Coal Insights, August 2019

Contents 1 8 Thermal coal offers ease in August 22 Seaborne coking coal offers plunge in July 23 India’s June coal imports up 5% y-o-y 24 CIL’s coal production down 5.1% in July 25 SCCL’s July coal production up 16% y-o-y 26 Sharp drop in lending to coal power projects in 2018: Report 27 IREDA submits prospectus for IPO amid sector uncertainties 29 Softening Henry Hub prices prompt higher NG imports 32 Centre recommends coal supply to select states under SHAKTI 33 WBERC to amend tariff, open access regulations 35 RE projects’ dues from Discoms spikes, face downgrades 36 Power capacity addition during June at 45 MW 37 India’s cement production up 1.2% in Q1 FY20 38 India July sponge iron production up 4.9% y-o-y 39 Traffic handled by major ports up 2% till July 40 Indian Railways’ coal handling in July flat y-o-y 44 Thermal demand for coal to fall by 2 percent in 2020: EIA 49 Reliance and BP to create fuels partnership for India’s fast-growing market 50 Corporate Update 54 E-auction data 56 Port data

4 Coal Insights, August 2019

6 | COVER STORY

Coal Block Auction: Government readies blocks with slew of reforms To hold stakeholders’ meets across several cities to spread awareness

41 | INTERNATIONAL Australia eyes India coal market as China cuts imports Chief economist of industry ministry releases India report as minister arrives for a 3-day tour

45 | CORPORATE Coal India to help end avoidable imports by 2024 Chairman Anil Kumar Jha says not closing any mine due to economic considerations only

47 | CORPORATE

NTPC floats MDO tenders for Talaipalli, Chatti Bariatu to restart ops DSM regulations, low GCV coal loss impacts profitability in first quarter

51 | INTERVIEW

“We envision to become India’s leading cement manufacturer by 2022” Ujjwal Batria, COO, Dalmia Cement (Bharat) talks about betting big on government projects and institutional demand

Cover Story

Government turns mega coal block auction attractive with reform move Sumit Maitra

T

he reform process that was given a major boost with the radical move to allow open market sale from captive blocks will be further expedited to make the upcoming coal block auction a success.

After the government, following not so encouraging response from potential bidders, cancelled the sixth and the seven rounds of auction in March when 19 blocks were on offer, this time the government is serious about making each of the upcoming 8th, 9th and 10th round a success story. (See details of each mine and timeline in the Annexure).

Towards this end, coal secretary Sumanta Chaudhuri along with Ashish Upadhyay, Joint Secretary who also acts as the nominated

6 Coal Insights, August 2019

Cover Story authority for coal auctions and allocations have started reaching out to prospective bidders through a series of stakeholder’s meetings jointly organised with industry associations the first of which was held in Kolkata recently to be followed by similar events in other cities where prospective bidders reside.

This time 46 mines are on offer, of which government would be auctioning 27 coal mines and allot 15 mines to central and state PSUs. There would be another four mines to be put up in the 11th tranche, details of which are to be announced soon.

As per information provided by the government, 21 blocks would be auctioned for end use of non-regulated sector and six coking coal mines for end use of iron and steel sector.

Among allotted blocks, five mines would go to the power sector, nine for sale of coal and one for iron and steel.

At Peak Rated Capacity (PRC), these 46 coal mines taken together can contribute around 100 million tons of coal a year.

Of these 42 blocks, 19 belong to Schedule III that are ready to produce with most of the clearances and plans in hand while one is a schedule II producing mine.

With extractable reserve of 1 billion tons, these 20 mines would be able to produce 36 million tons a year, helping mine owners sell 9 million in the open market.

Auction norms

The blocks will be given out to the bidder of highest share of revenue offered to the government. ♦♦ The mine owners would be allowed to sell 25 percent of their production in the open market. The government would also take 15 percent of the revenue from sales in the open market. “The successful bidder shall utilise a minimum of 75 percent of the actual production (ROM basis) in the specified end use plants and is allowed to sell up to 25 percent of the actual production (ROM basis) in open market.

The successful bidder shall be required to pay an additional premium of 15 percent of its final bid price on per tonne basis, for the actual quantity of coal sold in open market. The additional premium will be over and above the final bid price,” the standard tender document says.

♦♦ In the eventuality of them failing to of tender document is September 13 and bid consume the rest 75 percent of rated due date is September 19. production, these block owners would be The electronic bidding will be conducted allowed to sell it to Coal India at notified on MSTC Platform during October10prices. “Any coal which is extracted in November 8. excess of the requirement of the successful Coal Ministry organised the the first prebidder in terms of this tender document, bid meeting on August 23 with prospective i.e., if due to maintenance or shutdown or bidders held at SCOPE Convention Centre such other unavoidable reasons, beyond in New Delhi where presentation on the the control of the successful bidder, tender process and demo of e-auction during any part of the year, the successful platform by MSTC were made followed bidder is not able to use a minimum of an open house session to address queries of 75 percent of actual production (ROM bidders. basis), in specified end use plant or own The ministry is also simultaneously consumption, such excess coal shall be orgnising roadshows across the country to required to be sold to Coal India at the create interest among the prospective captive terms and conditions specified at Clause coal mine owners.

5.7.7. Provided however, such sale should “This is the largest single chunk of coal not exceed 50 percent of the annual coal mines that has been put on auction and production from the coal mine,” the allotment for a long time. I would urge both tender details states. the private sector and also many public sector ♦♦ The successful bidder shall produce companies, many of whom already have coal coal not below 80 percent of scheduled blocks and also potential entrants to take production in a year in opencast mine part in the auction process. We do believe and not below 70 percent in case of that this time on, the response would be underground mine subject to the something that we should all be proud of. condition that the bidder shall not The government is with you at every step produce coal less than 90 percent of scheduled production in any five year of the way. We would act as facilitators and block in opencast mine and 80 percent in certainly be your friend in this collective path case of underground mine.

List of coal mines for 8th tranche of auction It is clarified that five year (For iron & steel, cement, captive power) block shall be counted Number Name of Coal Mine State from the first financial 1 Brahampuri Madhya Pradesh year of commencement of 2 Bundu Jharkhand production in the mine. ♦♦ For Captive Power Plants, the coal consumption norm given is on per annum basis at 85 percent Plant Load Factor. For estimating their eligibility, bidders will have to calculate their coal requirement for 30 years.

For steel and cement, the coal consumption given is on kg/ton basis.

For estimating their eligibility, bidders will have to calculate their coal requirement for 30 years at 85 percent capacity utilisation.

The last date of registration of bidder and sale

3

Gondulpara

Jharkhand

4

Jaganathpur– A

West Bengal

5

Jaganathpur – B

West Bengal

6

Khappa & Extn

Maharashtra

7

Bhaskarpara

Chattisgarh

8

Marki Mangli – IV

Maharashtra

9

Sondiha

Chattisgarh

10

Chitarpur

Jharkhand

11

Gare Palma IV /1

Chattisgarh

12

Kosar Dongargaon

Maharashtra

13

Marki Mangli II

Maharashtra

14

Shankarpur Bhatgaon II Extn.

Chhattisgarh

15

Marki-Zari-Jamani-Adkoli

Maharashtra

16

Bikram

Madhya Pradesh

17

Chinora

Maharashtra

18

Warora

Maharashtra

19

Warora West (North)

Maharashtra

20

Warora (West) Southern Part

Maharashtra

Coal Insights, August 2019

7

INTERNATIONAL

Australia eyes India coal market as China cuts imports

Coal Insights Bureau

W

ith China cutting its imports from Australia, amid growing geo-political tensions, Land Down Under is seriously looking at India as a key future market for its coal.

Austrian Minister for Resources Matthew Canavan is visiting India on a three-day trip beginning Monday to boost exports of coal and attract investment.

Following China’s decision not to import Australian coal and greenlighting of Adani

Group’s Carmichael coal mining project at Queensland, Australia is now actively looking at newer export opportunities for its coal, an importer of coal told Coal Insights magazine.

The Minister will travel to three-Indian cities – Kolkata, Delhi and Mumbai – where he will meet with ministerial counterparts and resource industry leaders.

The visit follows a release of a report Coal India 2019.

The report provides an update to the 2015 Coal in India report.

Since then, India has emerged as the world’s second largest producer and consumer of thermal coal. Coal continues to play a key role in India’s economic growth and development.

India’s energy future will help shape seaborne thermal coal markets for decades to come.

“India is the world’s second largest importer of thermal coal, and has the potential to be an ongoing source of demand growth — a bright light for thermal coal exporters confronted with falling demand

Coal Insights, August 2019

41

Corporate

NTPC floats MDO tenders for Talaipalli, Chatti Bariatu to restart ops

Chatti-Bariatu mine was supposed to produce 7 million tons of coal a year for use at NTPC’s 1,320 MW Barh power plant for generation of electricity while Talaipalli mine was to produce 18 million tons for the 4,000 MW Lara power plant.

Scope of work got MDO

The Mine Developer and Operator shall plan, design, engineer, finance, construct, develop, operate and maintain the mines to deliver coal of specified quantity and quality to NTPC. MDO’s responsibilities include: ♦♦ Assistance in land acquisition required for project. This shall involve interaction with Project Affected Persons, state government and other agencies relating to land acquisition and Rehabilitation & Resettlement ♦♦ Physical possession of land ♦♦ Excavation of various rocks and earth ♦♦ Cutting by mechanised means, loading, transportation, dumping, dozing, mining of coal, crushing of coal to a predetermined size ♦♦ Leveling at Over Burden dumping site to ensure progressive mine closure and infrastructures facilities like equipment workshop ♦♦ Electrical substations, arrangement

pumping

♦♦ Haul road maintenance DSM regulations, low GCV coal loss impacts profitability

Coal Insights Bureau

N

TPC has started looking for operators for development of Chatti Bariatu at Hazaribagh in Jharkhand and Talaipalli at Raigarh in Chhattisgarh, blocks where contracts for Mine Development and Operations were earlier cancelled because of corruption charges.

The power major has just floated Invitation of bids from Mine Developer and Operators on Single Stage Two Envelope bidding with reverse auction for the two blocks.

MDO contract for Talaipalli were earlier given out to a consortium of NCC Ltd and BGR Mining in 2017 but the development of the block was affected when NTPC complained of corruption in the deal.

Work on Chatti-Bariatu, which was awarded to BGR Mining in that year, was also impacted because of the corruption case.

After the award of the contracts became subjudice, NPTC in March 2019 floated tender for carrying out overburden removal and mining operations as temporary measure for the southern pit of Talaipalli the scope of which was beyond the main block.

NTPC’s standalone first quarter adjusted Profit After Tax decreased 9 percent YoY to `2700 crore after adjusting for estimated `110 under-recovery of fixed charge for this quarter.

“The miss is due to an impact of DSM (deviation settlement mechanism) regulations, carpet coal loss and tax leakage on change in deferred tax recognition. New regulations for DSM, which had tightened operating norms since January 2019, impacted the company’s profitability to the extent of `150 crore,” a research report by Motilal Oswal said.

These norms, though, have largely been reversed (since May-end), and subsequently, such an impact is unlikely to continue.

Coal Insights, August 2019

47

interview

Dalmia Cement bets big on institutional sales, govt projects

What is the size of cement sector in India?

How has the sector evolved in the last few years?

India is the second largest producer of cement in the world. The country today has about 105 cement companies, 280 major cement plants and an aggregate cement capacity of around 500 mt. Of this, 92 percent of the capacity is with the 30 major cement companies in the country.

The last 4 years has witnessed a major consolidation in the cement industry both globally and in India. In the recent past, global mergers and acquisitions have impacted the Indian cement sector scenario.

Even the domestic cement companies focused on the mergers and acquisitions route to consolidate their positioning in the country.

The Government’s push towards development of rural infrastructure, smart cities programme, Housing for All by 2022 and infrastructure development with construction of highways, roads, railways has provided a major fillip to the sector’s growth.

How would cement sector behave in the next few years, what sort of growth it might attend?

W

ith almost 65 percent of the total cement consumption coming from the housing and real estate sector which is currently witnessing slowdown, Dalmia Cements is betting big on government projects and institutional demand, which contributes almost 35 percent of its total volumes. Further, the company is now looking to scale up its capacity to 34.5 million tons (mt) by early 2020-21. The GST committee has lowered the rate for property under construction to 5 percent from 12 percent, which will boost demand and have favourable impact on the cement industry, said Ujjwal Batria, Chief Operating Officer, Dalmia Cement (Bharat) to Ritwik Sinha.

This year’s budget gave a strong impetus to the development of cement sector and its allied industries. Prime Minister’s Gram Sadak Yojana Phase III, new government medical colleges and hospitals, redevelopment of 600 railways stations and suburban railway infrastructure, renewal of 26,000 km railway line are major steps, will lead to demand generation and capacity utilisation in a big way.

Cement production in the country is likely to remain steady with total production expected to grow by 5 percent during FY20.

Roads, urban infrastructure and commercial real estate are seen as the key demand drivers for cement.

During FY19, cement production grew by 13.3 percent to 337 mt against 6.3 percent growth in FY18, the fastest growth in production of cement recorded in one single year over the last decade.

Looking at the current demand, the industry is planning to produce 352 mt in order to meet its domestic demand and 2.5

Coal Insights, August 2019

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58 Coal Insights, August 2019

Tear along the dotted line

Tear along the dotted line