Contents
6 | COVER STORY
18 Low Asia demand eases thermal coal offers in August
Stock reality!
20 China demand boosts coking coal offers in August 22 India’s June coal imports up 3% y-o-y 23 Coal India production up 10.6% y-o-y in July 24 SCCL clocks marginal growth in July production 25 Sponge iron prices up 10% in June in a dull market 26 Coal demand may peak by FY26: Ind-Ra 27 India’s cement production in Q1 up 12.8% y-o-y
28 | Feature
Why do Indian coal-based power plants suffer from perennial coal shortage? It may be due to rising power demand and mismatched inventory at plant and pit heads
Commercial mining: Clearing the roadblocks ahead A panel has completed its report and industry stakeholders hope mistakes of the coal block auctions will not be repeated.
36 No power capacity addition in June
38 | Opinion
40 No power sector coal shortage sector expected in future: Goyal
Changing face of executive pay and perks
42 MCE sector may grow 10% in current fiscal
Before nationalisation of coal mines, the mine managers were the best paid industrial professionals in the industry.
46 Growth returning in Indian mining equipment sector 47 ‘Demand for construction equipment peaking’ 50 Traffic handled by major ports up 4% during April-July 51 Indian Railways’ July coal handling up 9% y-o-y 57 US coal production estimated to decline 1.1% in 2018 58 Conducting a conveyor system risk assessment 61 Corporate 62 Port data
4 Coal Insights, August 2018
43 | Special focus
`400 cr earmarked for NCL’s HEMM procurement for 2018-19 NCL’s 2018-19 production target is 100 mt and orders have been placed for various equipment for achieving this target.
52 | International
Will coal sustain its high price in global markets? Fear of a coal price fall means limited investment today, which may result in higher prices in future.
Cover Story
Stock reality! Why can’t Indian coal-based power plants shake off their perennial coal shortage syndrome? Needle of suspicion points to rising power demand, despite improved coal production, and mismatched inventory levels at both plant and pit heads Madhumita Mookerji & Arindam Bandyopadhyay
6 Coal Insights, August 2018
Cover Story “Oh, East is East, and West is West, and never the twain shall meet…”,
L
ike the opening lines of that famous poem, “The Ballad of East and West”, written by the late British poet, Rudyard Kipling, if we track the coal stocks at power plants and Coal India Limited’s (CIL’s) despatch/production graphs over the last two fiscal years or so, we will notice that both lines are never ever poised to converge at any point. Coal India’s production has been increasing, imports are more or less on an even keel and are expected to remain buoyant further, going forward. So this itself should spell out a dream scenario for the power plants. But, these units seem to be intermittently getting the nasty feel of a pinch or bite of a coal shortage. The fear of scarcity refuse to dissipate, despite the healthy production by Coal India. CIL, on its part, has been striving to meet its targets. It may be recalled that the Union government had announced the benchmark target of 1 billion tons (bt) of coal production by the state-owned miner in 2015. Post the announcement, the performance put up by CIL in 2015-16 took the market by surprise with an unprecedented production growth of 9 percent and a volume of 537 million tons (mt) in 2015-16. This was followed by 554 mt of production in 2016-17 and 567.37 mt in 2017-18. In the current year (2018-19), during the last 3 months or so, CIL’s production and despatches are up by around 15 percent. And, yet, it is not being able to satiate the demand for coal from the power plants, despite restricting supplies to the non-power sector. Indeed, except for a short period in around 2015, the coal crisis at power plants is not being weeded out. Soon after the Narendra Modi government had taken over in 2014, the Ministry of Coal had taken proactive measures to augment domestic supplies and had set the landmark target of 1 billion tons of production for Coal India and it may be recalled that the miner had thereafter reached a record production level in 2015-16. Many end-user companies say that, at that time, may be because of the proactive attitude of the Ministry of Coal, the production of CIL had improved so remarkably. Indeed, the ministry had been quick in rushing in where angles had feared to tread and had yet allowed
the coal producers the freedom to implement their own policies, say the sources. As a result, CIL was able to increase its production under such enabling circumstances. For the first time after a long gap, indeed. Coal consumers, on their part, had never wagered that production would go up so dramatically because only a couple of years earlier, the coal behemoth’s output had remained static, forcing the end-users to depend less on its supplies. Or so they thought. Consequently, when the coal block auctions happened in 2015, the end-users had quoted astronomical and unviable prices to grab the blocks on offer from the government in a bid to secure their energy resources. However, when the government began making domestic coal available by end2015, those very consumers who had bid for the blocks at fancy prices, had realised that they could get domestic coal at a competitive price, and so would they be willing to pay a higher price for the imported variety? Realisation had also dawned on them that they had committed a mistake in their hurry to ensure energy security. Soon after, many of these blocks got entangled in legal cases too, making the entire process of captive production come almost to a stasis in India. This was also a juncture when the power distribution companies had run up debts to the tune of `4.3 lakh crore in 2014-15 and the plant load factor (PLF) of the power plants had started falling due to poor power offtake from the power plants. The government addressed the discoms’ debt issue through the unveiling of the much-touted Ujwal Discom Assurance Yojna (UDAY ). UDAY was an important factor in that it made it possible to generate and absorb that extra power. So when UDAY was unveiled, discoms became slightly healthier, says V K Arora, Chief Mentor, Karam Chand Thapar & Bros (Coal Sales) Ltd. Although UDAY has become a one-time dose (more of that later), it was also expected that the scheme would improve the health of the power plants, leading to higher power offtake. However, despite all the efforts of the present government, in terms of coal production, consequent drop in imports of steam coal for the power sector and UDAY, the one persistent motif is that of the sustained coal shortage at the power plants.
Coal stocks mismanagement?
Where does the problem lie, in that case? Is it due to a mismanagement of coal stocks at both ends, ie, the power plants and Coal India? Where are the plants and CIL going wrong? Many say that despite the Central Electricity Authority’s (CEA’s) diktat to coal-based power plants to keep a 22 days’ stockpile, most plants do not follow the directive strictly. They do not want to increase their coal stocks when they get into a comfortable position, leading to lower coal offtake from CIL. The power plants cannot be blamed for evading a nice, comfortable stockpile because it increases their costs. Twenty-two days of stocks is actually a lot of money. The landed price of coal differs from plant to plant. For instance, plants closer to the mines, as in West Bengal, would have a landed cost of around `2,500 per ton while for plants located in the southern region it would hover around `4,500 per ton. In the north, it could vary between `3,000 and `3,500 per ton, an expense that means locked capital and a concomitant increase in their cost of borrowing. Thus, to keep their efficiency level intact, they keep their stocks at a minimum level. Also, the high stockpiles often pose concern over catching fire. Moreover, long exposure reduces the quality of the coal already mined. “The basic reason why the power plants don’t want to stock coal during a low power demand phase is that they don’t want to lock their money. If you want to take coal from your linkages, you have to lock your money, in full or in part. Even if you are a PSU and your account will be set off later, the money is locked for that future point in time,” says a source at a thermal power utility on condition of anonymity. On the other hand, when the power plants keep their stocks at a minimum level, that same volume that is not taken by the plants piles up at CIL’s pitheads. In a cascading effect, once the stocks keep piling up at CIL, the coal miner has to slow down on production of coal, goaded by the necessity to liquidate its piled-up stocks first. And since it slows down on the production front, in a lag effect, when the plants become hungry for coal again, having exhausted their stockpiles, it has often been seen that CIL does not have enough stocks for supplying to the power plants.
Coal Insights, August 2018
7
FEATURE
Commercial mining: Clearing the roadblocks ahead
A high-powered committee has completed its report though its contents have not yet been made public. But industry stakeholders hope mistakes of coal block auctions will not get repeated this time Madhumita Mookerji
A
re things moving at last on the commercial mining front after a hiatus of several months since the government’s official announcement of the policy sometime in early 2018? As per a shortlist prepared by the Ministry of Coal late last year, there were four mines from Odisha that were likely to be auctioned in the first phase and these included Chendipada I, Chendipada-II, Mahanadi and Machhakata blocks. The four coal mines tentatively shortlisted from
28 Coal Insights, August 2018
Chhattisgarh were Shankarpur Bhatgaon II Extension, Durgapur II/Taraimar, Durgapur II/Sariya and Madanpur (North). The block in Madhya Pradesh is Dongri Tal-II and the one in Jharkhand is Mednirai. Of the 204 blocks that had been cancelled by the Supreme Court in 2014, 83-85 have been allotted or auctioned, 10 have been identified for the coking coal segment, 13 have been identified for the non-regulated sector (sponge iron, CPP etc) and 11 blocks have been allotted to CIL subsidiaries. In the balance left over, around 60 are small capacity underground (UG) mines. The government
has 27-30 blocks for commercial mining which are in a better state of exploration – in the sense that geological reports on them are available. Experts, therefore, feel commercial mining is a different story of deeper deposits and fairly large-sizes mines of more than 300 mt. As per people in the know, a highpowered committee had been set up to look into the policy issues and its report has been completed though it has not yet been made public. Sources also said that the committee had been weighing one aspect of the policy which the industry had been vociferously against and that is an equitable revenue
SPECIAL FOCUS
`400 cr earmarked for NCL’s HEMM procurement for 2018-19
C
oal India subsidiary Northern Coalfields Limited (NCL) has a coal production target of 100 million tons (mt) for 2018-19. In view of the anticipated growth in production and offtake at NCL, there is wide scope with regard to sale of mining equipment. Orders have been placed for various equipment. NCL is planning for explosion-free mining in areas close to habitation by using surface miners in OB removal, Gunadhar Pandey, Director (Technical/ Operations), Northern Coalfields Limited (NCL), informs Arindam Bandopadhyay, adding that, in addition to the existing dedicated transport network of MGRs and belt-pipe-conveyors, all projects will be connected with railways. Excerpts from an interview:
It is often said that lack of manufacturing base for high capacity mining equipment is a weak spot for the Indian mining sector, which includes coal. Could you elaborate on how this shortcoming affects a miner’s performance? Lack of a manufacturing base for high
capacity mining equipment being a weak spot is not a limiting factor in the context of Northern Coalfields Limited (NCL). If we take a glimpse of the performance of NCL during the past five years, it has performed well and is poised to achieve 100 million tons (mt) during 2018-19.
Moreover, the firms engaged in manufacturing of high capacity mining equipment have already established their manufacturing plants in India, ie, BEML Ltd, Caterpillar India, Komatsu, L&T etc. Other manufacturers are exploring possibilities for setting up their plants in
Coal Insights, August 2018
43
INTERNATIONAL
Will coal sustain its high price in global markets?
Kingshuk Banerjee
G
lobally shaking off its low profile, the black diamond has hit a 6-year high as far as prices are concerned. Though this surge, led by Indonesia and Australia, truly elated the Asian coal industry, the power industry, especially in Malaysia which heavily relies on imported
52 Coal Insights, August 2018
coals, would feel the pinch of rising fuel costs for power generation. Though pundits are sharply divided over the sustainability of this northward movement, they are unanimous in their opinion that India and China are still adding substantial coal power capacities, and that’s influencing the coal industry dynamics. Until they truly stop it, coal will remain attractive.
So when Jakarta set it’s thermal coal reference price (TCRP) at a 6-year high at $104.65 per ton, recording an 8.3 percent month-on-month increase and 32.6 percent year-on-year, it’s bound to have an impact on the cost of generation. And it’s not the end. The spot prices of Australia’s Newcastle coal closed at $119.30 per ton, highest from the October 2011 price.
66 Coal Insights, August 2018
Tear along the dotted line
Tear along the dotted line