 percent – the lowest in a decade’s time.

Moreover, the huge current account deficit is putting pressure on the currency. The recent depreciation of Rupee (versus Dollar) brought back memories of the forex crisis of the early 1990s. And there is no escape from the clasp of inflation. With a bad monsoon this year, there is also a threat of drought looming large.

In the industrial sector, the Index of Industrial Production (IIP) has shown negative growth thrice in last four months. Industrial growth stood at a three-year low of minus 0.1 percent in the first quarter (April-June 2012), against 6.9 percent in the corresponding period of last year. Manufacturing sector witnessed a 3.5 percent de-growth in June 2012. Within

manufacturing, capital goods production has dropped by more than 20 percent in close succession – October 2011 (25.48 percent), March 2012 (21.3 percent) and June 2012 (27.9 percent). The plethora of administrative hurdles is blocking fresh projects and investments. The policymakers and monetary authorities are clueless about a remedy. Inflation versus growth is posing a riddle like never before.

And yet, not many these days are talking of IIP, inflation, monsoon, Vision 2020, land bill or the Reserve Bank of India’s (RBI) inactivity. “It’s coal, coal and coal all over,” says the market, “the fuel that can maintain or mar India’s growth engine…lock, stock and barrel.”

The role of coal

At the time of independence, around 30 million tons (mt) of coal fuelled a nation of 35 crore people. In the last 60 years, the population has increased nearly four-fold, while coal consumption has shot up 18 times. Most of this steep increase in coal

consumption has occurred in the last five years. In the next five years, consumption is estimated to grow at an even faster rate. What made the economy suddenly so dependent on this dry fuel? In other words, what has brought coal at the centre-stage of India’s economic growth?

A commonplace reply would be the massive growth in power generation. But a deeper analysis reflects this has more to do with India’s lack of ability to meet certain basic requirements of self-propelled growth, viz. investible surplus, modern technology and high-skilled manpower. These are perhaps three necessary conditions a country must satisfy to grow and develop its economy on its own. These multiple drawbacks in critical areas left the economy with only one channel of growth – its 1.2 billion market. And not only the country’s government, the world at large took interest in instigating this mass demand. According to an economist’s commentary, it was “like an astrologer treating a client that has too many shortcomings in his birth-chart. When you cannot address the weaknesses, the best way is to strengthen the areas of relative strength.”

The Indian planners banked on this huge domestic demand to act as the growth catalyst. This was in stark contrast with neighbouring China which focused on export-led growth and therefore pinned focus on technology and efficient manufacturing processes. India meanwhile had a windfall in the growth of the software industry, an out and out services domain.

Over the years, the hungry teeming masses became the only agent of the economic growth. The volume of unmet potential demand was huge by any standard, even greater than China’s. Due to the sheer size of this population, India became one of the top consumers of almost everything – steel, power, cars and yes, also Coca Cola. And yet, the per capita consumption of any of these items was miniscule, far less than the global average and that of China. A leading

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Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012

India’s GDP growth rate quarter-on-quarter (%)

Note: The GDP in India expanded 1.3 percent in the first quarter of 2012 over the previous quarter

A rough estimate also shows that given this rate of increase in supply gap, by 2025, India would perhaps need to import as much coal as it will produce domestically. In other words, the percentage share of imports in total coal consumption would grow up to 50 percent by 2025 from 20 percent in 2012.

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consultancy firm estimated a potential consumer durables market of $500 billion only in the country’s six lakh villages, as of 2006.

This ready-made market provided a ready-made solution to all growth policies. Meeting this huge appetite by whatever means one could adopt became the norm for industrial growth. Cheap goods, low quality, minimal environmental concern…this is how India became a dumping ground for toxic wastes and cheap Chinese batteries. That is also why the country continues to import specialty steel but has become the largest producer of DRI, a relatively polluting route for steelmaking. Alongside, rampant adulteration in food items and fast degradation of environment in urban pockets accompanied by the spurt in GDP growth.

India’s economic growth, as in many other developing economies, was more about quantity, not so much about quality. A service-led growth model made things further complicated. The characteristic of such quantity-driven service-led growth is that they give a quick spurt but hardly gives space for process development or long term planning. Later, if hampered by resource constraints, such a growth model may become unmanageable.

Precisely, that is what the Indian economy has started to encounter of late. In order to meet the ever-increasing demand from a massive market, the industry must continue to expand capacity; and this in turn must warrant prolific growth in power at the easiest and cheapest way available.

Coal, at this point, is the easiest energy source at disposal. Within the coal sector, opencast mining has been the cheaper, easily available process. And when domestic mining failed to meet demand, imports came as the off-the-rack solution.

“Nobody questions why there was no large scale initiative launched to adopt

alternative power sources all these years. Nobody questions why underground mining technologies could not be adopted in a span of three decades; or why did it take 40 years to accept the gasification technology? Why was there no energy policy of an emerging country that grossly lacks in crude reserves? There are some serious flaws in the way successive planners have handled India’s growth issues,” said a coal industry veteran, “if they handled anything at all.”

Nevertheless, as it stands now, coal must play the fulcrum of this unidirectional growth story that has the sole objective of meeting the mass demand rather than any qualitative change. The question is if there will be enough coal to serve the nation and the answer is anybody’s guess.

A persistent shortfall

As per the coal ministry data, the all-India (including Meghalaya) coal production in 2011-12 was 539.9 million tons (mt), a 1.3 percent increase over 532.7 mt in 2010-11. Against this, the demand for raw coal was

estimated at 696 mt in FY12, leaving a gap of around 150 mt which was to be met by imports. However, the demand projection was later scaled down a little in view of the decline in consumption by the power sector and other industries.

There are various estimates for future coal demand and supply in the country. These include estimates by the Planning Commission, coal ministry, Coal India Ltd (CIL) and also the banks and private sector consultancy and research firms. And although these figures keep on changing, an average estimate for the growth in coal demand puts the number at 8 percent. This is a ballpark figure based on the assumption that for 1 percent growth in GDP, energy consumption rises 1.2 percent. Since the percentage of coal in India’s energy matrix would remain the same in the medium term, coal consumption is likely to see a proportionate increase. So for a 6.5-7 percent GDP growth, coal consumption must rise by around 8 percent.

On the supply side, a 10-year average puts the domestic supply growth figure at around 5 percent. In years to come, an 8 percent growth in demand and 5 percent growth in supply may lead to a double-digit increase in the supply gap year-on-year.

A rough estimate also shows that given this rate of increase in supply gap, by 2025, India would perhaps need to import as much coal as it will produce domestically. In other words, the percentage share of imports in total coal consumption would grow up to 50 percent by 2025 from 20 percent in 2012.

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January February March April May June

India's IIP growth in 2012

Source: GoI

Domestic coal demand and supply projections (in mt)

Year Demand Supply Gap Growth in supply gap (%)

FY13 751 567 184 -

FY14 811 595 216 17.4

FY15 875 624 251 16.2

FY16 945 655 290 15.5

FY17 1,020 687 333 14.8

Source: Insights Research, MoC


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Break-up by coal types

A break-up of this supply gap by coal types – coking (used for steelmaking) and non-coking (used mainly by power sector) – shows that the majority of this shortage would be in the non-coking category. This is so because of the relative high growth in capacity addition by the power sector vis-à-vis the steel sector. In fact, over the last 10 years, import (and hence supply-gap) of coking coal has increased 2.5 times from 12.9 mt in FY03 to 30 mt in FY12. In contrast, import of non-coking coal has shot up 7-fold from 10.3 mt in FY03 to 68.8 mt in FY12.

Separately, coking coal demand in India is also set to rise significantly, mainly due to the government’s plan to reach 200 mt steelmaking capacity by 2020 from 90 mt currently. Although some industry experts doubt the credibility of this number, others believe the industry would see substantial growth riding on the infrastructure boom.

As of today, India’s coking coal consumption is around 45 mt, of which 15 mt comes from domestic sources. This leaves around 30 mt or 66 percent of India’s coking coal requirement which is met by imports, 85 percent of which comes from Australia. With the ambitious growth in steelmaking, coking coal demand in the country is set to jump by as much as 20 percent in the next couple of years. By 2020, coking coal import by India’s expanding steel sector is expected to treble from the current 30 mt to 90 mt, according

to an estimate. As for non-coking coal, the majority of the demand will continue to come from the thermal power sector.

The government has aimed to add around 80,000 MW new power generation capacity in the next five years. Furthermore, India’s generation capacity needs to be augmented to 400,000 MW by 2020, and 900,000 MW by 2030.

As expected, the majority of this capacity would come up in the coal-fired segment. Along with power, the expansions in cement and sponge iron sectors would foment demand for the fuel.

Accordingly, the total demand for thermal coal (including demand from all user

industries) may rise from 650 mt in FY13 to 850-900 mt by 2017. This of course is a cursory estimate and may vary depending on the changing dynamics of the coal consuming sectors.

Sectoral division

The major consumers of coal in India are power, steel, cement, sponge iron (DRI) and brick kilns. Among these, only the steel sector consumes coking coal, while others consume non-coking coal. An estimate by the coal ministry shows the lion’s share of coal is consumed by the power sector, nearly 70 percent.

In years to come, the relative share of sectors may change significantly depending on the market dynamics and product demand. For instance, the share of power sector will continue to remain the same in the medium term, but may start declining from 2025 if nuclear power and clean energy sources come up in a big way.

Likewise, demand from sponge iron sector would depend on the environment ministry’s stance regarding pollution emitted by these units. The cement sector’s demand would however continue to grow unabated, and so will be the demand from brick kilns.

On the supply side, nearly 82 percent of indigenous raw coal (around 435 mt) is supplied by Coal India Ltd (CIL). The remaining part (around 100 mt) is supplied by Singareni Collieries Company Ltd (SCCL) and captive miners.

During 2011-12, for power generation (utilities), CIL despatched 312 mt against

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Coking coal Non-coking coal

Coal import during last ten years (in mt)

Break-up of coal demand (BE*) and supply by sectors, 2011-12

Sector BEActual

ShareIndigenous Import Total

Coking coal

Steel/coke oven/private cookeries 17.23 16.05 16.05

Import 29.44 30.04 30.04

Sub total 46.67 16.05 30.04 46.08 7.25

Non-coking coal

Power (utilities) 460.0 367.0 367.0

Power (captive) 40.0 36.91 36.91

Sponge iron 30.47 21.28 21.28

Cement 28.89 13.40 13.40

BRK and others 90.0 81.10 81.10

Sub total 649.36 519.69 68.89 588.58 92.85

Total raw coal offtake 696.03 535.73 98.93 634.66

*Budget estimate Source: MoC


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MoC target of 328.2 mt and SCCL despatched 36.4 mt against target of 32.8 mt. Thus, CIL and SCCL achieved 95 percent and 113 percent of their targets in case of power (U). All India raw coal despatch to power utilities was at 366.99 mt, against the target of 385.46 mt. All India achievement stood at 95 percent.

Impact of shortfall

As already discussed, by 2025-30, the supply-gap in domestic coal may grow up to 50 percent from 20 percent in 2012. This shortfall will have a twin impact on user industries: first, by restricting production growth; second, by raising the cost curve due to costlier imports. A third possibility is that even the domestic coal may become a high cost resource, nearly as costly as imports. This would have further effects in the form of a shake-up of the industries and perhaps the domestic economy.

A segment-wise analysis shows that coal scarcity would have the most immediate and direct impact on India’s ambitious power sector expansion.

Power sector

In the current scenario, the majority of power generation capacity addition will come from coal-based thermal power plants. Coal-fired generation currently accounts for 53 percent of India’s installed capacity. The total generation capacity of the thermal power segment would cross 150,000 MW by 2017. Cost competitiveness of coal versus gas and other sources will ensure its dominant position in the energy-mix in the medium to long term.

Around 70 percent of India’s coal supply is catered to the power sector. Total coal consumption by this sector has increased by 50 percent from 240 million tons (mt) in FY02 to 355 mt in FY09 and further to 410 mt in FY12.

At an average annual consumption ratio of 4,000 tons of coal for each MW capacity, the total annual coal requirement of the segment may go up to 700 mt by 2017 and over 800 mt by 2020, depending on the actual capacity addition.

However, the lack of linkage assurance and less-than-required supply pact with CIL may lead to restricted growth in capacity addition, going forward. While the government is stressing on imports by utilities, the increased costs are posing a hurdle as power tariffs cannot be increased in proportionate manner. In such a scenario, industry sources said, the recent black-out across north India could be a precursor of things to come.

As a matter of fact, the Indian power utilities have reported a generation loss of about 2.9 billion unit (BU) between April and June 2012 owing to the shortage of coal.

Steel sector

As per Planning Commission estimates, the Indian steel industry would require at least 90 mt of coking coal and 28 mt of non-coking coal by FY17. The industry would also need 206 mt of iron ore by FY17, compared to 115 mt in FY12.

Other raw materials such as natural gas, ferro alloys and refractories would also increase proportionately.

However, the requirements would vary according to actual capacity build-up in coming years. As compared to Planning Commission estimate, some consultancy firms put the figures at a much higher level, especially for coking coal consumption. Some analysts estimate that coking coal import by Indian steel mills may go up to 90 mt by FY17. This implies that total consumption may increase to around 120 mt, much higher than the estimate of the Plan panel.

In the absence of sufficient coking coal reserves in the country (around 5 billion tons), the steel sector would remain grossly dependent on import for a long time to come. CIL on its part had been planning to increase the share of washed coal which to some extent may replace coking coal requirement. However, with the new washery projects in limbo, the situation is unlikely to see any major change in near future.

Cement sector

The cement industry’s coal consumption is quite limited as compared to other major user segments. According to industry experts, coal shortage will not hamper production of cement very significantly as many cement makers would resort to imports.

However, the impact of costlier imports would be seen on industry margins. Some major companies expect the increased dependence on imports to hit margins by around 1-1.2

Steel sector requirement of raw materials and other inputs

Input materials Unit Estimated consumption 2011-12

Estimated consumption 2016-17

Additional requirement by 2016-17

Coking coal Million tons 43.2 90.2 47.0

Non-coking coal Million tons 35.3 28.4 -

Iron ore Million tons 115.0 206.2 91.2

Natural gas MMSCMD 7.2 13.541 6.341

Ferro alloys In ‘000 tons 2,152 3,673 1,521

Refractories Million tons 1.29 1.97 0.69

Source: Planning Commission

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FY09

FY13

FY17

FY20

Thermal power sector’s coal consumption (in mt)

Source: Insights Research


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percent. The industry, due to the consistent demand, is expected to pass on the additional raw material cost on to the consumers.

Yet another major impact would be a shake-up in the industry, which will see the big players consolidating their operations and smaller players taking the hit on margins. A spate of mergers and acquisitions may follow if coal prices rise significantly and shortage becomes a serious problem.

Sponge iron

The sponge iron industry is already in the throes of survival woes. Its inability to pass on increased costs of coal puts the sector in a quandary every time there is a hike in domestic coal prices.

Overall, the impact of a coal crisis on the DRI sector is likely to be similar to that on the cement makers. While production may not suffer only due to domestic coal shortage, the higher cost imports would definitely make life tough for this sector.

Over and above this, if the environment ministry takes any stringent stance and decides to coerce the sector to mitigate pollution woes, there might be a reshuffle in the sector. A trend similar to expected

M&A activities in cement industry might be witnessed in this sector as well.

Impact on industry & economy

A coal crisis directly hits the user industries, but also leaves a cascading effect on the overall industrial growth in the economy. This is so because almost all the major user industries are grouped under the core sector and have a significant weight in IIP. For instance, the combined weight of power, coal, steel, cement and fertilizer in IIP is 25.039. Also, these core sectors have their indirect influence on almost all demand based sectors such as basic and capital goods, intermediate goods and consumer goods.

The influence of the core sectors on overall IIP could be gauged from an inter-temporal study of the growth in mining & power; and power & manufacturing. A comparative study shows that between FY96 and FY10, the movements of mining, electricity, manufacturing and general category have all followed the same trend.

For the period under review (FY96 to FY10), the correlation between mining and electricity sector growth was a positive 0.4, while the same between electricity and manufacturing was as high as 0.7*. The relatively low correlation coefficient between mining and electricity is however due to the lagged effect of mining on generation. If discounted for the same, the value of the coefficient could be higher. Nevertheless, the positive correlation, in both cases, implies a direct relationship between mining & electricity, and electricity and manufacturing.

While the findings are not exactly eye-opening, the high correlation of 0.7 between electricity and manufacturing is a revelation. It further proves the heavy dependence of manufacturing growth in the country on the growth in power generation. This in turn corroborates the government’s stance that India’s industrial growth in coming years would largely depend on power sector

growth. And if the power sector continues to depend so heavily on coal, the industrial growth would by default depend on the latter.

So much for the impact of a supply shortage in domestic coal production! Now what if the gap is filled by imports? There would be a different set of impact on the industry. For the record, coal output in IIP is calculated on the basis of, not actual production, but despatches. So even if imports play the stop-gap arrangement, actual movement in IIP would depend on availability of seamless transportation and not mere stocking of imports at Indian ports. This is where the inadequate logistics of the country may play the spoilsport.

Assuming that the imports do reach the users seamlessly, the second set of domino effect would come into the picture. The immediate impact of higher imports is a rise in operating costs of user segments. This could be somewhat mitigated by adoption of modern technologies, which again would require investments and would therefore increase the capital costs for new projects. Output from these new units would thus be priced at a higher level, which if allowed would result in dichotomy of prices within the same industry. Since most of the user segments are core sector industries, such dichotomy would, if allowed, create a situation where government regulation would be required to help ensure these new units survive their higher cost structures.

The trickle-down effect of increased costs in core sector would lead to price pressure in non-core industries. For instance, an increase in thermal coal prices may result in as much as 15-20 percent increase in raw material costs for sponge iron units. Similarly, cement sector has an impact of 1-1.2 percent reduction in margins. For a steel plant, coking coal has the majority share in raw material costs, which accounts for 70 percent of total cost. Any upside in power, cement or steel prices would raise the operating costs

Different sector weight inIndia’s IIP

Sl. No. Sectors Weight in IIP

Weight of eight core sectors

1 Coal 4.379

2 Crude oil 5.216

3 Natural gas 1.708

4 Refinery products 5.939

5 Fertilizers 1.254

6 Steel 6.684

7 Cement 2.406

8 Electricity 10.316

Overall eight core sector weight 37.903

Weight of different demand based sectors in Indian IIP

1 Basic goods 35.57

2 Capital goods 9.26

3 Intermediate goods 26.51

4 Consumer goods 28.66

a) Durables 5.37

b) Non-durables 23.3

Source: Central Statistical Organisation (CSO)

*A correlation coefficient of ‘1’ means that the two variables are perfectly correlated: if one grows so does the other, and the change in one is a multiple of the change in the other. A correlation coefficient of ‘-1’ means that the variables are perfectly inversely correlated. A correlation coefficient of ‘0’ means that the two numbers are not related. Source: CSO data (see annexure on pg. 70)

For the period under review (FY96 to FY10), the correlation between mining and electricity sector growth was a positive 0.4, while the same between electricity and manufacturing was as high as 0.7.


COvER sTORy

of non-core sectors, thereby raising prices in industries like automobiles, construction, consumer durables and so on.

The cost pressure on demand-based non-core industries would lead to a shake-up in respective sectors. The most prevalent impact could be closure of smaller units and merger and acquisitions by larger players. This is already evident in the sponge iron industry, where hundreds of units down shutters during any prolonged spike in raw material prices.

Coal cost increases would, in fact, have a three-way impact on general price levels: a direct impact of energy cost hike on production of goods, an indirect impact on operating costs due to higher cost of intermediaries, and a direct increase in (transportation and) distribution costs for despatch of goods.

Overall, the all-pervading impact of coal (energy) price rise, if allowed to be passed on, would pose a threat of higher inflationary pressure. If not permitted to trickle down, it would eat up the finances of core sector

industries, may necessitate flow of subsidy (at some point in future) from government’s chest, as is seen in crude sector .

In either case, the impact on economy would come in the form of reduced competitiveness of domestic industry, which in turn would lead to a fall in net exports. Also, a monetary tightening (through increase in interest rates) to curb inflation would restrict investments. However, consumption growth may continue to be robust (given the exploding demand) before slackness in investments restricts employment growth.

For the economy as a whole, the components of GDP are consumption,

investments, government expenditure and net exports. Assuming that consumption growth would continue unabated, lower investments and exports would bring down the GDP numbers in the medium term.

On the positive side, a shake-up in Indian industry may result in emergence of bigger, more efficient and technology-driven entities, while further marginalising the inefficient processes and small scale sector. There would also be better utilisation of resources, and a shift from quantity to quality driven economic system.

However, whether India can survive such a difficult transition is the moot point.

The all-pervading impact of coal (energy) price rise, if allowed to be passed on, would pose a threat of higher inflationary pressure. If not permitted to trickle down, it would eat up the finances of core sector industries, may necessitate flow of subsidy (at some point in future) from government’s chest, as is seen in crude sector.

Corrigendum: In Coal Insights July 2012 issue, the native state of Coal India Ltd chairman S Narsing Rao was wrongly printed as Karnataka in place of Andhra Pradesh. The error is inadvertent and sincerely regretted.


COAL mARkET funDAmEnTALs

Coal Insights Bureau

The Indian market for imported thermal coal continued to be subdued in August with tentative

buying inquiries increasing in anticipation of improving liquidity in September once the monsoon season ends, according to traders.

Sources said queries for 4,200 kcal/kg GAR coal were available but buyers are not making any firm commitment to fresh buying.

The weakening Indian rupee is also making people wary of any firm buying. The local currency, which has been hovering around the 55 level to the US dollar, plunged to a two-week low at `56.04/$ on August 16, 2012.

Sources said South African Richards Bay 6,000 kcal/kg NAR fob prices were quite expensive for Indian buyers at the current levels of around $88-89/ton fob.

There was an offer for South African off-spec 5,500 kcal/kg NAR coal at $76 per ton fob. However, buyers were only willing to pay around $74 per ton fob.

Industry players said that market sentiment is bearish due to a slowdown in the Indian economy and the government’s “inability to take decisions on reforms to boost growth.”

In the international market, Australian thermal coal of heating value of 6,300 kcal GAR is currently being offered at around $90 per ton as against $88.35 per ton as of July. Offers of South African thermal coal of heating value of 6,000 kcal NAR rose marginally to $87.65 per ton as against $86.65 per ton in July. Offers of Indonesian coal of heating value of 4,200 kcal GAR is hovering around $38.75 per ton in August.

Traders said deals are struck only if the

Thermal coal prices remain subdued in August

Steam coal CFR India ($/ton)

West (6,300 kcal/kg GAR)



East (6,300 kcal/kg GAR)



107.05 83.40 66.65 108.65 82.90 66.15

101.15 82.00 64.75 102.55 81.40 64.25

102.65 81.40 64.35 104.10 80.70 64.00

101.60 80.90 64.35 103.05 80.00 63.70

101.70 80.75 64.30 103.15 79.80 63.60

102.00 80.55 64.20 103.50 79.60 63.50

104.55 79.50 63.40 106.05 78.55 62.70

104.25 79.05 62.90 105.75 78.10 62.20

103.75 79.05 62.90 105.25 78.10 62.20

104.10 79.70 63.75 105.60 78.70 63.05

103.90 79.70 63.75 105.40 78.70 63.05

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.

According to industry experts, physical prompt coal prices remained flat tracking macro anxieties. There were reports that Newcastle higher ash 5,500 kcal/kg NAR coal is being offered to Indian buyers at around $86/ton cfr, with fob price at about $74/ton, but there has been little Indian buying interest. Indian power plants use domestic coal, which is already high-ash material, so buyers are not really keen on high-ash cargoes, sources said.

Outlook

Indian coal imports are expected to rise in the financial year through March 2013 as more end-users turn overseas, prompted by

a narrowing gap between the domestic and international prices of thermal coal.

Excess supply has hammered international thermal coal prices in recent months, with top exporter Indonesia cutting its output forecast to around 360 million tons (mt) from 390 mt to 400 mt for 2012.

Based on the current global supply and demand picture, end-users expect thermal coal prices to remain well below $100 a ton for the next 10 to 12 months.

Coal demand in India, which has the world’s fourth-largest coal reserves and produces the most after China and the United States, is projected to be around 772 mt against an expected supply of about 580 mt in the financial year to March 2013.

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

1-M

ay

7-M

ay

13-M

ay

19-M

ay

25-M

ay

31-M

ay

6-Ju

n

12-J

un

18-J

un

24-J

un

30-J

un

6-Ju

l

12-J

ul

18-J

ul

24-J

ul

30-J

ul

5-A

ug

11-A

ug

17-A

ug

PRIC

E ($

/TO

N)

West (6,300 kcal/kg GAR) West (5,900 kcal/kg GAR)West (5,000 kcal/kg GAR)

STEAM COAL PRICE TRENDS CFR INDIA


COAL mARkET funDAmEnTALs


Seaborne spot coking coal prices fell sharply in August on lack of demand from Europe and India. Mid-vol hard

coking coal with 64% CSR (coke strength after reaction) fell to $140.50 per ton fob Australia, while premium low-vol HCC was quoted at $164.50 per ton fob.

Sources said both in India and Europe there were limited buyers and little confidence in the market. Buying interest in Europe was scant with the Europeans on their summer holiday and mills in the region making the biggest production cuts.

Regarding semi-hard coal, traders put the tradable value of materials with 24-25% VM, 8-9% ash and 0.4-0.45% sulfur at $120-130 per ton fob Australia.

Meanwhile, settlement of BHP Mitsubishi Alliance labour unrest has proven to be detrimental to the interests of Australian miners. This has resulted in

rebound in supply thereby hurting price sentiment. 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. Indian majors cannot postpone buying for more than a month with inventory levels depleting fast. Moreover, with the end of monsoons in September, construction activity is expected to pick up resulting in more demand for steel.

Going against the trend, some Indian companies have been quick to grab this opportunity in a soft market. SAIL had 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.

Spot coking coal prices ease sharply in August

Coking coal FOB Australia ($/ton)

HCC Peak Down Region

Premium Low Vol HCC 64 Mid Vol Low Vol PCI Low Vol 12 Ash

PCI Semi Soft

219.00 219.50 175.50 145.00 127.50 109.50

215.50 216.00 171.00 143.00 128.00 105.50

210.00 210.50 170.50 139.50 126.50 104.50

190.50 191.00 165.00 138.00 116.00 102.50

187.50 188.00 163.50 136.50 113.00 102.50

181.50 182.00 158.00 132.50 109.00 95.50

181.00 181.50 157.50 128.50 104.50 95.50

180.00 180.50 157.50 128.00 104.50 96.00

180.00 180.50 157.00 128.00 104.50 96.00

166.50 167.00 146.50 116.00 99.00 108.00

NA NA NA NA NA NA

December contract prices

Sources said the contract price may drop 11 percent to $200 per ton in the October-December quarter or below $200 per ton from $225 per ton in the July-September quarter.

A deepening debt crisis in the Eurozone has dragged down demand and prices of commodities, forcing the world’s largest steelmaker ArcelorMittal to shut down or idle plants in the region. Slowing economic growth in China, the second-biggest importer of metallurgical coal, has increased chances of output cuts at mills and further shrinkage in demand for the fuel.

Possible higher supplies will also put pressure on prices after the BHP Billiton Mitsubishi Alliance, the world’s biggest exporter of steelmaking coal, resumed operations last month at its Queensland mines, pruning the risk of shortages. The venture supplies about 18 percent of global coking coal.

Should benchmark prices fall below $200 per ton because of receding demand from China – the world’s biggest steel producer and consumer – coking coal suppliers including BHP, Rio Tinto, Teck Resources Ltd. (TCK) and Alpha Natural will start cutting output to support prices, industry sources and analysts feel.

Meanwhile, global steel demand growth is forecast to slow to 3.6 percent this year from 5.6 percent in 2011, according to the World Steel Association (WSA).

China may consume 648 million tons (mt) of steel this year, compared with 657 mt forecast in March, because of the slowing economy, Australia’s Bureau of Resources and Energy Economics said in its June 27 report.

Meanwhile, many steel makers globally have taken a wait-and-watch mode, anticipating prices to fall further.

Met coke

Lack of buying appetite continued to characterise the metallurgical coke market. Coke with 12.5 percent ash was quoted at $343 per ton, down from $360 per ton cfr east India a month earlier.

In India, met coke prices hovered around `20,000 per ton in the eastern region, sources said.


Excerpts:

What prompted you to opt for mining engineering?Honestly, I was not particularly fascinated by the stream and in those days it was hardly an attractive option. However, destiny played its part and some people, including some of my seniors in school, who had gone to ISM themselves, convinced me and that is how I landed up there.

Apart from hard work, what else helped you to achieve success in life?I plan my job meticulously. I am also a perfectionist. That way, I sometimes end up spending more time on a particular project, but my aim is always to achieve as much as perfection as possible. I believe proper planning and then implementation leads to success and that is what I try to do.After working in a variety of mines, small as well as big, underground as well as opencast, as well as in sales and marketing departments of WCL, I received wide exposure in various areas. That contributed to my success in a big way.With experience, the whole process of planning and implementation becomes easier as you factor in the constraints while planning. In other words, planning is based on practical issues.

Do you think that destiny plays a role in the success of a man?Destiny definitely plays a role in the success, but only to some extent. I believe that man to a large extent makes his own destiny.

What has been the most crucial and satisfying project that you have undertaken in your professional life so far?There are many projects which I consider crucial as well as satisfying, but starting a continuous miner project in one of the underground mines of WCL was perhaps the most satisfying. It was the first continuous miner project in WCL and it was done by me. The major work which was done by me was the diversion of coarse of Amb river, almost a 3-4 kilometre stretch, for extending the life of Umrer underground mine and releasing reserves of almost 25 million tons.The diversion took almost two and a half years and around 25 million tons of reserve, which was falling in the earlier course of the river, was released for mining.I was also responsible for land acquisition work for many projects where I had worked and achieved the work successfully, including proper resettlement of the affected people.

He believes that man makes his own destiny. The newly appointed

director (marketing) of Coal India Ltd (CIL), 56-year-old Bipin Kumar Saxena, also believes that nothing is impossible to achieve for a hard-working man and any job can be successfully implemented if properly planned.

Hailing from Lucknow, the city of Nawabs famous for its mouth-watering cuisine and its Nawabi culture, Saxena is a 1978 batch B. Tech (Hons) of Indian School of Mines (ISM), Dhanbad. He completed his First Class Certificate of Competency under the Indian Mines Act in 1981 and joined CIL after a very brief stint with the Uranium Corporation of India.

Saxena first joined the company with Central Coalfields Ltd (CCL) and remained there till the late 1990s before being elevated to work with Western Coalfields Ltd (WCL).

In 2006, he moved to Mahanadi Coalfields Ltd (MCL) as chief general manager in the technical coordination department and also in Ib Valley Area. In March 2008, he was appointed director (technical) of WCL. Four years later, in June 2012, he assumed responsibility as director (marketing) of CIL.

Saxena, who has wide experience in planning, operations and management of both underground and opencast mines, was, by his own admission, not particularly fascinated by mining engineering, but was influenced by seniors in his school to do so.

In an exclusive interview to Coal Insights, Saxena revealed that as CIL’s director (marketing) his priority is to meet the country’s coal demand and living up to the expectations of various consuming sectors.

Rakesh Dubey

Meeting country’s coal demand the top priority: Saxena

InTERvIEw


What will be your priority as director (marketing) of CIL?My first priority will be to meet the demand for coal in the country. Meeting 100 percent of the demand will be difficult, but in the years to come, may be 10 years from now, CIL may be in a position to meet the country’s entire coal demand. In the current Plan period, CIL plans to meet the country’s demand by increasing production, be it through underground mining or through MDO concept, and increasing the despatches to various sectors such as power, steel, cement etc.So my priority will be to try and meet the commitments or the priorities announced and targets set by the government.

Consumers quite often complain about the quality and delay in supply of coal by CIL. How do you plan to ensure that all CIL consumers are satisfied up to a certain level?I would like to point out that at the subsidiary level, we have the regional coal consumers’ associations. These associations meet on a quarterly basis where the problems related to quality of coal and those of the companies or the consumers are discussed. As far as quality is concerned, CIL is in the process of setting up washeries. As and when these washeries come up, the quality of coal is bound to improve.I would say that the washeries have to be set up on a fast track basis as they will significantly reduce the pressure on logistics, improve quality of coal, increase realisations for CIL and finally the consumers will get good quality coal.

But I believe the progress is much slower than anticipated on the washeries front.Yes, I agree that progress has been slower than the plans. However, despite this, BCCL has been able to make some progress, and to some extent MCL too. CCL is also on track.We are hopeful that other subsidiaries

too will take up the matter and work on it on a fast track basis.

What about the problem of logistics?For logistics, we are mainly dependent on the Railways and road transport. I would say, right now, road transport is a big bottleneck. A contractor working in a particular area is usually not willing to move to other areas and that creates problems. He prefers to work in the area where his resources are and not in the areas where these resources are required.For example, in CCL, if we have to move the coal from North Karanpur or Piparwar to consumption points and we require transport vehicles to transport the material from these areas to power plants and other sectors, there are some problems in doing this smoothly because of transport constraints.Railways have their own constraints, but by and large the situation is kind of okay with them as they always try hard to meet our requirement of wagons.

Are you planning to ask transport contractors to shift their area of operation?We have to bring in new resources as I feel the existing resources have reached a saturation point. So till the time new resources are pumped in, I do not think any major improvement can be seen.To invite new entrants in road transportation, we plan to inform them during interactions in various forums about the need to solve the logistics problems. We will request them to come forward so that the coal can be moved from pithead to loading points or railway sidings.

Smaller consumers often complain that they do not have the facility or option to check the quality of coal unless they lift a particular quantity of coal during a year. How do you plan to address this issue?There is an existing provision in FSAs regarding joint sampling at loading point with all the power sector consumers and all other sets of consumers. The minimum quantity which a consumer has to lift annually is 0.4 million tons to have the facility of joint sampling. I have to check on this though.As far as small consumers are concerned, I would say that there number is so high that it is difficult to interact with each and every consumer and address their issues on one to one basis, but we will definitely work out something to address their problems.

Consumers are also often penalised by the Railways for overloading though loading is done by CIL. How do you plan to address this problem?We have to realise that coal is not uniformly weighed. For the same volume, the weight may vary from place to place and from size to size. In case of loading by silos, we are normally able to control the quantity of loading by computers, but in places where loading is done by payloaders or manual loading, we face difficulties.Another problem is the free time of five hours provided by Railways for loading of a rake. In that five hours, we have to load the boxes as well as move the rake. And in that time if there is slight variation in weight, it comes to notice only when the rake passes through the weighbridge in motion.

Meeting 100 percent of the demand will be difficult, but in the years to come, may be 10 years from now, CIL may be in a position to meet the country’s entire coal demand.

InTERvIEw


There can be eye estimation during payloader or manual loading, but arriving at perfect weight loading is possible only through silo loading and CIL will definitely work to come out with more and more silo loading facilities to solve this problem.

But ultimately it is the consumer or buyer of coal who has to suffer and pay the penalty for no fault of theirs?We provide for joint supervision of rail loading at sight. I feel the consumer should also ensure that there is no overloading. If he thinks that by loading up to a particular point, it will be as per stencil weight, he should restrict the loading accordingly.

Have you discussed the issue with the Railways?We have discussed it with the Railways on a number of occasions. They do provide some leverage in the form of CC+1 (carrying capacity plus 1 ton), but they cannot go beyond a level because then there is always a danger of derailment because tracks are built for moving a rake with a particular load and wagons too are built accordingly.But this CC+1 leverage depends on season, area of loading, position of track and other factors and the only solution right now seems to be setting up more silos.

A host of measures have been taken by the government to streamline coal supplies to non-linked consumers and e-auction is one of the routes beside state dispensing. Despite that, it has been found quite often that black marketing of coal is reported from

some quarters. How do you think this can be managed?In spot e-auction anybody can purchase coal. After purchasing, he can use it in any way he wants except export. We do not have any control over that. However, we have indeed designed a methodology wherein anybody can purchase coal. What else we can do is difficult to say at this point. Once the coal is out from loading point, it is beyond our control.

The coal supply chain has been streamlined by e-auction and considering the fact that it has brought in advantages to the industry as well as to CIL, do you think the quantity of coal to be sold through this route should be increased?As of date, there is no provision to increase the quantity of coal to be sold through e-auction. We can sell up to 10 percent of our total production through this route, and even the government is not thinking about increasing this because of limited availability of coal. I cannot say what will happen in future, but at least for now, there is no scope of considering any increase in percentage of coal to be sold through e-auction. Though CIL gets a good margin by selling coal through e-auction, the

government policies are guided by NCDP and we have to follow that policy. It is a different matter that CIL is a listed company and it has to be responsible towards its shareholders also.

In June, CIL had offered the power sector that it will lift coal from the pithead on “as is where is” basis. What has been the response so far?There has been some response in subsidiaries like WCL, MCL and CCL from companies like Adani, Sterlite and Bajaj Energy, but actual lifting has not yet started from all the places. About three to four consumers have shown interest in ECL, one or two in MCL, while three or four have shown interest in WCL. In fact, this had been happening in WCL for quite some time. KPCL is taking from WCL, GSECL used to take, but right now they have stopped. HSPGCL and Mahagenco are other consumers, who lift coal on “as is where is” basis from WCL mines.The progress on offers received by CCL has been affected to some extent due to heavy rains in recent times in mining areas that has made loading a bit difficult. But as soon as the monsoons are about to end, I hope that lifting will start.The terms and conditions of lifting will remain as per terms of FSAs. If a consumer takes, for example 10 percent higher coal than the 90 percent trigger level, he will have to pay extra cost over the notified price as per FSA. But even after taking coal through this route, if it is found that the total quantity received by a consumer is not above 90 percent, then he will pay notified price for the entire lifted quantity.

To invite new entrants in road transportation, we plan to inform them during interactions in various forums about the need to solve the logistics problems.

As far as quality is concerned, CIL is in the process of setting up washeries. As and when these washeries come up, the quality of coal is bound to improve.

InTERvIEw


It was said that immediately after switch to GCV based pricing mechanism, there was a shortage of bomb calorimeters with CIL. What is the situation right now?It is not that we do not have enough numbers of bomb calorimeters, but we need more and they are being procured.We had set a target to procure required number of bomb calorimeters and we are confident of achieving the target. Different subsidiaries have already placed orders or are on the verge of placing the orders. Some are taking five, some eight and some are taking seven such meters.Our target is to procure a sufficient quantity of meters by December 2012. There are three to four agencies which supply bomb calorimeters. One is in the US and some are in China. These agencies have participated in the tenders.

Already 29 FSAs have been signed with plants that came to operation after March 2009 and or will come to operation by March 2015 where the trigger level has been fixed at 50 percent. Now with the new directive, will they increase the trigger level to 80 percent?I will not be able to comment on this.

The board will take a final call and only then can we let you know.

What is the progress on talks with NTPC, which had reservation over the new FSA clauses introduced by CIL earlier?NTPC still has some minor reservations. The reservations are not about the 80 percent trigger level as it is more or less prepared for that. But how much of this 80 percent will be indigenous coal and how much will be imported coal has not been decided yet.We have already informed the CEA and the power ministry about our availability of coal. So they know that it will boil down more or less to this 80 percent level. They are ready to sign FSAs for their new plants, but probably they are waiting for the new FSAs to be finalised after the amendments.But they will have to take imported

coal through us whatever may be the percentage of imported coal in the 80 percent.

CIL had decided to bring in imported coal through long term agreements and then supply to consumers in 2010 itself, but none of the consumers agreed to take imported coal. What is the situation right now?That is on hold and will be revived only after finalisation of the current issue. However, as far as procuring the imported coal right now is concerned, the statement of the chairman that we will import through MMTC or STC still stands.

What is the current production, offtake and closing stock position?Total closing stock of CIL as on August 18 was around 53 million tons (mt), down from a high of around 70 mt, while production as on August 18 was 151 mt against the target of 154 mt. Our offtake stood at around 169 mt as on August 18 against the target of 172 mt. As soon as the rains stop, we will catch up with production, probably after September end. Till July, we had reported higher production or our production grew compared to previous year. But from August, the situation is slightly different. Because of rainfall, the production has come down a bit, but the moment we get the dry period, we will make up for the production.Hopefully, from September end production will come back to normal levels. Everything will depend on rain. Normally, after September 18, production gradually improves every year.

I cannot say what will happen in future, but at least for now, there is no scope of considering any increase in percentage of coal to be sold through e-auction.

InTERvIEw


fEATuRE

production plans had suffered severely since 2010 due to huge delays in getting statutory clearances for starting new projects and also because of deferment of production plans from some of the existing mines due to imposition of Comprehensive Environment Pollution Index (CEPI) in 2010, it will not be able to supply more than what it proposed in new FSAs.

But the power ministry and power companies were far from amused. They approached the PMO seeking guidelines, which in turn directed the ministry of coal to do the needful and finally came out with a Presidential directive asking CIL to guarantee at least 80 percent of the normative requirement of new plants and also increase the penalty levels.

Following this, the board of directors of CIL in its meeting on July 31 agreed to revise the FSA clauses and also indicated that it will accept pooled price mechanism as suggested by power ministry provided there is a consensus.

Now the question is whether pooling is the right way to achieve the objective of providing coal to all plants and whether it will be right to allow the consumer to buy a part of the coal at imported coal prices and a bulk of the quantity at domestic coal prices and have a price averaging.

Earlier in July, the CIL chairman had said in an interview to Coal Insights that by resorting to supply coal at pooled price mechanism, the cost of domestic coal may go up by `100 per ton or in other words those not using imported coal or even using it will have to pay around `100 per ton extra for amount of domestic coal that they will take.

The moot point

According to an analysis by Coal Insights, the biggest fallacy of pooled price mechanism is that there are many power stations in India where new expansions are not happening and they cannot use imported coal. CIL has signed FSAs with them to supply 90 percent of the normative quantity of coal and in reality is supplying up to 92 percent.

Plants like these will suddenly find that their cost of coal has gone up by ̀ 100 per ton. The question is will they pay the increased cost especially when cost has gone up due to a policy under which some other plants will get imported coal at lower prices.

Rakesh Dubey

The proposed pooled price mechanism is the latest contentious issue in the wake of the country’s coal crisis.

The Ministry of Power and its arm Central Electricity Authority (CEA) after a meeting with power generators of the country in June this year had written to the Prime Minister’s Office (PMO) that there is a broad consensus on introduction of pooled price mechanism in the country. However, taking all conditions into account, that hardly seems to be the case.

The pooled price mechanism is a proposal mooted by the Planning Commission a few years ago, under which the cost of imported coal to be used for power generation will be cross subsidised by those using domestic coal.

In other words, Coal India Ltd (CIL), which has been entrusted with the responsibility to meet the country’s coal demand, if required by imports, under the New Coal Distribution Policy (NCDP) announced in 2007, will have to import coal, obviously at a higher price, and supply to domestic consumers at a lower price.

The difference in cost of imported coal

and the lower price to be charged from buyers of that imported coal will be compensated or recovered from consumers in the form of higher prices for domestic coal.

The idea had been rejected right at the beginning by the board of directors of Coal India Ltd (CIL) under the chairmanship of the then chairman P.S. Bhattacharyya, citing difficulty in implementing such a complicated proposal.

However, the proposal was revived after the CIL announced a new Fuel Supply Agreement (FSA) sometime in April this year for supply of coal to power plants that came up after March 2009 and or will come up till March 2015. This new FSA stated that CIL will supply only 60 percent of the normative quantity of coal to power plants and in case of short supplies will pay a penalty of only 1 percent.

The power ministry as well as private sector power generators were not at all happy with the trigger level and penalty clause proposed by CIL as in earlier FSAs, CIL had set the trigger level at 90 percent and penalty varied from 5 percent to 20 percent for short or excess supplies.

It was argued by CIL that since its

Pooled price mechanism: A bitter pill to swallow

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It has already been indicated by power generators in Gujarat, West Bengal and a few other states that they are not interested in buying imported coal under pooled price mechanism.

The logic seems sound enough. Why will a plant in West Bengal or Bihar want to bear the cost of imported coal to be supplied to plants in Maharashtra or Tamil Nadu? And even if they do, how are they going to pass on the increased cost? The State Electricity Regulatory Commission (SERC) may not agree to do so, and even if it succumbs to pressure, finally the consumer is bound to resist it.

The consumer may very well file a Public Interest Litigation (PIL) saying that his cost of power has gone up by say 40-50 paise per unit only because the State Electricity Board has been asked to cross subsidise other states.

The chances of such a PIL being accepted or going in favour of the consumer seems quite high not only on the above ground, but also because of the fact that instead of price pooling the same result can be achieved by pooling of quantities.

For example, power plants can purchase 20 percent of imported coal at, say, $100 per ton and 80 percent domestic coal at, say, $30 a ton as against the current norm of 10 percent imported coal and 90 percent domestic coal and that will ensure not only averaging, but also ensure that it is happening easily.

Coal Insights understands that pooling of prices is being thrust upon CIL because power plants do not want to use imported coal because of the high prices and other issues involved with it. For example, NTPC which had been asked to import 15.45 million tons (mt) coal in 2011-12 had ended up importing only around 11.70 mt and the situation is not that encouraging even in 2012-13.

NTPC had been asked to import 16 mt coal in 2012-13, but till July 2012 or during the first four months of the financial year, it

has imported only 3.66 mt against the target of 4.0 mt.

The situation is more or less same for all the indigenous coal based power utilities while imported coal power utilities have imported more than their targets.

So it boils down to the fact that because the power utilities, particularly those owned by the government, are not much interested in using imported coal, the power ministry is trying to make the imported coal a little sweeter by artificially reducing its cost by increasing the cost of domestic coal.

Another harm that this pooled price mechanism will do is that it will reduce the flexibility of CIL to increase the price of coal by going for beneficiation. The present gap in the prices of domestic coal and imported coal gives CIL the scope to increase prices by setting up washeries and charge a higher price for washed coal.

For example, CIL may have the scope to increase the average fair price of coal from `1000 per ton to `1500 per ton by supplying washed coal, but that opportunity to some extent is being wasted by asking it to load `200 per ton only to do the pooling.

By asking the CIL to do pooling, the company is not being allowed to charge `200 per ton for what would have been its legitimate claim had it supplied washed coal.

Doubtful proposition

The arguments can be numerous, but the fact remains that implementation of pooled price mechanism looks doubtful considering the fact that the CIL board has clearly said that the scheme will be implemented “provided everybody agrees or there should be consensus among all the consumers”

regarding the mechanism. Considering the objections raised by power utilities in at least a few states, it is most likely that the proposed mechanism will fall through.

It is to be noted that CIL had in 2009-10 also, under pressure from the power ministry, tried to supply imported coal to power utilities. But none of the utilities back then agreed to take it from CIL. Companies like NTPC and DVC had initially shown some interest, prompting CIL to enter into a Memorandum of Understanding with the Shipping Corporation of India for arranging transportation of coal from other countries to India. However, the proposal fell through as NTPC insisted on receiving imported coal at its plants and did not want to involve itself in transportation of coal from ports to its power plants.

On one hand, power plants wanted to focus on generation and not on arranging coal supplies. On the other, as things transpired,

CIL would be forced to divert its focus from mining and concentrate on arranging for supplies.

Wrapping up

All in all, Coal Insights feels that the proposal of pooled price mechanism should not be pursued at all. Instead, the

government should make a stipulation that all power utilities will have to import coal to the extent of 20 percent of their requirement and if a utility or a company is not doing so, CIL should be asked to supply less domestic coal to that utility by reducing the 90 percent FSA clause to 80 percent or 70 percent of normative quantity.

In case of non-compliance, inability or inefficiency of the power plants, CIL cannot be allowed to suffer by forcing it to go for pooling.

In any case, it is to be kept in mind that just like the primary job of the power utilities is to generate power, the primary responsibility of CIL is to mine as much coal as possible to meet the country’s growing demand instead of diverting its attention to imports, which is not its forte.

Why will a plant in West Bengal or Bihar want to bear the cost of imported coal to be supplied to plants in Maharashtra or Tamil Nadu? The consumer may very well file a PIL saying that his cost of power has gone up by say 40-50 paise per unit only because the State Electricity Board has been asked to cross subsidise other states.

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Should foreign companies be allowed to mine and sell coal in India?

not get sufficient coal as mining is dominated by overseas companies and they prefer to export the mined coal as it fetches them higher revenues.

In a similar situation in India, if major coal blocks are given to some top five to six mining companies of the world with freedom to fix the price as well, what is the guarantee that they will not prefer to export the material or sell at higher price on the ground that mining cost is high?

As far as CIL’s alleged inefficiency is concerned, it is to be kept in mind that it is the company that has proven itself to be the world’s largest in terms of production (and has huge reserves) and also to some extent in terms of profit. CIL has emerged as the world’s largest coal producer despite the fact that it is a legacy company with more than 200 underground mines, which accounts for only around 10 percent of production but employs around 40 percent of the manpower and where downsizing is not an option.

It can be argued that why CIL is not using modern equipment to mine coal from underground and increase the share of underground mining from the current level of 10 percent. While raising this point, it has to be considered under what circumstances underground mining can flourish.

Experts said that India’s coal reserves, in most of the cases, “are not suitable for underground mining because of geological faults which occur and because of this, unlike China or the US, it is difficult to engage high performance machines such as longwall in India at random.”

Despite this, CIL is continuing with largescale underground mining and incurring huge losses, they maintained.

World’s top coal producers*in million tons

Company Production

Coal India Ltd 431

Shenhua Energy 350

Peabody Energy 268

Rio Tinto 141

Arch Coal 126

China Coal 114

BHPB 104

Xstrata 95

Suek 88

Anglo Coal 69* Based on 2008 production figures


With the present and projected coal demand-supply gap grabbing headlines in recent times, voices

are being raised from various quarters that foreign companies should be allowed to enter the Indian coal mining sector to improve production and help increase coal availability in the country.

It is argued that this is essential as Coal India Ltd (CIL), which at present meets 80 percent of the country’s coal demand, has failed to meet expectations and proven itself to be inefficient. It is also argued that foreign mining companies, with their better mining technologies, will be able to mine coal in a more efficient way.

Coal mining veterans, however, raise doubts over the reasoning. The question remains, they contend, why overseas mining companies would be interested to come to India unless they are allowed to sell coal in the open market or export it. Unlike CIL,

overseas mining companies are owned by investors and the managements are continuously under pressure to increase bottomline.

“If they are under pressure to deliver profits, the overseas mining companies, if allowed to operate as freely as CIL operates in India, will definitely seek their pound of flesh and will require freedom to fix the price of coal as well as sell to whoever pays a high price,” pointed out an expert.

“In such a situation, we can ask whether or not we, as a country, are prepared to allow overseas mining companies to operate freely in India without any restriction on fixing the price of their end produce,” he said.

Before arriving at any conclusion, the country needs to look at what is happening in South Africa where overseas mining companies command nearly 90 percent production share, he noted.

According to industry experts, it has been found quite often in South Africa that their domestic electricity generator ESKOM does

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However, on the brighter side, it can be argued that despite huge losses in underground mining, the company’s overall cost of production of coal is only $13-$14 per ton which makes CIL one of the least cost producers of coal in the world.

A former CIL official said that cost of mining is a factor of total productivity. The total factor cost of production and inverse of factor productivity is the cost. If cost is low, the factor productivity will be high.

So if CIL’s labour productivity is low because of engagement of a large number of miners in underground mining, its capital productivity is very high and combining both the company’s total productivity is quite high.

But if one looks at only the opencast production by CIL, which comprises 90 percent of its total production, the company’s performance is extremely good because here the cost of production is less than $10 per ton, and very few companies in the world can boast of such figures.

According to the official, it is not only the cost of production, but the role of CIL in

generating value for the country that merits a mention. The coal monolith sells coal at almost 50 percent of the world coal price.

“If we are even imagining of a power cost of `2.00 to `2.50 per unit, it will be possible only with the coal supplied by CIL. The kind of value generation which is happening by CIL will not be possible if professional overseas companies are allowed to mine coal in the country,” he pointed out.

A contrarian view may point out that coal is a scarce commodity and should always be sold at a global price. Today steel, copper, aluminium, gold, silver and all other commodities are being sold at global prices in India. Then why should coal prices be any different?

The moment international players are brought into coal mining, the price convergence will take place as they will wash the coal and improve the quality to command a better price.

“But the fact is India not only needs power, it needs cheap power and it is possible only by coal supplied by CIL, whose contribution towards the development of the country cannot be judged in terms of price,” the experts said.

The fact is that the company meets the country’s 40 percent energy requirement at half of global prices, still makes profit, pays taxes and pays dividend to its shareholders. And that is no mean achievement by any standards, they added.

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Despite huge losses in underground mining, the company’s overall cost of production of coal is only $13-$14 per ton which makes CIL one of the least cost producers of coal in the world.


TCI drags Coal India, govt to court


UK-based hedge fund The Children Investment Management Fund (TCI) has finally dragged India's

largest coal producer Coal India Limited (CIL) and the coal ministry to court after threatening to do so in the last couple of months.

The Delhi High Court accepted a writ petition by TCI, Coal India's largest minority shareholder against the Navratna firm and coal ministry and issued notices to both of them.

Besides, TCI plans to sue the Coal India board for breach of fiduciary duties and abuse of minority shareholders. TCI wrote a letter to Coal India CMD S. Narsing Rao threatening to take action against the Coal India directors if prompt, transparent and verifiable steps are not taken to rectify these breaches of duty and the damage caused by them.

In its writ petition in the Delhi High Court, TCI sought to quash the letter dated 25 January 2012 written by the then coal secretary, Alok Perti to Coal India instructing it to revise the price hike CIL made in December 2011.

Seeking a direction by the High Court to the ministry not to interfere with the pricing mechanism in any manner, TCI in its petition argued that coal prices are completely deregulated and the ministry does not have legal authority to interfere with the discretion with CIL as it has been doing on a regular basis. The petition also argues that the January revision in the price is also illegal being a direct consequence of the illegal and invalid instructions of the ministry.

Oscar Veldhuijzen, partner, TCI said, "It is TCI's intention to fight corruption which will benefit the people of India and all minority shareholders in PSUs. We call upon the CAG and CBI to investigate the corruption related to FSA coal being sold at a

significant discount to market levels resulting in corruption as demand outstrips supply".

TCI has also challenged the legality of the Presidential directive dated April 4, 2012 issued under Article 37 of the articles of association of CIL asking Coal India to sign fuel supply agreements (FSAs) with power firms.

"Whilst, under the Articles of Association, this power has been conferred on the President to be exercised either in the interest of national security or substantial public interest TCI believes that there has been no application of mind by the Ministry to assess if any public interest, let alone a

substantial public interest, would be served by issuing such a Directive," said a TCI statement.

TCI believes that the whole system of FSAs should be scrapped and, following the law laid down by the Supreme Court of India in many cases including the recent 2G judgment, a natural resource like coal should be auctioned rather than given through FSAs, the TCI statement added.

TCI also called for investigations by CAG and CBI into Coal India's proposal to offer coal at prices lower than the market-driven prices.

In its statement TCI pointed out that currently most benefits of lower FSA coal prices are not passed on to the end consumers, as some power companies sell their power under merchant tariffs, that is market-determined prices. On the other hand, non-power companies which receive FSA coal at a discount to market prices either resell coal to third parties at higher prices, or make higher

profits. "Huge profits are available to the privileged firms awarded under-priced FSAs. As a result, the risk of corruption is high as demand is far greater than supply,” it said.

TCI has repeatedly claimed a loss of opportunity of $1.5 billion because of regulatory interventions. TCI argues that Coal India can supply electricity worth $18 billion through the dividend it can pay to government if the coal prices are aligned with international prices.

Indian households, on an average, consume 195 billion units of power annually. Its rationale is that, with a higher price of coal, CIL’s earnings will grow along with a subsequent rise in dividends. With higher dividend (annual and interim), the government can afford to supply subsidised power with that fund.

However, recently Coal India has already aligned its coal prices by introducing the Gross Calorific Value (GCV) price mechanism in January this year from the earlier useful heat value (UHV) mechanism.

However, TCI alleges that the then coal secretary asked CIL to roll back the price hike after the implementation of the GCV regime. But industry sources feel that prices actually went up. The number of grades of coal went up from seven (under UHV) to 17 grades under GCV and the price went up by at least 9 percent. Also, formally

one of the major subsidiaries of Coal India, Western Coalfields Ltd (WCL) hiked the prices again, formally, from June 21, 2012.

TCI has highlighted some of the crucial issues related to the interest of minority shareholders and corporate governance of the PSUs. Also, cases like this will surely work as a deterrent for the foreign investors.

In a similar case, Goldman Sachs in 2009 had pointed out increasing government interference in ONGC’s functioning by asking it to share the subsidy paid to its downstream oil PSUs – IOC, BPCL and HPCL. Though the allegations were promptly denied by the then ONGC management, the fear of foreign investors became evident in ONGC’s divestment last fiscal where finally PSU giant investor and India’s leading insurer LIC had to bail out the issue. Similarly, the government can argue in the case of Coal India that TCI should have not invested in CIL IPO, that too knowing the risks highlighted in the RHP.

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The India Energy Forum (IEF) jointly with Delhi Chapters of MGMI and Indian School of Mines Alumni Association, ISMAA, with active support from the concerned Ministries of the Central Government have decided to organize the “Coal Summit 2012 and Expo” on September 18-19, 2012 at The Ashok, New Delhi.

An “EXPO” is being concurrently held and organised by TAFCON.

The Summit is being organised towards providing a platform for debating the relevant issues concerning the coal industry and to come out with concrete suggestions and policy prescriptions to achieve the desired production build up.

The theme of the Summit is “Coal: Bridging the Gap – Challenges and Strategies ". The chosen objective is to minimise the demand- supply gap by addressing the impediments with suitable policy intervention, technological up-gradation, emphasis

on infrastructure, speedy clearances and acquisitions involving environmental, forest and land from the concerned agencies and active participation of the state governments.

A high powered organising committee has been formed under the chairmanship of S. Narsing Rao, Chairman, Coal India Ltd (CIL), with members drawn from all the important organisations which are directly or indirectly involved with the coal sector.

The Coal Summit will discuss related issues regarding Coal, Mining and Allied industry and present the same to the Ministry of Coal, Planning Commission, Ministry of Environment & Forests; an Agenda for accelerating the growth of the Sector.

The concurrent Expo is designed to provide business opportunity to the manufacturers of coal, mining and allied industry, to show case their technologies, new initiatives, products and services to the global audience.

IEF, MGMI, ISMAA to organise “Coal Summit”



A total of 593 proposals are pending environmental clearance as on August 13, 2012, Environment and

Forests Minister Jayanthi Natarajan said in a written reply in Parliament.

The Environmental Impact Assessment (EIA) Notification 2006 prescribes a time limit of 105 days from the date of receipt of complete information for according environmental clearance, she said, adding, “As and when complete information is submitted by the project proponent, the proposal is considered for environmental clearance.”

Natarajan said a number of steps have been taken by the government to fast track granting environmental clearances including regular meetings of the Expert Appraisal Committee (EAC) covering the various sectors.

Natarajan said as many as 2040

development projects in various states were granted environmental clearance by her ministry during the last three years and during the current year.

Meanwhile, Minister of state for coal Pratik Prakashbapu Patil recently said, out of the 195 allocated captive coal blocks, 148 are pending forest clearance and 115 are pending environment management plant (EMP) clearance as on March 2012.

He said out of the 108 allocated coal blocks in the private sector, 75 are pending forest clearance and 57 EMP clearances.

Regarding coal blocks allocated to public sector companies, Patil said out of 87 blocks, 73 are pending forest clearance and 58 EMP clearances.

The minister informed that between 2009 and May 2012, only 11 forest clearances and 30 environment clearances have been granted by various state governments.

Projects granted environmental clearance

States Number of proposals granted clearances

Andaman & Nicobar Islands 5

Andhra Pradesh 230

Arunachal Pradesh 12

Assam 56

Bihar 36

Chhattisgarh 115

Chandigarh 2

Dadra & Nagar Haveli 8

Daman & Diu 9

Delhi 4

Goa 38

Gujarat 273

Haryana 28

Himachal Pradesh 23

Jammu & Kashmir 11

Jharkhand 112

Karnataka 114

Kerala 63

Madhya Pradesh 90

Maharashtra 200

Manipur 1

Meghalaya 12

Mizoram 1

Orissa 156

Punjab 48

Pondicherry 4

Rajasthan 118

Sikkim 3

Tamil Nadu 111

Tripura 1

Uttarakhand 36

Uttar Pradesh 33

West Bengal 87

TOTAL 2040

Note: List includes projects granted in the past three years till August 13, 2012

593 proposals awaiting environmental clearance

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See Annexure on pg. 71


Year-wise forest and environment clearence given to coal blocks

State Name2009 2010 2011 2012 (upto May)

ForestGranted

Environment Granted

ForestGranted

Environment Granted

ForestGranted

Environment Granted

ForestGranted

Environment Granted

Andra Pradesh 0 0 0 0 0 0 0 0Chhattisgarh 0 1 0 0 0 2 2 0Jharkhand 0 5 1 5 1 1 0 0Maharashtra 0 2 0 0 0 4 0 0Madhya Pradesh 1 1 2 0 1 0 0 2Orissa 0 1 1 0 2 4 0 0West Bengal 0 1 0 1 0 0 0 0Total 1 11 4 6 4 11 2 2

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A GIS analysis released by Greenpeace, an NGO working for environment protection, has claimed that coal mining threatens over 1.1 million hectares

forest in 13 coalfields in Central India alone.The analysis - 'How coal mining is trashing

tigerland', conducted by the Geoinformatics Lab at Ashoka Trust for Research in Ecology

and the Environment (ATREE), Bangalore, overlaid maps of 13 coalfields with forest cover, protected area boundaries and the latest government data on presence of tigers, elephants and leopards.

The 13 coalfields include Singrauli, Sohagpur, Sonhat, Tatapani, Hasdeo-Arand, Mandraigarh, Auranga, North Karanpura, West Bokaro, Talcher, Ib Valley and Wardha. These coalfields are in Madhya Pradesh, Chhattisgarh, Odisha, Jharkhand and Vidarbha.

The analysis reveals that almost all coalfields overlap with endangered species habitat. Of the 1.1 million hectares of forest at risk, over 185,000 hectares are inhabited by tigers, over 270,000 hectares by leopards and over 55,000 hectares by elephants.

The report highlights the massive costs India is facing from the huge expansion in coal mining. The mines will impact eight tiger reserves and corridors, including Tadoba-Andhari, Kanha, Bandhavgarh etc.

Coal mining threatens over 1.1 mn ha forest: Greenpeace



India’s power plants generated a total of 76,035.74 million units (MU) of electricity in July 2012, slightly below

the target of 76,080 MU set for the month, according to provisional data of Central Electricity Authority (CEA).

With this, the actual generation during the first four months of the current financial year (April-July) stood at 306,012.09 MU, 2.49 percent higher than the target of 298,569 MU.

The generation in July 2012 was higher compared to 74,425.21 MU generated during the corresponding month of the previous year. The target set for July 2011 was 71,958.07 MU.

Electricity generation in June 2012 was 76,305.69 MU against a target of 73,752 MU for the month, whereas electricity generation in May 2012 stood at 78,945.41 MU against a target of 76,899 MU for the month.

Of the total generation in July 2012, the thermal sector accounted for 60,533.85 MU, while 2,709.35 MU was generated by the nuclear sector. The hydro sector contributed 11,868.66 MU. Bhutan imports accounted for the remaining 923.88 MU.

The target for generation in thermal sector for the month was 59,153 MU, while that for the nuclear and hydro sectors was 2,636 MU and 13,424 MU, respectively. The target for Bhutan import stood at 867 MU.

In July 2011, the figures of power generation achieved by various segments stood at 56,518.82 MU for thermal, 2,722.88 MU for nuclear and 14,146.65 MU for hydro power. The remaining 1,036.86 MU was contributed by Bhutan imports during the month.

India’s July power generation below target

Source: Central Electricity Authority


Capacity addition

A total of 950 MW of power generation capacity was added in India during the month of July 2012, taking the total installed generation of the country to 206,033.03 MW, according to CEA data.

With this, the total power generation capacity addition during the first four months (April-July) of 2012 stood at 7,156 MW, the data shows.

The actual capacity addition in June 2012 was 2,376 MW and that in July 2011 was 1,660 MW. The capacity addition target for July 2012 was 1,050 MW.

In July 2012, the entire capacity was added in the thermal sector which stood at 950 MW while the capacity addition in hydro and nuclear sectors both stood at nil. Capacity addition targets for thermal, hydro

and nuclear sectors stood at 1,000 MW, 50 MW and nil, respectively.

Of the total capacity added during the month, 150 MW of thermal power came in Andhra Pradesh at Simhapuri Phase-I while the remaining 800 MW was added in Gujarat at Mundra Ultra Mega thermal power project by Tata Power.

Critical coal stock

Inadequate coal supplies by domestic coal companies and lower imports by power utilities led to critical coal stock position at a number of Indian power plants during the month.

According to data available with Coal Insights, a total of 33 plants of the total 89

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in the country were faced with critical coal stock position of less than seven days as on July 31.

The data further shows that out of the 33 plants facing ‘critical coal stock’ position, 18 were facing ‘super critical’ coal stock position of less than four days.

On July 14, out of the 31 plants facing critical coal stock position of less than seven days, 13 were facing ‘super critical’ coal stock position of less than four days. Plants in Maharashtra, Uttar Pradesh, Bihar, Andhra Pradesh and West Bengal were the worst sufferers.

Plant load factor

The 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 July 2012 stood at 66.84 percent against the planned 66.98 percent. The PLF was 72.05 percent and 73.89 percent for June 2012 and May 2012, respectively.

The PLF of power plants of central sector run companies such as NTPC and DVC in

July 2012 stood at 78.26 percent, compared to 82.33 percent in June. In July 2012, the plants in the private sector recorded a PLF of 58.17 percent against the planned PLF of 65.86 percent.

The worst performer was Muzaffarpur TPS which recorded nil PLF against a target of 17.11 percent. JHPL(HR) which recorded

a PLF of 5.08 percent against a target of 43.58 percent continued to be a poor performer.

Power supply position

In July 2012, the country’s peak power demand was estimated at 85,504 MU, but actual availability was only 77,731 MU, reflecting a shortfall of 7,773 MU or 9.1 percent.


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The generation loss by India’s six power stations due to shortage of coal during the first quarter (April-June) of 2012 stood at about 2.9 billion units (BU), newly appointed power minister M. Veerappa Moily has said.

The generation loss due to shortage of gas during the period was reported at about 4.0 BU, he said.

In a written reply in Rajya Sabha, Moily said the highest generation loss of 1,283.3 MU was recorded by Anpara C thermal power station of Lanco during the quarter. The station has a generation capacity of 1,200 MW.

The second highest generation loss of 981 MU was reported by Bellary thermal power (1,000 MW) station of Karnataka Power Corporation Ltd (KPCL) and the third highest generation loss of 414.80 MU was reported from Khaparkheda II (1340 MW) plant of Mahagenco.

Parli thermal power plant (1,130 MW) of Mahagenco had reported a generation loss of 184.00 MW due to coal shortage whereas Kahalgaon STPS (1340 MW) and Simhadri thermal power plants (2,000 MW)

of NTPC had reported generation loss of 34.0 MU and 36.0 MU respectively during the quarter, he said.

In addition, of the stations from where information was received, generation in some of the thermal power stations was less than their target, reportedly due to shortage of coal, Moily said.

The generation loss was reported despite the fact that country’s coal-based electricity generation during April to June, 2012 was 163.06 BU against the target of 153.85 BU, representing an achievement of 105.98 percent and a growth of 13.68 percent over the actual generation of 143.44 BU during April to June, 2011.

For the year 2012-13, against a requirement of 476 million tons (mt) domestic coal for meeting the generation requirement from coal based thermal power stations, availability of indigenous coal was estimated to be around 407 mt. In order to mitigate shortage of coal, power utilities have been advised to import 46 mt coal (equivalent to 69 mt of domestic coal in view of higher calorific value of imported coal).

Station-wise generation loss in Q1 due to shortage of gas

Project Name Installed Capacity (MW)

Generation Loss in MU

Ratnagiri CCPP 1 740 218.09Ratnagiri CCPPII 740 225.12Ratnagiri CCPP III 740 236.24Kathalguri CCPP 291 42.09Pragati CCGT-III 1000 11.45Hazira CCPP 156.1 2.53Uran CCPP 672 178.42Kovikalpal CCPP 107 44.67Namrup CCPP 95 11.7Vatwa CCPP 100 149.05Rithala CCPP 108 87.2Baroda CCPP 160 212.9Sugen CCPP 1147.5 608.97Gautami CCPP 464 547.71Godavari CCPP 208 130.25Jegurupadu CCPP 455.4 167.81Konaseema CCPP 445 310.23Kondapalli CCPP 350 199.12Peddapuram CCPP 220 196.99Vemagiri CCPP 370 228.02Vijeswaran CCPP 272 132.26Valantarvy CCPP 52.8 2.38DLF Assam GT 24.5 31.38Total 8918.3 3974.58

TPS suffering generation loss in Q1 due to coal shortage

Power Station Target (MU) Actual (MU) Generation Loss (MU)

Anpara C 1113 1044.7 68.3

Pathadi 1056 867 189Khaparkheda 1966 1824.6 141.4Kothagudem 1326 1240.2 85.8Rayalaseema 2013 1950 63Bellary 997 912.83 84.17Raichur 2792 2771 21Ennore 362 175.97 186Mettur 1685 1391.4 293.6Mejia 3403 3035.3 367.7Maithon RB 551 514 37Farakka 3430 3260 170Total 20694 18987 1707

Q1 generation loss at 2.9 billion units


Earlier, in 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.

An interesting observation is that despite overall peak shortage of power in the country in July 2012, Chandigarh, Lakshadweep

and Sikkim 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 1,377 MU.

Andhra Pradesh recorded the second highest shortfall during the month under review. The state recorded total shortfall of

1,336 MU in July 2012, against 1,067 MU in June 2012. Karnataka was a poor performer recording a shortfall of 785 MU against 631 MU in June 2012. Maharashtra recorded a shortfall of 439 MU against 437 MU in June 2012. Madhya Pradesh (355 MU versus 2015 MU in June) also faced major peak period shortfall during the month.


CAG doubts authenticity of India’s coal reserves

As onGeological resources of coal (in bn tons) in India

Proved Indicated Inferred Total

2006 95.8 119.8 37.7 253.3

2007 99.0 120.2 38.1 257.4

2008 101.8 124.2 38.5 264.5

2009 105.8 123.5 37.9 267.2

2010 109.8 130.7 36.4 276.8

2011 114.0 137.5 34.3 285.9

2012 118.0 142.0 33.0 293.0

Source: GSI


While putting to question the Indian government’s policy to dole out coal blocks, the Comptroller and

Auditor General (CAG) has raised doubts over the country’s coal reserve estimates. In no unclear terms, the statutory body has questioned the “authenticity” of estimates made by Geological Survey of India (GSI) and/or Central Mine Planning & Design Institute Ltd (CMPDIL). As of April 2012, India has a proven reserve of 118 billion tons and ranks fourth in the world after the US, Russia and China.

CAG’s reservations are centred on the method of estimation and focused mainly on the reserves brought under CIL, the world’s largest coal miner.

In its draft performance audit report, 2012, CAG noted that India computes its coal inventory on the basis of the Indian Standard Procedure (ISP) code of 1956.

“ISP is purely a geological resource classification system without assessment of mineability,” the report says, adding, the ISP addresses only the volume and tonnage, i.e. the resource of coal but not the accuracy of structural delineation, which would ensure that the reserves are actually economically and technically amenable to extraction.

“Mining of coal with the present state of technology either currently or in the near

future is not likely to go beyond 300 metres depth. However, as per ISP, coal up to 1,200 metres has been considered in the reserve estimation.”

Moreover, India’s reported reserves of coal continue to be cumulative and gross and include coal that has already been extracted and used, estimated to be about 10 billion tons in the past 200 years.

Referring to estimates quoted by CIL, the report says, “CIL gave its estimates as also those of a third party, i.e. SRK Consultants of UK in its Red Herring Prospectus issued (August 2010) to SEBI for its Initial Public Offering. While CIL’s resource estimates were based on ISP code, those of the Consultant were based on the Australian Code for Reporting of Exploration Results, Mineral Resource and Ore Reserves (JORC Code). Although the Consultant did not independently verify the technical information provided by CIL, the differences in estimates were significant.”

As per CIL, the report says, out of a total resource of 64.22 billion tons in its command area, 51.33 billion tons was categorised as ‘proved’, 9.92 billion tons as ‘indicated’ and 2.97 billion tons as ‘inferred’ reserves. The extractable coal was, however, assessed by

CIL at 22.34 billion tons as of April 2010. As per the Consultant, extractable coal as per JORC Code was only 18.86 billion tons (10.60 billion tons as proved and 8.26 billion tons as probable), the report mentions.

It further notes that the government took a decision (May 2011) to do away with ISP and implement the internationally accepted system of United Nations Framework Classification (UNFC) for minerals. UNFC lays down a standard procedure for calculating the size of reserves and resources based on a three-dimension system with technical feasibility, economic viability and geological estimates.

“However, no action was taken till the PMO directed (April 2007) the ministry of coal (MoC) to examine the issue of current ISP procedure vis-à-vis UNFC. CMPDIL undertook (April 2007) a project for converting the existing system of coal resource classification to UNFC, which was to be completed by March 2012. The project is yet to take off (February 2012),” the report points out.

The Audit suggests that the impact of the changeover from ISP to UNFC code on the national mineral inventory is expected to be significantly realistic and CMPDIL should urgently carry out this exercise so as to ensure more reliability in the extractable coal estimates in the country.

spECIAL REpORT


spECIAL REpORT

Inadequate drilling

The CAG report also takes a dig at the inadequate drilling capacity in the country for establishing reserves under the proven category.

“Rapid increase of coal production,” it says, “requires accelerated exploration, which in turn requires augmentation of drilling capacity and capacity to assess coal reserves and prepare geological reports.”

It further notes that the government had appointed an Expert Committee in December 2004 to prepare a comprehensive road map for the modernisation of the coal sector under the chairmanship of T L Sankar. The Committee suggested in December 2005 that MoC should launch a programme of detailed exploration and drilling in the Eleventh Plan, aimed at increasing ‘proved’ category reserves. It was also proposed that measures be taken to increase the drilling capacity of CMPDIL from 300,000 metres per annum to at least 1,500,000 metres per annum by involving all eminent agencies within the country and outside.

Subsequently, an outlay of `383.50 crore was proposed in the Eleventh Plan under the Central Sector Plan Schemes for promotional exploration for drilling of 750,000 metres comprising 400,000 metres for coal in CIL blocks to establish about 20 billion tons of coal and 350,000 metres in lignite to establish 4.06 billion tons of lignite resources.

Similarly, in case of non-CIL blocks

scheme, about 1,000,000 metres of drilling was proposed to be undertaken in 32 (non-CIL) blocks during the Plan period (2007-12) to bring 10.75 billion tons of resources under ‘proved’ category.

The total fund requirement for detailed exploration was estimated at `893.89 crore. Against the above requirement, an outlay of `523.08 crore (revised) was approved by MoC in the Eleventh Plan and a sum of `324.22 crore was released till January 2012 for drilling in non-CIL blocks, says CAG.

In view of the drilling performance (given in table) till 2010-11, the report notes, “there would be a shortfall in achievement by 162,000 metres of drilling (CIL blocks) and 588,000 metres of drilling (non-CIL blocks) vis-à-vis the targets of the Eleventh Plan.”

As of March 2011, 18.28 billion tons of coal resource was established. However, the drilling capacity of CMPDIL was expected to be 344,000 metres in 2011-12 as against the target of 1,500,000 metres per annum as suggested by the Expert Committee.

Meanwhile, the ministry stated in February 2012 that in case of Regional

Exploration (promotional) against a target of 747,000 metres of drilling (revised estimate), 530,000 metres was achieved up to January 2012. The expected achievement at the end of Eleventh Plan is 569,000 metres. The shortfall of 178,000 metres in drilling is stated to be on account of not getting forest clearance despite sincere persuasion by CMPDIL.

The ministry further added that as regards detailed exploration in non-CIL blocks, CMPDIL submitted a scheme to undertake 1,350,000 metres of detailed drilling against the budgeted estimate of `893.89 crore. The likely achievement (other than outsourcing) was 762,000 metres of drilling against the target of 712,000 metres (revised estimate).

Under outsourcing of drilling work, 18 blocks involving 728,000 metres of drilling was proposed to be completed in three years’ time after awarding the contract in 2008-09. The achievement (up to January 2012) was 497,000 metres. Thus a balance of 231,000 metres of drilling was required to be completed in the last two months of the terminal year of Eleventh Plan. Less progress in drilling, according to the ministry, was due to non-clearance of forest land.

However, “the fact remains,” the report observes, “that CMPDIL needs to increase its drilling capacity of non-CIL blocks as also deploy other agencies for accelerating exploration, assessment of coal reserves and preparation of geological reports.”

Exploratory drilling by CMPDIL and others in XI Plan (in metres)

Agency Target in XI Plan

Actual till 2010-11

Proposed addition in 2011-12

Actual and proposed during XI Plan Shortfall

A. Detailed drilling by CMPDIL (including promotional drilling)

MECL 361,000 104,000 465,000

GSI 81,000 19,000 100,000

CMPDIL 12,000 10,000 22,000

DGMs (Nagaland and Assam)

0 1,000 1,000

Total A 750,000 454,000 134,000 588,000 162,000

B. Central Sector Scheme (non-CIL)

CMPDIL (Departmental) 249,000 70,000 319,000

Outsourcing 323,000 140,000 463,000

Total B 1,370,000 572,000 210,000 782,000 588,000

Total A+B 2,120,000 1,026,000 344,000 1,370,000 750,000

020406080

100120140160180200

0-300 300-600 600-1,200

Depth (in mtrs.)

Qua

ntity

(in

bn to

ns.)

Coking Coal Steam Coal Total Reserve

Depth-wise break-up of coal reserves

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.


spECIAL REpORT

Under these circumstances, MoC said, aggregating the purported financial gains to private parties on the basis of the average production costs and sale price of CIL could be highly misleading even after some theoretical adjustments have been made in the CAG Report. “Moreover, as the coal blocks were allocated to private companies only for captive purposes for specified end-uses, it would not be appropriate to link the allocated blocks to the market price of coal.”

Apart from this basic flaw in calculation, the ministry said, there were various other shortcomings in the observations made. The report failed to take into account the ground reality in contemporary Indian economic scenario and also failed to appreciate the government’s intention to unlock the resource base.

A matter of interpretation

The intent of the government, said the ministry, was to induce rapid development of infrastructure that is so very essential to keep the economy on high growth trajectory, by involving the private sector to invest in identified priority sectors.

“By implication it was apparent, right from inception the Central Government

did not reckon it as a revenue generating exercise. Moreover, gains would accrue to the allocattees only if they had the choice of either buying coal from the CIL or producing coal from their respective coal blocks. In fact CIL was not in a position to cater to the entire demand of coal in the country. Therefore, comparison with CIL price to arrive at financial gain is only notional.”

On the other hand, to put the country on a path of higher growth, capacities in power, steel, cement sectors were required to be added expeditiously. “It is to be reiterated that such availability of coal through the allocation of coal blocks was over and above that which could have been made available through Coal India Limited (CIL).”

Hence, the only way for such capacities to come up was through this policy of coal block allocation which necessarily takes a long period of time due to the various clearances which are required. Considering the existing capacities especially in power/ iron and steel sector, these additional capacities are extremely critical for the national economy.

Opposition from states

While defending the Union government’s stance, the ministry said the effort to start

MoC snubs CAG on “flawed” report


Peeved at the uproar over Comptroller and Auditor General’s (CAG) report on coal block allocation to private

entities, the coal ministry (MoC) has charged the statutory body with “flawed” calculation and lack of understanding of geological processes.

CAG’s final report, which was recently tabled in Parliament, alleged that the government’s decision to allocate coal blocks free had enabled the private allocattees enjoy a “windfall gain” of `186,000 crore ($33 billion). The amount quoted, however, was a significant tone-down from the initial estimate of `1,670,000 crore ($303 billion) estimated in the draft.

Commenting on the final findings, the MoC said in a strong rebuttal, “The CAG report has observed on the financial gains to the private parties….the calculation of the said financial gains were flawed on certain basic fundamentals related to the geological sector.”

The financial gains to private parties have been computed on the basis of the difference between the average sale price and the production cost of CIL as well as estimated extractable reserves of the allocated coal blocks.

“This computation of extractable reserves based on averages would not be correct in the geological sector,” the ministry said, “there are wide variations in extractability even in the mines located in the same coalfields or which are even adjacent to each other. Also, the cost of production of coal varies significantly from mine to mine even for CIL due to varying geo-mining conditions, nature of the seams, method of extraction, surface features, number of settlements, availability of infrastructure etc. It may also be relevant to note that CIL has been generally mining coal in areas with better infrastructure and more favourable mining conditions, whereas the coal blocks offered for captive mining are generally located in areas with more difficult geological conditions.”


spECIAL REpORT

competitive bidding was delayed due to opposition from some state governments and other procedural challenges, not all of which were within its control.

“It was only the UPA-I government, which in 2004 first considered allocation of coal blocks through the competitive bidding route. The government had the intention of introducing the bidding process as soon as possible and therefore proposed to formulate rules and guidelines for the purpose under the existing law,” the ministry said.

However, at that time the Ministry of Law and Justice opined that rules and guidelines for bidding system for allocation of coal blocks can be introduced only by amending of the Coal Mine Nationalisation (CMN) Act, 1973. Accordingly, MoC proceeded with the steps to amend the CMN Act. After discussions and deliberations at various levels, a view emerged that instead of the CMN Act, the bidding system be introduced through amendment of the Mines and Minerals (Development & Regulation) Act. Subsequently, there were various conflicting opinions expressed by the Law Ministry, which delayed the early efforts.

Later, the government decided to initiate a process of consultation among the stakeholders to ensure that such an important procedural change is acceptable to the majority of them.

“During consultations the governments of Chhattisgarh, West Bengal and Rajasthan did not agree with the proposed changes. Briefly, they stated that if the proposed process was put in place, state government’s prerogative in selection of a lessee would get diluted, the existing process was preferable as it provided for objective assessment and took into the views of state governments. They further observed that the proposed competitive bidding process would be based solely on higher prices offered by prospective allocattees and would render state government’s views redundant,” the ministry said.

The state governments “also feared that the proposed process would lead to increase in cost of coal and would make the new projects unviable and would only help industrialisation of developed areas to the detriment of coal bearing areas. Ministry of Power was also of the view that this would lead to enhanced cost of coal. Under the given circumstances, particularly due to the opposition from some of the state governments, it was necessary to carefully deliberate and develop a consensus.

Accordingly, after multi-layered consultations the MM(DR) Amendment Bill was introduced in Parliament in October 2008. The Bill was referred to the Standing Committee. The Standing Committee examined the matter and submitted its report in February 2009 and advised further consultations with the state governments. After these consultations only the Bill was considered and passed by Parliament on September 9, 2010.

“At times legislative enactments take considerable time not only because of the procedures involved but also due to criticality of consultations and building up a consensus on sensitive issues” before they are finally placed in Parliament for its enactment.

Further, to operationalise competitive bidding it was necessary to frame guidelines and procedures for auctioning of captive coal blocks. After necessary consultations with all the stakeholders, the rules were notified on February 2, 2012.

Monitoring mechanism

The MoC took note of the CAG observation on regulatory and monitoring of coal sector. CAG in its report has said, “Audit is of the strong opinion that there is a need for strict regulatory and monitoring mechanism to ensure that the benefit of cheaper coal is passed on to the consumers.”

“Ministry of Coal,” said the statement, “in consultation with Ministry of Power, has already issued instructions to all the coal block allocattees who have been given coal blocks for generation of power to participate in the bids for sale of power from their end use projects as per the guidelines of Ministry of Power.”

In case of steel and cement sectors, it said, the prices of end products will be regulated by market forces both by the existing capacities within the country as well as with the international steel producers. However, MoC will examine the matter in consultation with the steel ministry and Department of Industrial Policy and Promotion.

Captive blocks performance

The ministry also dwelt on CAG’s observation on slow development and progress of captive blocks and said it was doing utmost to expedite the process. “The performance of allocated captive coal blocks has been reviewed from time to time and last detailed review was undertaken in January, 2012. Based on the review...32 allocattees were cautioned and 58 allocattees have been show-cause notices. So far 25 coal blocks have been de-allocated,” the ministry said.

As announced by the then Hon’ble Finance Minister in his Budget Speech, 2012 an Inter-Ministerial Group (IMG) headed by Additional Secretary (Coal) has been constituted. The IMG is to undertake periodic review of the progress of the allocated coal blocks and to recommend action including de-allocation if required, consider replies to show cause notices and recommend action and to make assessment and recommend action as to deduction of Bank Guarantee, the ministry added.

The rebuttal• Coal blocks allocated as per

recommendations of screening committee consisting of state government representatives;

• Calculations of financial gains are flawed;

• Competitive bidding of coal blocks proposed in 2004 could not be taken up due to conflicting legal opinions;

• Strengthening of monitoring mechanism proposed to ensure that benefits of cheaper coal are passed on to the consumers.

On account of allocation of only these 57 coal blocks, which have been covered in CAG Report, as much as 18,300 MW capacity in power generation, 35 mtpa capacity in sponge iron, 13.25 mtpa capacity in steel and 7 mtpa capacity in cement will be created using the mineable reserves as computed by CAG itself.


gOvERnmEnT

Coal ministry fixes task document for 2012-13


The coal ministry has fixed up a framework document for 2012-13 charting the different functions it

will undertake for growth of the coal sector during the financial year. The main vision of the ministry is to secure availability of coal to meet the demand of various sectors of the economy in an eco-friendly, sustainable and cost effective manner.

During the year the ministry has taken upon itself the mission to augment production through Government companies as well as captive mining route by adopting state-of-the-art and clean coal technologies with a view to improve productivity, safety, quality and ecology.

The ministry plans to augment the resource base by enhancing exploration efforts with thrust on increasing proved resources. It also plans to facilitate development of necessary infrastructure for prompt evacuation of coal.

The main objective of the framework document is to ensure achievement of Annual Action Plan targets for coal production and offtake, lignite production and power generation (NLC). The ministry also plans to facilitate development and production

from captive blocks and for exploration of coal blocks for allotment.

Its other objectives include efforts to ensure coal supply to regulated power utilities, to ensure that the coal companies bring all linked consumers under FSA regime and to consider rationalisation of existing sources of coal supply with a view to reducing transportation cost for the existing consumers.

During the year the ministry also plans to implement rail and road infrastructure development in coalfield areas and to improve in investment and staff of CMPDIL for augmenting the proved reserves.

One of the main objectives of the ministry also includes increasing coal washing capacity and introduction of new technology in mines. The ministry plans to implement policy on use of surplus coal and washery rejects from captive blocks during the year and increase in productivity of output per man shift (OMS) separately for underground and open cast mining.

There are plans for technological upgradation for increasing productivity, including bench-marking and formulation of comprehensive coal Beneficiation Policy. The ministry also plans to introduce advanced integrated safety monitoring systems.

The framework document includes action points like acquisition of the land under CBA (A&D) Act, 1957 and release of funds for payment of compensation against land acquired under CBA (A&D) Act, 1957. During the year the ministry plans to implement international standardisation and initiate ERP in Coal India Ltd (CIL).

The framework document also includes projects like entering into long term contracts for import of coal, acquiring coal mines abroad, reducing cumulative overburden and reducing pithead stocks.

The functions of the framework document are as follows: • Facilitating exploration, development

and exploitation of Coal and Lignite reserves in India;

• All matters relating to production and distribution of coal;

• Administration of the Coal Mines (Nationalisation) Act, 1973, Mines and Minerals (Development and Regulation) Act, 1957, the Coal Bearing Areas (Acquisition and Development) Act, 1957, The Coal Mines (Conservation and Development) Act 1974 and other union laws related to coal and lignite and sand for stowing, business incidental to such administration.


J.P. Panda

Longwall technology for underground mining is most productive but in India its success rate has been very poor. It

failed due to wrong selection or inadequacy of support system in most places. The other reason was the transport system, which did not match the production. The introduction of the technology was half-hearted in most cases. Spares were not available in India and indigenous manufacturing capacity was not created. The total system was never given importance as more and more opencast mines were opened.

The cost of longwall face equipment is exorbitant. Whereas the opencast production cost of CIL is `550, the longwall cost would come to nearly five times of that – nearly `2500 per ton.

Intermediate technology introduction

Coal India replaced basket loading and opted for intermediate technology of SDL (Side Discharge Loader) and LHD (load Haul dumper) which was never very productive because of drilling and blasting constraint, and constraint of manual roof bolting.

The SDL and LHD can work well only if the lead is small, say, less than 20 metres, gradient is favourable and the coal blasted in one round is more than 30 tons.

Therefore Coal India should insist on reducing the lead for higher productivity and must stop all faces with >15 metre lead as a policy matter.

Mechanised drilling or the jumbo drill combination was not adopted and hand drilling hardly gave a pull of 0.9 to 1 metres, resulting in less tonnage of coal per round . This is continuing in most of the mines even today.

The roof support system roof bolting was not mechanised to cope up with the progress of face. In many cases the transport system underground did not match with the face

TEChnOLOgy

production. The coal tubs and rope haulage system which is practiced in most mines are not conducive for high rates of production.

Technology adoption

In most of the underground mines of CIL, intermediate technology has been introduced for major operations like coal winning by drilling and blasting with use of explosives, roof supports by bolting etc. and coal loading with SDL/LHD. In India presently the technological options in operation suiting the geo-mining conditions prevailing at particular sites include the following:

Cable Bolting Method with Remote controlled SDL/LHD in Bord & Pillar Layout: This method is very useful for extraction of moderately thick seams. It was being practiced successfully in some mines of ECL and SECL, where coal seams of thickness up to 7m were extracted using Remote Controlled SDL/LHD. Basically this is a method of pillar extraction for moderately thick seams where support of high roof is ensured by cable bolts in the goaf.

Blasting Gallery Method of Mining: Blasting Gallery method of mining was successfully introduced at some mines of SCCL, ECL and SECL for extraction of moderately thick coal seams. Coal seams having thickness of 6-8m are being extracted by this method and the major equipment in use are remote controlled LHDs, Jumbo Drill machine, medium duty Chain Conveyor, Lump Breaker, 40 te Individual Props, Auxiliary Fan etc. At some locales, induced caving by blasting for roof management is resorted to where situation demands.

Many other methods of mining are followed under different circumstances with various degrees of success. They are as follows

♦ Blasting Gallery (BG) method; ♦ Cable bolting method; ♦ High pressure water jet mining (Hydro-mining);

♦ Integrated sub-level caving; ♦ Sub-level caving with High Pressure Air Breaking System;

♦ Short longwall method for extraction of standing pillars;

Longwall tech most productive for UG mines


TEChnOLOgy

♦ Longwall Top Coal Caving (LTCC) technique;

♦ Jankowice Method (for Steeply dipping seams);

♦ Stowing technology in conjunction with mining.

The most promising among them is the short longwall method which has been successfully tried at Balrampur of SECL and is described below:

Shortwall mining

This method is a combination of Longwall and Bord & Pillar (B&P) mining which envisages extraction of standing coal pillars developed in Bord & Pillar layout with the help of PSLW equipment, similar to Longwall retreating system. The developed galleries are suitably supported in advance prior to the extraction to attain adequate support resistance restricting movement of abutment loading within working areas.

Shortwall Technology has been commissioned for liquidating the developed coal pillars at Balrampur mine in SECL where coal production commenced in December’07 and five panels were successfully extracted

giving an average production of 1200-1400 TPD. This was taken up as an R&D project and has been tried first time in our country. 4x650 T capacity Powered Supports are being used at the face and 4x503 T capacity Powered Supports are used in the advance/ developed galleries during such extraction. Induced caving by blasting from surface is practiced for strata management. So far, the results are encouraging and this method holds promise at places with suitable geo-mining conditions.

Recent developments

Highwall MiningThis is a new technology in the country and is planned to be operational for coal production shortly. This technology is suitable for thin and moderate coal seams as well as those seams which are presently not possible to be exploited economically by any available underground or opencast method and where the coal reserves are liable to be lost or sterilised. It enables recovery of coal from surface pits without any deployment of persons in the UG workings. The technology may be well suited under the following geo-mining environment:

i) Where OC workings have reached final high wall position due to uneconomic stripping ratio.

ii) Where coal has become sterilised due to surface constraints (infrastructure, water-courses, habitation etc.

In this technology, coal seam is approached through a trench and by driving entries from there. Coal thus exposed on either side of the trench is extracted by remotely operated Continuous Miner leaving adequate remnants between two consecutive webs so that the overlying strata remain unaffected. I understand that Coal India has identified six to seven projects for highwall technology.

Upcoming technology

Continuous Miner (CM) & Flexible Conveyor Train (FCT) CombinationThis is a new technology and is operating in some mines in UK and USA. In this variant, the requirement of Shuttle Car is dispensed with and is replaced by wheel mounted flexible conveyor which can be articulated as per requirement during mining operations in a panel. The flexible conveyor is linked to the outbye end of the Continuous Miner and discharges coal on the gate belt. The length of the FCT varies between 70m to 130m.

Due to greater continuity in mining cycle, productivity gets enhanced by around 50 percent to 60 percent compared to Continuous Miner and Shuttle Car combination. The CM in combination with FCT promises to be a highly productive package and an annual production level of 1 mt seems attainable from one such package.

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

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]


Power outage revives N-power drive

India signs protocol with

Russia for KKNPPIndia has recently signed a protocol with Russian Federation for financing the Kudankulam Nuclear Power Project (KKNPP) Units 3&4. As per the Protocol, the Russian Federation will extend export credit amounting up to $3.4 billion for financing 85 percent of the value of works, supplies and services provided by the Russian organisations for construction of KKNPP Units 3&4.

According to an official communiqué from the Department of Atomic Division, the Protocol also has provisions for a State export credit amounting to $800 million for financing up to 85 percent nuclear fuel and control assemblies. The credit carries interest at 4 percent per annum. The project credit is payable in 14 years and repayment commencing one year after commissioning of project whereas fuel credit would be payable in 4 years and repayment commences after 2 years of receipt.

The estimated cost of the project is Rs 32,000 crore, of which Rs 17,000 crore is expected to be met through Russian state credit.

Besides, the XII Plan (2012-17) envisages start of work on nuclear power reactors adding to an additional capacity of 17,400 MW. This additional planned capacity would increase the total nuclear power generation capacity to 27,480 MW by 2023-24. Further, more nuclear power reactors based both on indigenous technologies and with foreign technical cooperation are also being planned for future to achieve the target.

Kudankulam to be commissioned soon

Meanwhile, the commissioning of Unit-1 of the allegedly controversial Kudankulam project (in Tamil Nadu) is schedule to be completed very soon, the minister said.


If Fukushima threw cold water on India’s nuclear power generation programme, the two-day blackout in north Indian states

has revived the truncated drive. Days after the grid failure plunged 600 million people into darkness, the government declared there is no question of backing out from its nuclear power ambitions. And no trifle ambition that is. India is going to add 58,000 MW of nuclear power generation capacity over the next 20 years. This, on an average, implies an addition of about 3,000 MW every year. If the government has its way, by 2032, the country’s total nuclear power generation capacity may go up to 63,000 MW. At this level, nuclear power would account for around 7 percent of India’s power generation kitty, compared to current 2 percent.

This is a rather long-term proposal, but the planners have broken the schedule into

medium term milestones. For instance, by the end of Twelfth Plan (ie. 2017), India has planned to increase its nuclear power generation capacity to 10,080 MW from the current level of 4,780 MW, V. Narayanasamy, Minister of State in the Ministry Personnel, PG & Pensions and in the Prime Minister’s Office said.

“The current installed capacity of 4,780 MW is planned to reach 10,080 MW by 2017 on progressive completion of 7 reactors under construction with an aggregate capacity of 5,300 MW,” he said.

India’s N-power gen capacity

Year Generation capacity (MW)

2012 4,780

2017 10,080

2024 27,480

2032 63,000

Source: GoI

In fOCus


“The removal of dummy fuel and inspection of the Reactor Pressure Vessel have been completed in Unit-1. The report of inspection has been submitted to the Atomic Energy Regulatory Board (AERB). No defects have been noticed during final inspections. After completing inspection, application for fuel loading has been submitted to regulatory authorities. This will be followed by fuel loading, approach to criticality and power generation after obtaining stage-wise clearance from the AERB,” the minister informed.

An expert group of eminent scientists, academicians, doctors and engineers

specialising in diverse fields constituted by the government carried out a study of the safety and related aspects of the Kudankulam project and explained the same to the r e p r e s e n t a t i v e s of the people protesting against the commissioning of the project, the minister said.

“The expert group of the Central Government has comprehens ive l y addressed the concerns expressed by the local people and others and

found the Kudankulam Plant to be safe. An expert committee constituted by the Government of Tamil Nadu has also found this plant to be safe,” he added.

No re-look at policy

Commenting on the recent international developments relating to nuclear power industry, the minister said India is not re-looking into its policy related to nuclear power based on international development.

Post Fukushima, there were announcements in Germany, Japan, Switzerland and Taiwan regarding gradual phase out of nuclear power. However, “as per available information, these countries have not shut down all their nuclear power reactors. Japan has recently started two nuclear power reactors, Ohi-3&4. Germany continues to operate nine of their seventeen nuclear power reactors. It has shutdown remaining eight nuclear power reactors which have completed their economic life. Switzerland continues to operate all the five nuclear power reactors. Similarly, Taiwan continues to operate its six nuclear power reactors,” he pointed out.

About Indo-US nuclear power cooperation, the minister said that a Memorandum of Understanding (MoU) and a confidentiality agreement between

Westinghouse Electric Company (WEC), USA and Nuclear Power Corporation of India Limited (NPCIL) was initially signed in 2009. An amendment to extend the term of the earlier signed MoU till May, 2014 was signed on June 12, 2012. The amendment also includes a clause on signing of an Early Works Agreement.

The review of safety provisions in design of AP – 1000 systems to withstand extreme natural events like earthquakes and Tsunamis, post Fukushima incident, has been carried out in the vendor country. Westinghouse Electric Company has made a presentation on the same to the Indian side. The Design Certification of the AP – 1000 reactor was issued by United States Nuclear Regulatory Commission (USNRC) in December 2011, after the Fukushima accident.

NPCIL signs MoU with WEC

The Nuclear Power Corporation of India Ltd (NPCIL) has recently signed a memorandum of understanding (MoU) and confidentiality agreement with Westinghouse Electric Company (WEC), USA for cooperation in the field of nuclear power generation.

The MoU, which was initially signed in 2009, was amended to extend the term of the earlier signed agreement till May 14, 2014. The amendment also included a clause on signing an Early Works Agreement. The revised MoU agreement was signed on June 12, 2012.

Meanwhile, the review of safety provisions in design of AP – 1000 systems to withstand extreme natural events like earthquakes and Tsunamis, post Fukushima incident, has been carried out in the vendor country.

Westinghouse Electric Company has made a presentation on the same to the Indian side. The Design Certification of the AP – 1000 reactor was issued by United States Nuclear Regulatory Commission (USNRC) in December 2011, after the Fukushima accident.

Top 10 countries by MW generation

Sl. No. Country MW from nuclear power (in 2010)

1 US 101,119

2 France 63,236

3 Japan 47,104

4 Russia 21,743

5 Germany 20,339

6 S. Korea 17,716

7 Ukraine 13,168

8 Canada 12,652

9 UK 11,035

10 Sweden 9,399

In fOCus


CIL posts record Q1 profitCoal India moved to a new mechanism

that links prices to gross calorific value (GCV) of the coal, although it still prices domestic coal 45 to 70 percent cheaper than international prices, in part to keep electricity tariffs low.

Employee expenses for the quarter jumped 26 percent to `6,130 crore, the result of a wage increase pact the company signed with its more than 315,000 workers in January. Welfare expenses rose 37 percent to `400 crore.

Sentiment for Coal India shares may be challenged because the company remains 90 percent controlled by the government.

Earlier this month, the miner agreed to supply a minimum of 80 percent of the coal needed for 48 new power projects, bowing to a condition set by the government. Coal India indicated it may need to import the fuel for the first time to fulfill the condition.

It has also been under intense pressure from Britain’s The Children’s Investment Fund Management (TCI) for giving in to government demands and reversing a price increase earlier this year. The fund filed a suit against the company and the Indian government in the Delhi High Court.

TCI argued in its petition that coal prices are completely deregulated and the government does not have legal authority to interfere with the discretion of Coal India.

“We will file our counter very soon,” Rao told reporters.

Buyback buzzRecently, Coal India shares gained on

reports that the company has decided to buy back its equity shares. The stock gained nearly 4 percent in four consecutive sessions. Reports said the country’s largest coal producer will seek shareholder approval at its upcoming 38th annual general meeting (AGM), which is scheduled for September 18.

“Resolved that pursuant to Section 31 and other applicable provisions, if any, of the Companies Act 1956, the Articles of Association of the company be altered to include clause 18A after clause 18 to provide for buyback of shares,” the company said in a notice sent to exchanges.

Coal India has more than `50,000 crore cash and cash equivalents as of June 30, 2012. It earns half of the net profit due to other income in the form of yields on this cash.


Coal India Ltd, the world’s biggest coal producer, posted its highest-ever quarterly profit on the back of strong

sales and prices. The April-June net profit rose 8 percent from a year earlier to `4,469 crore. Net sales rose 13.8 percent to `16,500 crore.

The quarterly results took some pressure off the state miner that is trying to curb operating costs and meet output targets.

Coal India, which produces almost 80 percent of the supply in India, has struggled to raise output for years due to problems obtaining swift environmental and regulatory approval. It is under government pressure to expand supply to help ease a shortage that has slowed the rollout of much needed power plants.

The miner is targeting supply of 470 million tons (mt) of coal this fiscal year, its

chairman said, about 9 percent higher from the 432.94 mt in 2011-12.

“The offtake was strong and e-auction prices also fetched a bit higher than before. We are confident of meeting our target,” the CIL chairman S. Narsing Rao told reporters.

The better-than-expected earnings may boost sentiment for the stock, which has already risen about 16 percent so far in 2012, according to analysts. Fifteen of the 19 analysts covering Coal India rate the stock a ‘buy’ or ‘hold’, Insights Research showed.

Sales, prices boost Q1

The Kolkata-based company said it produced 102.5 mt of coal in the fiscal first quarter, compared with 96.3 mt a year earlier. Shipments rose 6.3 percent to 113.04 mt. Margins also inched up on the back of better prices after the company changed in pricing system earlier this year.

CORpORATE


CORpORATE


Eurotire, a global leader in OTR (off the road) tires for the mining industry, has launched a new complimentary

smartphone app for iPhone and Android users to aid in mining safety. The app brings a range of tire data for large mining equipment no matter how remote their location is.

“Our clients are frequently working at isolated mine sites around the globe,” said Sue Schaffnit, Global Marketing Director. “Proper tire fit and inflation are critical for their safety, and the app eliminates the guesswork. At Eurotire, we are dedicated to the mining industry; therefore, it is our commitment to be a valued partner to help our clients achieve their goals. We believe this app will further assist them in this pursuit.”

The Eurotire app features a variety of navigation options including Tire Selector, Load Check, Location Finder and Eurotire Company Profile.

EuroDrive

The company has also announced the launch of EuroDrive, an educational and team building training event held internationally for miners. This competitively spirited programme focuses on driver training for large mining equipment, and specifically the factors affecting the life of a tire, the company said in a statement.

“An extension of the Eurotire customer service philosophy, EuroDrive was established to ensure correct training is conducted for drivers at mine sites around the world to achieve the full potential of their tires,” said Helen Ratnikova, coordinator of the Eurotire Training Center, adding however, it’s more than that and the program is delivered in an entertaining way.

The drivers establish teams to compete in obstacle courses to sharpen their driving skills and train on spillage avoidance, as well as create unity at the job site, she said.

Eurotire launches smartphone app to aid in mining safety

The EuroDrive program was initially introduced in Kazakhstan and Ukraine, and has events scheduled for mines in Russia and India by year’s end. The judges and scorekeepers at these events are certified, Eurotire personnel, the company statement further added.

MINExpo

Meanwhile, the company has also launched an interactive microsite in anticipation of the September 2012, MINExpo International Show in Las Vegas.

With more than 1,800 exhibitors expected during the three-day event, Eurotire invites the attendees to visit their microsite prior to the show to get an early glimpse into company news, products and services. The company has also come up with the idea of arranging a meeting with a Eurotire representative; and test their skills with the preliminary release of a new mining game.

The microsite provides MINExpo event news and multiple live video feed from the floor of the show, Eurotire news and downloadable product information, including a new Twitter feed (@eurotireminexpo) for trade show updates, schedule a meeting with a Eurotire sales or technical representative, or an executive team member.

“MINExpo is our industry’s largest event, and it consistently delivers on the latest product innovations and service technology,” said Sue Schaffnit, Global Marketing Director of Eurotire.

“Our exhibit booth will feature several of our bias ply and radial tires for large mining equipment. Our certified, Eurotire staff will be on-hand for consultations,” he added.

♦♦ Tire♦Selector• Ability to select by vehicle manufacturer, make and model• Once the vehicle is chosen, recommended tires are listed• User may review product specifications for each tire to understand the tread patterns

and types; ply rating; load indexes and ratings; and inflation pressure• Ability to email PDFs of specification sheets• All data is available in both metric and imperial units

♦♦ Load♦Check• Once a tire is selected, a load check can be completed to see safety ratings and

identify maximum load and weight limits• This feature ensures longer tire and equipment life, reduced fuel consumption and

safer applications

♦♦ Location♦Finder• Provides clients with a worldwide database of Eurotire locations and contact

information

♦♦ eurotire♦Company♦Profile• Individuals may connect to the Eurotire website to learn about the company and its

products and services

The new Eurotire App is available for download through www.eurotire.net


it can invest in developing underground infrastructure.

An underground development cess similar to stowing excise duty (SED) under CCDA Act (Coal Conservation and Development Act) by the Coal Controller etc. must be introduced at the earliest and the fund should be made available for sinking new shaft, purchasing shaft sinking and tunneling machines, longwall and shortwall machinery and development of other infrastructure for high capacity underground mines. For the time being the Coal Controller should release funds for necessary development of high capacity underground mines with continuous miner technology or longwall technology with shearer and hydraulic shield support.

The Mining & Allied Machinery Corporation (MAMC), Durgapur, which is being taken over jointly by Coal India, DVC (Damodar Valley Corporation) and BEML (Bharat Earth Mover Ltd) should be also funded from the Coal Controller’s fund by a specific government order for indigenous development of underground machinery.

It is obvious that unless sufficient money by the government and Coal India is pumped into high capacity underground mines, proper development cannot take place.

As a long-term strategy, Coal India can create a cadre of officers for underground mining with higher salary and allowances. The company does not necessarily have to give up its policy of too much orientation to opencast technology, but at the same time should not neglect underground technology because 25 years from today, underground will be the dominant technology and Coal India should prepare from now onwards keeping in view the long term perspective of the company.

In 25-30 years from today, the coal to OB ratio may be too high for economic opencast technology.

Therefore it would be wise to plan for longwall mining from now onwards as the gestation period of underground mines as well as maturing of technology is nearly 10-15 years.

The company should also plan for quantum jump in technology from the present level of SDL and LHD to longwall or continuous miner technology as well as plan for large mines with 10 mt or more capacity with longwall equipment. It should identify 10-20 projects with sufficient geological

EXpERT spEAk

Steps to increase UG production a must for CIL

J.P. Panda

At the time of nationalisation in 1973,

production of coal from underground mining was nearly 72 million tons (mt). Ever since then, there has been a consistent

downtrend in underground production and currently stands at only 40.02 mt.

The reason for this downtrend is not difficult to seek. Opencast production not only has a short gestation period it also has a low cost of production – 20-25 percent lower than the cost of production of underground mines. The average ratio of overburden

(cubic metres) to coal (tons) in Coal India is 1.87:1, which means that coal can be mined at a much cheaper cost.

Naturally the management shies away from underground mining as that would directly hit the profitability of the company.

At the same time it is also apparent that in the near future, the management will have no option but to invest in underground production. Therefore if underground production is to be increased the following steps may be taken.

Coal India can be reorganised into a single company and a separate fund can be created for underground mine development.

The tax paid by individual profit making companies is very high but when all the companies are amalgamated, considerable tax will be saved by Coal India, which

Underground mine production (in mt)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

49.218 48.416 47.445 47.041 .45.817 43.322 43.541 43.960 43.25 40.02


EXpERT spEAk

reserves and less disturbed by faults and other geological disturbances.

The company should also collaborate with renowned manufacturers and if necessary allow them to manufacture machinery in India.

Underground infrastructure development has to be done in advance and for this high speed sinking machines and tunneling machines have to be engaged. Infrastructure has to be developed for manufacture of heavy duty supporting systems and manufacture of shearers.

The MAMC, BEML and DVC should be engaged for manufacturing of heavy duty shearers and hydraulic support systems.

Global trends

Underground mining accounts for around 65 percent of the world’s hard coal production. Reliance on underground coal mining will continue in many parts of the world not only as a source of energy but also for strategic and social interests. In addition to new underground mine construction, there is substantial scope for the rehabilitation of abandoned mines and revamping existing operations which did not achieve optimised productivity due to some inconvenience in the past.

Coal production from UG mines has a share of 95 percent, 33 percent and 20 percent of the total coal production in leading coal producing countries like China,

USA and Australia respectively in the front. India is to go ahead now with a renewed and firm commitment on UG coal mining with state-of-the-art technology to regain its glory of 80 percent of total production at the time of nationalisation and also to enhance UG coal production shortly as planned to meet future demand. UG mining which was earlier the predominant technology in mining – even though the option is difficult needs to be pursued vigorously to resort to the technological needs of the country and to preserve and nurture the technologies to meet future challenges particularly for exploitation of coal deposits at depths in the days to come.

Mechanisation

The concentration on opencast coal mining operations and the diminishing share of underground coal production in the country may confront us with a situation where we would be left with limited opencastable reserves simultaneously with virtual future lack of skill and expertise to develop and operate mechanised underground mines.

As an attempt to avert such eventuality, a broad consensus has been reached to redirect our focus towards underground mining. From the current coal production share of 15 percent, the objective is to reach a level of 30 percent from underground mines by 2030. There is a need for a quantum jump in production and productivity from such mines and only right technology adoption

can lead to productivity improvement and cost benefits in underground mining.

This is more relevant considering the likely exhaustion of shallow depth coal reserves and hurdles in surface land acquisition, forestry problems and other related areas of concern being experienced now which may further increase in the future. A significant growth in coal production envisaged now could be achieved only by focusing on technology and productivity in both underground and opencast mines. This calls for increasing the level of mechanisation, introduction of state-of-the-art equipment, and ensuring their optimal utilisation as per international standards.

The challenges in underground mechanisation for the increased production and productivity with safety could be met if the projection planning is guided by a realistic approach considering all important components like techno-economic, productive, safe and suitable methods, increased machine utilisation, inventory management, improved health and safety standards, proper work culture, and discipline through efficient operational management. Development of trained workforce to meet the need for underground mechanization and thereby increase in production is an essential capital input for UG mining practices now.

Application of research and development for scientific exploitation is also another input in meeting the challenges in increased mechanisation for higher productivity with profitability. Policy guidelines may also be drawn for developing suitable technologies for higher percentage of extraction under our geo-mining conditions in the coalfields.

Cost of UG mining

Subsidiary company of Coal India

Approximate cost of production (in `)

Average cost of production (in `)

Percentage of UG production

ECLOC 800 2018 29%

UG 5000

BCCLOC 900 1712 14.5%

UG 6500

CCLOC 700 857 3.3%

UG 5500

SECLOC 400 664 16.5%

UG 2000

MCLOC 350 380 2%

UG 1800

NCL OC 635 635 0%

WCLOC 850 1133 21%

2200

CIL 800 approx

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

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]


US power sector’s 2012 coal consumption to be lowest in 20 years

US coal consumption

and contribute to the shut-in of higher-cost production. EIA forecasts that the average delivered coal price in 2012 will average $2.41 per MMBtu, about the same as last year. EIA predicts the 2013 average delivered coal price to average $2.36 per MMBtu, or about 2 percent lower than the 2012 price.

Electricity generation & consumption

Starting with this month’s outlook, EIA has expanded its modeling of electricity generation to the four Census regions (Northeast, South, Midwest, and West) in addition to its standard US projections. EIA expects total US generation across all sectors during 2012 will average 0.4 percent lower than in 2011. However, generation fuelled by natural gas is projected to rise this year by 23.2 percent.

The South Census region accounts for the largest absolute increase in natural gas generation – an annual increase of 303,000 MW hours per day (MWh/d), or 18.4 percent. Yet, the Midwest region has the largest relative increase in natural gas generation – rising by 93.0 percent, or 152 thousand MWh/d, during 2012. This substantial increase in the share of generation fueled by natural gas is occurring at the expense of coal generation, which is projected to fall by 12.1 percent nationwide during 2012. Higher natural gas prices relative to coal prices leads to a reversal of this trend next year, when US natural gas generation falls by 4.3 percent and coal generation increases by 1.7 percent.

Many areas of the US have experienced record temperatures this summer, similar to the hot weather last summer. According to the National Oceanic and Atmospheric Administration, US cooling degree-days during July 2012 were about 25 percent higher than the 30-year average, but about the same as July 2011.

EIA estimates that retail sales of electricity to the residential sector during the first half of this year were about 6.4 percent lower than the same period in 2011, as a result of mild winter temperatures in the South where many households heat using electricity. Residential sales for the entire year are projected to average about 3.0 percent lower than sales in 2011. Projected sales of electricity to the residential sector is expected to grow by 1.9 percent in 2013.

Coal Insights bureau

US power sector’s coal consumption, which averaged over 1 billion short tons annually from 2003 through

2008, fell by 46 million short tons (MMst) in 2011. In 2012, coal consumption by the sector is expected to see a further fall to 825 MMst, according to the latest report by Energy Information Administration (EIA).

This would be the lowest volume of consumption by the electric power sector in 20 years. EIA projects power sector coal consumption will remain flat in 2013 as the effects of higher electric power sector natural gas prices are offset by the weak increase in electricity consumption.

Coal supply

EIA forecasts that coal production will decline by 7 percent in 2012 as domestic consumption falls. Production for the first six months of 2012 was 33 MMst (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 of 4 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 194 MMst by the end of the year (estimated stocks for May 2012 were 203 MMst) and inventories will remain at elevated levels in 2013.

Coal trade

According to EIA, US coal exports are likely to remain strong in 2012 and exceed the level of 107 MMst exported in 2011. The US exported 12.3 MMst of coal in May, which was slightly below April’s record-setting amount. EIA projects coal exports to total 116 MMst in 2012.

On the contrary, coal exports will fall by 16 percent in 2013. The major reasons for the export decline include China’s economic slowdown and high coal stockpiles, and increased exports from Indonesia and Australia. US coal exports averaged 56 MMst 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 i n c r e a s e from 2010). H o w e v e r , EIA expects the decline in demand for coal, combined with the large coal i n v e n t o r i e s , will begin to put downward pressure on coal prices

InTERnATIOnAL


InTERnATIOnAL

India to drive US coal export market


Notwithstanding a declining trend in domestic consumption, the US coal sector is expected to see a significant

growth in exports in coming years. According to various estimates, thermal coal exports from the US may reach 100 million short tons annually by 2030. This figure, however, may shot up to 300 million short tons in case of extreme situations, analysts estimate. A major driver of this spurt in exports would be India, they forecast.

Although it is largely believed that China’s growth will reinvigorate a slumping US coal industry, recent reports by market analysts show that India may grow faster in terms of incremental coal demand.

Also, being far less self-sufficient than China, the Indian market is likely to depend on imports for the majority of its dry fuel requirements, going forward. In the process, this emerging economy may end up boosting the coal export market of US significantly.

India’s utilities being largely deregulated have created a vibrant industry for coal-fired power plants. However, state-owned Coal India Limited (CIL) is not being able to keep

pace with demand growth. Its mines average just 2 million st per year of production and difficult mining conditions limit the amount of potential expansion.

In contrast, Chinese demand over the next ten years may not reach levels seen in the last decade because of an aging workforce and increasing domestic coal production.

US a steady source

In line with market expectations, some Indian companies are scouting for steady coal supply from the US to meet their increasing consumption.

For instance, India’s Abhijeet Group has recently struck a $7-billion export deal with US-based FJS Energy.

The first shipment of coal for India is in the works under the said deal. This shipment is all set to depart from New Orleans Port in Louisiana for India next month, media reports said.

Commenting on the development, Kentucky’s Governor Steve Beshar said, “It’s no secret that the coal industry is in a state of flux in the US what with erratic market conditions, the uncertain regulatory atmosphere and the ever-changing energy

US coal exports and imports, 2006-2012 (thousand short tons)

YearJanuary - March April - June July - September October -

December Total

Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports

2006 10,659 8,958 12,590 7,956 13,540 10,399 12,858 8,933 49,647 36,246

2007 11,139 8,786 14,702 8,405 16,198 10,559 17,124 8,597 59,163 36,347

2008 15,802 7,640 23,069 8,982 20,321 8,485 22,329 9,101 81,519 34,208

2009 13,335 6,325 12,951 5,426 15,159 5,441 17,653 5,447 59,097 22,639

2010 17,807 4,803 21,965 5,058 21,074 4,680 20,870 4,811 81,716 19,353

2011 26,617 3,381 26,987 3,419 25,976 3,588 27,679 2,700 107,259 13,088

2012 28,642 2,022 - - - - - - 28,642 2,022

Source: EIA

picture….But international markets need coal and this private partnership is a great example of a new market for Kentucky resources.”

The deal – the first of its kind between private companies of the two countries – would enable shipping of 9 million tons of American coal annually from the mines of Kentucky and West Virginia for the next 25 years and is aimed at addressing the power shortage in India.

The multi-billion-dollar deal was signed between New Jersey-based FJS Energy LLC and Abhijeet Group, which has several projects in the power and ferro alloys sector where they will be using the American coal.

“To our knowledge, a 25-year coal provisioning transaction in the Indian private sector is the first of its kind. Further, we understand that this will be the first-ever long-term US coal export to India. Till date, very few shipments of US coal have taken place to India,” an official from FJS Energy said.

Doubts over feasibility

While welcoming the development, Indian market sources, however, expressed doubt over the feasibility of undertaking major power sector expansion based on imported coal. Electricity in India being tariff-based, the power utilities get a fixed price on producing electricity, but the expense of buying and burning coal fluctuates with the market, the sources said.

Under the current scenario, they said, unless there are significant subsidies involved, the economics of buying expensive coal for Indian electricity do not really work out.

However, in case of sustained increase in the demand-supply gap, the Indian companies may be compelled to go for larger procurement and newer markets that would offer competitive rates (both coal prices and freight charges).

Apart from coal imports from South Africa, US coal is at present the most convenient option for India to meet its demand for this fossil fuel.

Hence, under such circumstances, US coal export market may look forward to getting a push from India in the coming days.



The 12 major Indian ports have handled 183.66 million tons (mt) of traffic during the first four months

(April-July) of 2012-13, 4.89 per cent lower than 193.10 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 9.95 mt of coking coal in April-July period, down 9.20 per cent as compared with 10.96 mt handled in the same period last year.

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

(*) Tentative (in '000 tons)

PortsApril - July traffic % variation against

prev. year traffic2012* 2011

KOLKATA

Kolkata Dock System 3785 4234 -10.60

Haldia Dock Complex 9756 11555 -15.57

TOTAL: KOLKATA 13541 15789 -14.24

PARADIP 16194 19875 -18.52

VISAKHAPATNAM 20619 24220 -14.87

ENNORE 5422 4236 28.00

CHENNAI 18382 20152 -8.78

V.O. CHIDAMBARANAR 9536 9462 0.78

COCHIN 6921 6379 8.50

NEW MANGALORE 11227 11493 -2.31

MORMUGAO 10637 13639 -22.01

MUMBAI 19730 18038 9.38

JNPT 22221 21595 2.90

KANDLA 29231 28231 3.54

TOTAL 183661 193109 -4.89Source: IPA

LOgIsTICs

Traffic handling by major ports down 4.9% in April-July

However, the movement of thermal coal through the major ports was up 4.44 per cent to 17.29 mt during April-July, compared to

16.55 mt achieved in the same period last year.

Movement of iron ore through the major ports showed a significant drop of 35.89 per cent in April-July due to restrictions imposed on mining and a hike in export duty on iron ore. The major ports together handled 15.26 mt of iron ore in the April-July period compared to 23.80 mt handled in the same period last year.

Mormugao port handled the highest volume of 7.36 mt of iron ore in April-July. This volume, however, was about 29.90 per cent lower than the iron ore traffic moved through the port in the same period last year.

Movement of container traffic in terms of tonnage and TEUs showed an increase in the April-July period. The major ports

handled 41.07 mt of tonnage and 2.61 million TEUs in April-July period compared to 39.80 mt of tonnage and 2.60 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 5.67 mt in April-July period. Visakhapatnam port handled the highest quantity of 2.31 mt of coking coal during the period.

Movement of coking coal through Paradip, Kolkata, Visakhapatnam, Chennai, Cochin and Mormugao ports declined during the period when compared to the corresponding period last year.

Six major ports showed positive growth in traffic handling during the April-July period of the current fiscal, while the remaining six showed negative growth on a year-on-year basis.

In terms of growth, Ennore port topped the list with a 28 per cent increase in cargo throughput. V.O. Chidambarnar port’s growth was lowest at about 0.78 per cent during the period. In terms of traffic volume, Kandla port clinched the top rank with a cargo volume of 29.23 mt recorded for the period.

The Mormugao port registered the highest decline of 22.01 per cent in traffic handling during the period due to fall in iron ore export.


LOgIsTICs

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


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 July 2012 stood at `6487.94 crore, down 6.32 percent compared with `6,925.5 crore earned in June, according to information available with Coal Insights.

The Railway’s revenue from transportation of coal fell to `2702.17 crore in July from `3,017.4 crore in June. The Railways transported 39.36 million tons (mt) of coal in July compared with 39.26 mt transported a month ago.

Revenue from transportation of iron ore for exports, steel plants and for other domestic user in July fell to `671.39 crore,

Commodity-wise revenue

CommodityQuantity (In mt) Earning (`cr)

July’11 July’12 July’11 July’12

Coal

i) for steel plants 4.3 4.15 172.08 223.41

ii) for washeries 0.12 0.09 1.49 0.78

iii) for thermal power houses 23.69 24.85 1500.71 1898.73

iv)for public use 9.12 10.27 469.84 579.25

v) Total 37.23 39.36 2144.12 2702.17

Raw material for steel plants except ore 1.28 1.33 93.02 114.86

Pig iron and finished steel

i) from steel plants 2.09 2.36 243.57 364.45

ii) from other points 0.63 0.59 50.75 38.79

iii) Total 2.72 2.95 294.32 403.24

Iron ore

i) for export 1.47 0.83 372.79 187.3

ii) for steel plants 4.41 5.32 145.8 219.44

iii) for other domestic users 3.79 3.68 218.64 264.65

iv) Total 9.67 9.83 737.23 671.39

Cement 8.27 8.18 464.31 587.09

Foodgrains 3.74 3.83 343.05 499.83

Fertilizers 4.35 4.09 314.8 374.18

Mineral Oil (POL) 3.63 3.92 286.34 413.72

Container Service

i) Domestic containers 0.7 0.67 69.11 66.54

ii) EXIM containers 2.41 2.67 201.05 234.07

iii) Total 3.11 3.34 270.16 300.61

Balance other goods 5.66 5.38 365.51 420.85

Total revenue earning traffic 79.66 82.21 5312.86 6487.94

down 0.11 percent from ̀ 672.1 crore in June. However, the quantity of iron ore transported rose to 9.83 mt in July from 9.61 mt in the previous month.

Revenue from transportation of cement in June stood at `587.09 crore (8.18 mt) from `650.82 crore (8.15 mt) in June, while that from foodgrains transportation

rose to `499.83 crore (3.83 mt) in July from `527.1 crore (3.74 mt) in the previous month.

The Railways revenue from transportation of fertilisers in July rose sharply to `374.18 crore (4.09 mt) from `338.27 crore (3.39 mt) in June.

Revenue from transportation of petroleum oil and lubricant (POL) in July stood at `413.72 crore (3.92 mt), while the same from pig iron and finished steel from steel plants and other points was `403.24 crore (2.95 mt). Revenue from container services was `300.61 crore (3.34 mt) and from transportation of other goods was `420.85 crore (5.38 mt).


Moderation of growth in emerging economies such as China and India may affect global sea freight

rates in the second half of the current year, according to shipping industry sources. In the April-June quarter, demand from these markets had compensated for the slackness in developed markets, but signs of slowdown in Chinese and Indian markets make the outlook uncertain for the coming quarters, they said.

The impact could be more if demand for crude oil from emerging economies sees moderation, thereby leading to a sustained drop in oil prices. This in turn may impact activity in the offshore sector, the sources said. However, growth markets like West Africa and South America may continue to provide support.

Over the medium term, new capacity build-up in the seas freight market may put pressure on the charter rates, the sources said. This, however, may be mitigated by any safety-led phase out and replacement of the older fleet. Currently, the world fleet’s age profile remains skewed towards older

tonnage, they said.As for the crude tanker market, sources

said the April-June quarter saw an early improvement but a downturn later on. The increase in crude oil production by Saudi Arabia and escalating Iran tension supported the market in the first part of the quarter, before sluggish demand growth and steady new fleet addition resulted in weakening of charter rates. The product tanker segment, however, witnessed a depressed market scenario during the period, amid subdued demand for petro products from developed economies.

Growth moderation may affect global freight rates

5

7

9

11

13

15

17

19

7-Ju

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11-J

un

15-J

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19-J

un

23-J

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27-J

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1-Ju

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5-Ju

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9-Ju

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13-J

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17-J

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21-J

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25-J

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29-J

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2-Au

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10-A

ug

14-A

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18-A

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FOB

($/T

ON)

Richards Bay to India West Kalimantan to India WestRichards Bay to India East Kalimantan to India East

Freight rate movement

Source: Insights Research

In coming months, the global economic challenges, especially the vulnerable macroeconomic environment in OECD countries and geopolitical tensions will be the key areas to look out for. For the next year, OPEC expects oil demand to grow by 0.82mb/d to 89.5 mb/d, against a growth forecast of 0.9 mb/d for 2012.

Meanwhile, any disruption in the Strait of Hormuz by Iran may have a significant impact on the tanker movement in the region. Even though some positive signals like lowering of bunker fuel prices and increasing in scrapping activities are seen, excessive supply coupled with uncertain oil demand may keep the tanker markets volatile.

In the dry bulk segment, improved steel and other minor bulk trades led to a recovery in freight rates for the smaller asset segments early into the quarter. However, for the larger segments, the rates came under pressure due to continued low iron exports from Brazil to Asian markets and new fleet growth.

Although scrapping has witnessed significant improvement in the first half of 2012 compared to last year, the possibility of any significant improvement in dry bulk freight rates looks uncertain mainly due to new fleet growth. Along with this, the subdued Chinese demand, rising inventories are likely to put pressure on the already weak market.

LOgIsTICs


Hear from:

The Honourable Dr. Esperança Bias, Minister of Mineral Resources, Mozambique

The Honourable Eng. Paulo Francisco Zucula, Minister of Transport and Communications, Mozambique

Dr. Xolani Mkhwanazi, President, Chamber of Mines and Chairman, BHP Billiton SA Ltd

Rosário Mualeia, Eng. - President and Chairman, CFM Board

Coaltrans Conferences presents

Girassol Indy Congress Hotel & Spa

20-21 November 2012 | Maputo, Mozambique

Conference highlights include:

• Project updates from key Mozambican coal producers

• Vital progress in upgrading coal supply chain logistics

• Assessment of the buyer’s market and Mozambique’s place within it

• Detailed analysis of the opportunities and conditions facing investors in Mozambican coal

• Networking pre-conference fi eld trip to Matola Coal Terminal

www.coaltrans.com/mozambiquewww.coaltrans.com/[email protected] +44 20 7779 7222

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Charting groundbreaking progress in Mozambique’s coal industry

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It’s a unique opportunity to really get in touch with the local and global coal

community. Erik Alves, Vale

REPòBLICA DE MO‚AMBIQUE MINISTƒRIO DOS RECURSOS MINERAIS

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ANNUAL INDICES (APRIL-MARCH)

1995-96 120.5 124.5 117.3 123.3

1996-97 118.2 133.6 122.0 130.8

1997-98 126.4 142.5 130.0 139.5

1998-99 125.4 148.8 138.4 145.2

1999-00 126.7 159.4 148.5 154.9

2000-01 130.3 167.9 154.4 162.6

2001-02 131.9 172.7 159.2 167.0

2002-03 139.6 183.1 164.3 176.6

2003-04 146.9 196.6 172.6 189.0

2004-05 153.4 222.5 181.5 211.1

2005-06 154.9 242.3 190.9 227.9

2006-07 163.2 273.5 204.7 255.0

2007-08 171.6 298.6 217.7 277.1

2008-09 176.0 308.6 223.7 286.1

2009-10 193.4 342.5 237.2 316.2

MONTHLY INDICES

Dec 2009 209.0 381.1 235.2 348.2

Jan 2010 216.9 378.0 240.6 347.2

Feb 2010 203.3 361.1 228.3 331.1

Mar 2010 235.6 406.4 261.4 373.8

Apr 2010 198.1 350.1 248.9 323.9

May 2010 201.6 349.2 252.2 323.9

June 2010 197.4 353.5 242.6 325.9

July 2010 192.2 379.7 244.1 346.3

Aug 2010 189.9 350.2 247.6 323.0

Sep 2010 183.5 355.5 239.9 325.7

Oct 2010 203.5 357.4 261.5 331.5

ANNUAL GROWTH (APRIL-MARCH)

1995-96 9.7 14.1 8.1 13.0

1996-97 -1.9 7.3 4.0 6.1

1997-98 6.9 6.7 6.6 6.7

1998-99 -0.8 4.4 6.5 4.1

1999-00 1.0 7.1 7.3 6.7

2000-01 2.8 5.3 4.0 5.0

2001-02 1.2 2.9 3.1 2.7

2002-03 5.8 6.0 3.2 5.7

2003-04 5.2 7.4 5.1 7.0

2004-05 4.4 9.2 5.2 8.4

2005-06 1.0 8.9 5.2 8.0

2006-07 5.4 12.9 7.2 11.9

2007-08 5.1 9.2 6.4 8.7

2008-09 2.6 3.3 2.8 3.2

2009-10 9.9 11.0 6.0 10.5

AVERAGE INDICES (APRIL-OCTOBER)

1995-96 114.7 116.6 115.1 116.2

1996-97 113.4 129.3 119.0 126.6

1997-98 120.0 137.3 127.2 134.5

1998-99 121.0 142.5 135.2 139.5

1999-00 121.6 152.6 146.1 148.7

2000-01 125.9 162.0 152.8 157.3

2001-02 126.1 166.4 156.8 161.2

2002-03 133.9 176.0 163.1 170.3

2003-04 139.1 188.0 167.9 180.8

2004-05 146.5 212.3 179.8 202.1

2005-06 147.8 232.8 189.2 219.5

2006-07 153.1 258.1 202.6 241.5

2007-08 160.6 286.4 217.2 266.2

2008-09 166.7 300.6 223.3 278.7

2009-10 180.2 321.1 237.3 297.8

2010-11 195.2 356.5 248.1 328.6

GROWTH (APRIL-OCTOBER)

1995-96 12.8 13.6 10.1 13.1

1996-97 -1.1 10.9 3.4 9.0

1997-98 5.8 6.2 6.9 6.2

1998-99 0.8 3.8 6.3 3.7

1999-00 0.5 7.1 8.1 6.6

2000-01 3.5 6.2 4.6 5.8

2001-02 0.2 2.7 2.6 2.5

2002-03 6.2 5.8 4.0 5.6

2003-04 3.9 6.8 2.9 6.2

2004-05 5.3 12.9 7.1 11.8

2005-06 0.9 9.7 5.2 8.6

2006-07 3.6 10.9 7.1 10.0

2007-08 4.9 11.0 7.2 10.2

2008-09 3.8 5.0 2.8 4.7

2009-10 8.1 6.8 6.3 6.9

2010-11 8.3 11.0 4.6 10.3

Sector-wise Index of Industrial Production & Growth Rates

Base: 1993-94 Source: GoI

Period Mining Manufacturing Electricity General Period Mining Manufacturing Electricity General

AnnEXuRE


AnnEXuRE

Status of clearances till May 2012

Coal Block Name of Company State Year Forest Year EMP Grant of ForestClearance

Grant of EMP Clearance

Gare Palma IV/6 JSPL & Nalwa Sponge Iron Ltd. Chattisgarh 2009 N 15.05.09

Parsa East Rajasthan Rajya Vidyut Chattisgarh 2012 2011 15.3.2012 21.12.11

Kanta Basan Rajasthan Rajya Vidyut Chattisgarh 2012 2011 15.3.2012 21.12.11

Tasra IISCO/SAIL Jharkhand 2009 N/A 18.03.09

Tokisud North Sub Block

GVK Power Jharkhand 2011 28.12.11 24.09.2008

Pakri Barwadih NTPC Ltd. Jharkhand 2010 2010 17.9.2010 31.3.10

Pachwara North WBPDCL Jharkhand 2009 N 23.09.09

Kotre Basantpur & Pachmo

Tata Steel Ltd. Jharkhand 2009 N 18.05.09

Dumri Nilachal Iron & Bajrang Ispat Jharkhand 2010 N 23.12.10

Sugia JSMDCL Jharkhand 2009 N 02.02.09

Jitpur JSPL Jharkhand 2009 N 18.05.09

Contd.


For Classified Advertisementscontact

Sumit Jalan, +91 91633 48243or [email protected]

Chakla Essar Power Ltd. Jharkhand 2010 N 30.8.10

Sitanala SAIL Jharkhand 2010 NA 20.12.10

Tubed HINDALCO, TPL Jharkhand 2011 N 25.7.2011

Choritand Tailiaya Rungta Mines Limited & others Jharkhand 2010 N 22.11.2010

Chinora Field Mining & Ispat Ltd. Maharashtra 2009 N/A 19.05.2009

Warora (south) Field Mining & Ispat Ltd. Maharashtra 2009 N/A 19.05.2009

Marki Mangli III Shree Virangana Steels Ltd., Maharashtra 2011 Y 27.1.11

Marki Mangli II-IV Shree Virangana Steels Ltd., Maharashtra 2011 N 27.1.11

Nerad Malegaon Gupta Metallics & Power Maharashtra 2011 NA 21.12.11

Kosar Dongergaon Chaman Metallicks Ltd. Maharashtra 2011 NA 28.3.11

Amelia North MPSMCL Madhya Pradesh 2009 02.02.09 30.07.07

Dongeri Tal II MPSMCL Madhya Pradesh 2012 NA 22.2.2012

Moher Power Finance Corpn. Ltd. Madhya Pradesh 2010 25.5.10 10.12.08

Moher Amroli Extn. Power Finance Corpn. Ltd. Madhya Pradesh 2010 25.5.10 10.12.08

Sial Ghogri Prism Cement Ltd. Madhya Pradesh 2011 2009 7.2.2011 31.12.09

Mandla North Jaiprakash Associate Ltd. Madhya Pradesh 2012 N 15.2.2012

Utkal-C Utkal Coal Ltd., Orissa 2011 7.10.11 05.10.2006

Utkal B-2 Monnet Ispat & Energy Ltd., Orissa 2011 21.7.11 28.07.2006

Utkal B-1 Jindal Steel & Power Ltd., Orissa 2010 1.9.2010 09.04.2007

Utkal-E National Aluminium Co.Ltd., Orissa 2009 N 10.12.09

Mandakini A Monnet Ispat, Jindal Photo,Tata Power

Orissa 2011 N 30.6.2011

K- Joydev DVC West Bengal 2009 N/A 22.06.09

Ardhagram Sova Ispat, Jai Balaji Sponge West Bengal 2010 N 23.3.10

Coal Block Name of Company State Year Forest Year EMP Grant of ForestClearance

Grant of EMP Clearance

AnnEXuRE

Source: GoI


pORT DATA

Major ports through which Coking Coal arrived in India April’12 - June ’12

Major Coking Coal supplier countries to India(through mentioned ports) April’12 - June’12

Country of Origin Qty (in Tons)AUSTRALIA 4,961,900UNITED STATES 720,430SOUTH AFRICA 339,207CANADA 287,979OTHERS 380,752Grand Total 6,690,268

0%1%2%4%5%

9%

16%

17%22%

24%

vIZAG MoRMuGAo GAnGAvARAMKoLKATA PARADIP MunDRAnEw MAnGALoRE KAnDLA EnnoRECHEnnAI

Major ports through which Coking Coal arrivedin India April’12 - June’12

74%

11%

5%4% 6%

AuSTRALIA unITED STATES SouTH AFRICACAnADA oTHERS

Major Coking Coal supplier countries to India (through mentioned ports) - April’12 - June’12

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

Major ports through which steam coal arrived in India April ’12-June ’12

Major Steam Coal supplier countries to India (through mentioned ports) April ’12-June ’12

Country of Origin Qty (in Tons)INDONESIA 7,600,096SOUTH AFRICA 1,622,797UNITED ARAB EMIRATES 109,958AUSTRALIA 102,250SINGAPORE 56,095JAPAN 47,850Grand Total 9,539,046

VIZAG Qty (in Tons)

MUMBAI 1,493,982

MUNDRA 1,489,306

NEW MANGALORE 1,162,071

PARADIP 913,722

KANDLA 838,481

KOLKATA 642,842

VIZAG Qty (in Tons)

GANGAVARAM 544,383

ENNORE 473,283

MORMUGAO 413,519

COCHIN 8,000

Grand Total 9,539,046

Port Qty (in Tons)

VIZAG 1,627,497

MORMUGAO 1,458,675

GANGAVARAM 1,124,939

KOLKATA 1,041,082

PARADIP 587,978

Port Qty (in Tons)

MUNDRA 357,296NEW MANGALORE 295,425KANDLA 130,254ENNORE 66,650CHENNAI 473Grand Total 6,690,268

16.3%

15.7%

15.6%12.2%

9.6%

8.8%

6.7%5.7% 5.0% 4.3% 0.1%

vIZAG MuMBAI MunDRAnEw MAnGALoRE PARADIP KAnDLAKoLKATA GAnGAvARAM EnnoREMoRMuGAo CoCHIn

Major ports through which Steam Coal arrivedin India April’12-June’12

79.7%

17.0%

1.2%1.1% 0.6%

0.5%

InDonESIA SouTH AFRICAunITED ARAB EMIRATES AuSTRALIASInGAPoRE JAPAn

Major Steam Coal supplier countries to India (through mentioned ports) April’12-June’12

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Coal Insights - Aug 2012