Coal Insights, April 2020

Contents 17 Impact of Covid-19 on Indian power sector 21 Thermal coal offers decline in April 22 Seaborne coking coal offers plummet in April 23 CIL clocks record production despite corona outbreak 24 India’s February coal imports up 14% y-o-y 25 SCCL’s production flat at 64 mt in FY20 26 Post Covid-19 avoid coal mine auction: KPMG 32 Gencos, Discoms suffer mounting losses, spiralling dues as demand dries up 34 March sponge iron production down 15.4% on year 35 Cement makers keen to resume operations 36 Cement production in February up at 30.96 mt 39 Growing concerns over EU carbon tax 41 US Coal output estimated at 537 MMst in 2020 44 Traffic handled by major ports up 1% in FY20 45 Indian Railway’s coal handling down 1% in FY20 46 Logistics interview: Saigal Seatrade GM, commercial, Yezdi Roowalla 48 NTPC switches on 5.3GW capacities in FY20 49 Coal India: despatches decline even as production ramps up 51 Aluminium makers move towards coal security 52 Corporate Update 54 Government Update 56 E-auction data 57 Port data

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6 | COVER STORY

Coping with Corona: How coal and power sector rise to the challenge

20 | INTERVIEW

Mining and power generation continued as essential services. Yet, these sectors have been impacted in may ways.

“This fiscal, CIL is in a position to substitute nearly 100 mt of imports” Coal India director marketing Satyendra Nath Tiwari talks about various steps being taken to replace imports and ease supplies.

28 | Feature Cost of RE in India half of imported coal-fired electricity: IEEFA Solar tender tariff touches near record low price of `2.55/kWh, up to 30% cheaper than thermal power.

37 | FEATURE

Draft Electricity Amendment Bill plans contract enforcement body New rules draw mixed responses from industry players.

42 | INTERNATIONAL

Aussie mining maybe slow to restart Lag time for consumables, rigid work rules hurting revival.

Cover Story

Coping with Corona: How coal and power sector rise to the challenge Sumit Maitra

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Cover Story

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anishing demand and lockdowns are forcing coal companies across the globe devise new ways to stay afloat by drastically cutting costs or shrinking their operations.

But that is true for those who are not shutting down their operations altogether.

Downsizing of manpower or cutting down on their wages are easy options being resorted by many.

In India, coal mining, being largely in the hands of state-owned entities, production has continued, even flourished during the crisis while power plants, either owned by the government or heavily regulated and protected despite being in the private sector, have continued to burn coal to power up the country.

But coal mining companies in other countries, being largely privately owned, are not so lucky.

“Term customers have advised Stanmore in the past week that they will be deferring taking delivery of contracted coal shipments that they were due to take in June until later in the year. This will now cause a material deferral in revenue and earnings with no sales now forecast for June,” Australian coal miner Stanmore Coal said on April 27.

“The viral outbreak continues to adversely impact the markets in which our businesses operate. Whilst the full impact of Covid-19 is uncertain at this time due to the evolving situation, the Company expects that global supply chains will continue to be disrupted through Q3 of FY20. Accordingly, the company is taking appropriate actions to address these challenges,” Noble Group Holdings said.

For Noble, while long term contracts continue to be performed in the normal course, quarterly contracts are being delayed, and short term/spot demand contracts are being converted to just in time delivery.

“Margins on the company’s long term contracts are expected to remain within historical ranges, albeit at the lower end, and assuming that supply chains in the markets in which the company operates start to normalise during the second half of FY20,

the company expects that run-rate operating income from supply chains will return to FY19 levels,” the company said.

The pandemic has forced Coronado Global Resources to temporarily idle its US operations effective April.

“The company will continue shipments to these regions (European, Brazil and US) from existing inventories of approximately 750,000 tons, which we expect will meet all current customer contractual commitments as well as deliver on potential sales opportunities,” Coronado said adding that its Australian coking coal mine will continue to operate to serve its customers in India and the Asia Pacific.

Elsewhere, coal miners like Arch Coal have drastically cut its costs, production and earnings guidance indicating the lack of clarity about how world economy would revive and when.

“In the first quarter of 2020, Arch achieved another strong cost performance in its metallurgical segment and took steps to fortify our liquidity in the face of a rapidly weakening global economy,” Paul A. Lang, Arch’s chief executive officer said.

“While our thermal segments struggled due to low natural gas prices and historically weak power markets, we are moving quickly to align our cost structure with the softening demand outlook,” he said while announcing the earnings of the NYSE-listed company.

Mining companies are resorting to risk mitigation efforts to continue operations even as several of them finding it difficult to continue operate or even survive in a scenario of falling demand and no clarity on when exactly things will improve.

Sharing and caring

International Council of Mining and Metals, having members across 50 countries is helping its members with rapid exchange of information and knowledge to support them as they develop responses.

“We have seen members publish detailed guidance on the practical measures they have put in place across operations and further information on how they are supporting local

“Term customers have advised Stanmore in the past week that they will be deferring taking delivery of contracted coal shipments that they were due to take in June until later in the year. This will now cause a material deferral in revenue and earnings with no sales now forecast for June.”

Stanmore Coal communities. Many of our members have operations across the world and, as a result, responses are tailored to reflect government requirements. We have nevertheless seen several common approaches emerge as members work hard to keep their employees, contractors and suppliers safe,” its Chief Executive Officer Tom Butler said.

Being cash rich, many global mining companies are even funding the weaker segments of the economy.

“There are examples where members have acted to protect the supply chain by slashing invoice payment times. And numerous examples where companies have made donations to support local response efforts,” the ICMM official said.

Mining companies across the globe are taking steps like mandating working from home where physically possible or instigating different rotas, restrictions on work related travel, quarantine protocols for returning travellers, restrictions on non-essential visits

Coal Insights, April 2020

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Cover Story

Impact of Covid-19 on Indian power sector RN Sen

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ovid-19 which originated from China in December 2019 and subsequently spread across the world, subsequently turned into a pandemic.

For the first time, the world economy collapsed to this extent only after World war II. Lockdown has a major impact across most Nations including India. India declared nationwide lock down from March 25 for 21 days and subsequently extended it up to May 3.

Current power scenario

Current situation has been a challenging one for everyone. The power sector is impacted with overall load drop to the extent of 25-30 percent compared to 2019.

The key stakeholders are doing their utmost to maintain the overall grid situation and strike a balance between supply and demand. There has been significant addition from the renewable energy capacity, but in addition to the peak load base load catering is still done through thermal plants.

It is imperative for states to maintain robust and effective power mix and spinning Reserves. The impact of the 9-minute Load Back Down bears testimony to our system operator’s capability to manage things and emphasis the need of a good power mix.

Considering the average Plant Load Factor have come down from 66 percent (FY 20) to below 55 percent which could spur the use of oil support and cause substantial increase in power costs, it becomes incredibly important and critical to manage morning and evening peaks.

Efficient Planning by using various tools to forecast accurate requirements coupled with storage seem to be the way forward and a key learning from the current situation. The stakeholders need to take cognizance of the situation and move in the right direction.

The demand pattern will depend on extension of lockdown period in various states. Since the demand has crashed nearly by 30 percent and renewable energy generation can’t be curtailed, the situation can be managed with thermal generation available on bar.

It is advisable that during this

period, generators can undertake routine maintenance work including AOH. Even transmission lines can carry-out O&M works on transmission elements that have been shut down to control reactive power for voltage control. Hydro generation can store precious water in reservoirs. All these activities need to be executed in an integrated manner with due coordination between different Sectoral Entities Covid-19 has led to issues regarding managing the balance of power mix and overall supply side. Although, government has issued various notifications mentioning that RE projects are to have a must-run status and there would not be any disruptions in the flow of power and payments (where RE generators were owed `10,000 crores from Discoms pre-lockdown), the experiences which we are currently having indicate otherwise. Due to nationwide lockdown, the demand drop has been in the range of 27-30 percent of the demand in 2019. (a) Fall in Demand and Reduction in Load

Current demand is on a downtrend and with the likelihood of the lockdown being

Coal Insights, April 2020

17

INTERVIEW

“CIL to substitute 100mt of imports”

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ith subdued demand for power, stocks of coal have reached record levels at pitheads and power plants. Coal India sees this as an opportunity to replace potential imports with increased domestic supplies. CIL director marketing Satyendra Nath Tiwari spoke to Arindam Bandyopadhyay about various steps being taken to ease supplies to consumers in this crisis period.

How does Coal India plan to offload its current stockpile which is at a record high?

The record coal stock levels at our pitheads and at thermal power stations is a result of tepid demand from the power utilities.

And the current Covid-19 lockdown has further compounded to the situation.

However, we consider it to be a temporary hiatus and once the demand for coal picks up our supplies will go up bringing down the stockpile. We have also introduced a slew of measures to ease the distress of our consumers encouraging them to lift more coal. We have extended the validity period for lifting of coal under all auctions without any penalty and we continue to supply coal to the Central and state Gencos despite payment defaults. The request of consumers for Usance LC is now implemented. Trigger level for post NCDP regime FSAs has been raised from 75 percent to 80 percent. The moot point is demand has to pick up.

What is the potential increase in despatch from raising commitment to power plants from 75 percent to 80 percent of ACQ? The elevation in trigger level from 75 percent to 80 percent is applicable to those

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FSAs signed after the introduction of New Coal Distribution Policy. The FSA quantity of those power utilities is around 290 million tons (mt). Raising the trigger level to 80 percent is targeted at Gencos requiring more coal. If all of them opt for this, then despatches could go up close to 15 mt.

What measures are being taken to increase supply to non-regulated sectors?

With the power sector adequately boosted with coal supplies, non-regulates sectors (NRS) started receiving increased focus since the year 2019-20. As a result, CIL as whole cleared around 91 percent of backlog arrear rakes of this sector pertaining to 2017-18 and 2018-19 during FY20.

Of the 5,143 arrear rakes as of April 1, 2019 CIL liquidated 4,660 rakes at the closure of FY20. The country wide lockdown due to Covid-19 has affected the movement of coal to NRS sector also. As a relief to NRS, the consumers have been allowed to book coal under FSAs after the lockdown.

Consumers seeking to change the mode of lifting coal from Road to Rail are being allowed to do so. The validity period for lifting of coal already booked by them has

been increased because of the lockdown.

NRS consumers can avail Usance LC for booking by road mode also, which was hitherto allowed only against advance payments. All these measures will boost supplies once the demand picks up.

What will be the impact of higher production and tepid demand on e-auction?

It is too early to comment on the impact scenario. However, as government is keen to boost the economy as soon as possible the demand for coal is expected to pick up once the pandemic recedes. CIL has been offering more coal under various e-auctions. As said earlier, CIL has already announced a host of relaxations including easing the e-auction reserve price at notified price whereas earlier the add on over notified price for e-auction was in the range 10-30 percent. It is expected industries will respond positively to such opportunity and CIL will be able to book a significant quantity through auction route.

What is the roadmap of CIL’s endeavor to tap the coal importing companies?

During the current fiscal, CIL is in a position to substitute nearly 100 mt of coal imports.

Power sector consumers have been requested not to plan for any import of coal this fiscal as CIL has abundant availability of coal.

They are being encouraged to substitute their requirement of imported coal with domestic coal of CIL by regular monthly allotments.

Offer of more coal through e-auction schemes, especially for long term under special forward e-auction scheme for power producers and exclusive e-auction scheme for non-power consumers shall be made throughout this year. This shall reduce the dependence of the consumers on imports.

Is there any consideration of exporting coal in the time of surplus?

There is no immediate move in this direction. However, the prospect of exporting coal to the neighboring countries like Nepal and Bangladesh is being explored.

FEATURE

Cost of RE in India half of imported coal-fired electricity: IEEFA

Coal Insights Bureau

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hile the energy security imperative is clear given India’s overreliance on volatile fossil fuel imports, and now more so than ever in a globally supply constrained world, the economics have won the fight with cost of solar power becoming nearly 50 percent cheaper than electricity generated by imported coal-fired plants, says Tim Buckley, Director of Energy Finance Studies (IEEFA), South Asia.

With Indian government announcing awarding of a $2 billion 2 gigawatt (GW) solar tender at a near record low price of `2.55/kWh, cost of renewable energy in India is now 20-30 percent lower than the cost of a new domestic coal-fired power plant, even as electricity demand has collapsed 27 percent till April. “Renewables are clearly the low cost, zero inflation, zero emissions source of new domestic electricity supply for India,�

Buckley said citing the above figures.

Accelerated exit from coal funding

The biggest asset manager in the world BlackRock made a landmark announcement in January to divest thermal coal mining exposures from its $1.8 trillion of actively managed funds. Since then, there have been a further 20 announcements from financial institutions releasing their grip on coal.

Financial institutions

Tim Buckley, Director of Energy Finance Studies, IEEFA

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The development comes at a time when governments, corporates and financial institutions are accelerating their coal restriction policies in 2020.

And this year is likely to prove the beginning of the end for the thermal coal power industry globally, he said in a recent article.

After a decade of deflation in renewable energy costs approaching 10 percent annually, and an extended global economic lockdown due to the coronavirus pandemic, the credit appeal of coal-fired power plants has never looked worse, he said.

As a result, financial institutions have

FEATURE

Draft Electricity Amendment Bill plans contract enforcement body

Association of Power Producers however is of the opinion that the authority with powers like arrest and attachment of property would help instill discipline amongst the contracting parties.

The development comes at a time when Gencos are yet to get around `92,602 crore from the Discoms as of February end according to data available at the Payment Ratification And Analysis in Power procurement for bringing Transparency in Invoicing of generators (PRAAPTI) portal.

Key amendments on enforcement authority

Coal Insights Bureau

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he power ministry has issued the revised fourth draft of the Electricity (Amendment) Bill recently that proposes setting up an Electricity Contract Enforcement Authority (ECEA) having power of a civil court to settle disputes related to power purchase agreement between distribution companies (Discoms) and generation companies (Gencos).

The draft provides that the ECEA will have sole authority to adjudicate matters related to specific performance of contracts related to purchase or sale of power, between Gencos and Discoms.

The decision of the ECEA can be challenged at the Appellate Tribunal For Electricity (APTEL).

Association of Power Producers has welcomed the amendments while opposed by All India Power Engineers’ Federation.

“We support ECEA as contract enforcement is the weakest part in the power space - everything is on best effort basis, may it be coal companies, distribution utilities or transmission companies. An agency exclusive for contract enforcement, with adequate powers was required. However, the area of adjudication between ECEA and tariff commissions needs to be delineated without any ambiguity, to avoid any contest for space,” Ashok Khurana, director General of Association of Power Producers said.

“The setting up of ECEA would dilute the power of the state and central regulatory commissions to settle matters related to power purchase agreements between discoms and gencos,” All India Power Engineers’ Federation (AIPEF) VK Gupta said.

Currently, state electricity regulatory commissions and Central Electricity Regulatory Commission settle state-level and inter-state PPA disputes, respectively.

109A. Establishment of Electricity Contract Enforcement Authority ♦♦ ECEA shall have the sole authority and jurisdiction to adjudicate upon matters regarding performance of obligations under a contract related to sale, purchase or transmission of electricity, provided that it shall not have any jurisdiction over any matter related to regulation or determination of tariff or any dispute involving tariff ♦♦ Every contract between a generation company and a licensee shall be filed with the Appropriate Commission within 30 days of the said contract having been concluded 109B. Application to ECEA ♦♦ Any person aggrieved in any matter referred to in section 109A may prefer an application to the Electricity Contract Enforcement Authority ♦♦ Every application shall be filed within a period of six months from the nonperformance of the obligation under the contract but ECEA may entertain an application beyond six months if there is sufficient cause ♦♦ Every application be accompanied by such fee as may be prescribed ♦♦ On receipt of an application ECEA may after giving the parties an opportunity of being heard, determine whether a valid contract subsists between the parties and whether any party is in violation of any of its obligations under the contract

Coal Insights, April 2020

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INTERNATIONAL

Aussie mining may be slow to restart Lag time for consumables, rigid work rules hurting revival

Coal Insights Bureau

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here could be supply chain issues arising and escalating due to import and export restrictions and reduced operational capacity by suppliers as a result of Covid-19 restrictions, says global consultancy major KPMG in an impact report on Australian mining sector due to the pandemic.

Also, majority of Australia’s resources and energy workforce are being prevented from enacting workplace changes during the Covid-19 pandemic by inflexibilities in the national industrial relations system, according to a survey of more than 100 companies carried out by Australian Resources and Energy Group.

Bottlenecks

“Lag times for orders of essential mining consumables such as tyres, reagents and other consumables are emerging and will likely

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have further impact over the next several months,” the report said.

A list of critical equipment and supplies, including shortages in critical components is being drawn up by the Minerals Council of Australia to help identify other potential suppliers in Australia who may be able to assist, either because they manufacture or carry the components or are able to adjust manufacturing to make suitable alternatives.

“Domestic imposed travel restrictions will also create supply chain issues even if products have arrived to Australia and sit at port or warehouses ready for dispatch,” the report said adding that at the time of publishing the report, KPMG hasn’t seen any major impacts.

Current government regulations regarding shipping ports remains unclear although KPMG observes that certain shipping ports are operating to assist in delivering critical mining supplies.

“We expect to see miners more closely examining counter party risks in respect to new offtake or product sale agreements and third party contractors who have, or are being considered for project works or operational contracts. This is both from a financial perspective and ability to provide adequate personnel to undertake the relevant services,” KPMG said.

Key insights

♦♦ Commodity price movements have generally been neutral given USD appreciation. Commodity price decreases have been driven by market sentiment not typical physical fundamentals. ♦♦ China’s domestic commodity supply and demand metrics have remained neutral with both producers and consumers closing operations due to COVID-19 restrictions.

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Tear along the dotted line

Tear along the dotted line