Coal Insights, August, 2021

CONTENTS 15 Seaborne thermal coal offers rise in August.

16 Seaborne coking coal offers improve in August.

17 India’s June coal imports down 6 percent m-o-m.

18 CIL’s coal production up 14 percent in July.

19 SCCL’s coal production up 71 percent in July.

20 Adani bags the biggest mines in coal block auction.

28 Power Ministry issues Green Energy Open Access rules.

29 July sponge iron production remained flat y-o-y.

30 Rise in coking coal prices hurting steel cos.

34 India’s cement production up 50 percent at 80 mt in Q1.

35 Coal handled by major ports up 38 percent till July.

36 Indian Railways’ coal handling up 38 percent till July.

39 Eskom starts repurposing old thermal power plants.

41 US coal production estimated at 607MMst in 2021.

42 AGL Energy triggers transition from coal.

46 Singareni Collieries turns around with record turnover in April-July.

47 Sterlite Power Transmission sees interregional gap driving demand.

50 NTPC generation up 26 percent in Q1.

53 JSPL divests Jindal Power to promoter entity.

54 Corporate update 56 Government update 58 E-auction data 60 Port Data

4 Coal Insights, August 2021

6 | COVER STORY

CIL all set for higher prof itability Likely revision in prices, e-auction growth to drive margins.

21 | FEATURE Monetisation scheme puts 160 coal projects in pipeline List includes 35 first-mile connectivity projects.

25 | FEATURE Discom performance showing turnaround July-end Gencos overdues at `94,407 crore.

37 | INTERNATIONAL

China links solar tariff to thermal power prices NDRC issues grid tariff guidelines.

44 | CORPORATE

Tata Power Indonesia coal biz profits jump 3x in Q1 Secures major co-located energy storage project.

COVER STORY

Margin matters

CIL all set for higher prof itability Sumit Maitra

6 Coal Insights, August 2021

COVER STORY

A

n expected revision in coal prices coupled with an improvement in e-auction booking would drive growth in profits and margins for Coal India in coming days.

A rise in profitability will generate enough cash to provide for capex and raise production.

“The profitability will rise in coming quarters so that the liquid cash will be generated,” Pramod Agrawal, Chairman cum Managing Director, Coal India told analysts during a conference call.

“Going by the current status of our production offtake and the realisability that we are having, we are expecting much better profitability than the previous year and going back to that normal position of what used to be for Coal India of about 28 percent to 30 percent of EBITDA margins,” said Finance Director Samiran Dutta.

Auction volume and premium to rise

In sync with the firmness in seaborne coal prices, CIL’s e-auction premium has improved to 30 percent (over notified prices) in August against around 10 percent in Q4 of FY21. Lifting of coal against booking has also improved.

CIL chairman expects further improvement in e-auction premium in the third and fourth quarters.

The spot e-auction premium meant specifically for coal importers is also rising and crossed 50 percent in the second week of August.

Spot e-auction premium over notified prices have been progressively increasing from 24 percent in April to 29 percent in May and then to 38 percent in June although quantity available for spot auction has dropped from 2.53 million tons (mt) in April to 2.17 mt in June.

“June quarter dispatch figures were slightly less because whatever we dispatched in June quarter was mainly what was booked in December or the third quarter and fourth quarter of last year. The rate (of lifting against booking) in the last two quarters was not as good as it was in the first quarter. So

this will get reflected from now onwards.

I think from September month onwards, whatever lifting takes place it will be because of the new booking so we should see better price realisation,” the CMD said.

“In August and September, the premium may not increase but after this quarter, third and fourth quarter premium is likely to increase because international prices are firmed up so they improved, unless it is very essential (to import), people will like to purchase from us,” Agrawal said.

Although no target is set, CIL expects to achieve total e-auction booking of 130-135 mt during FY21, against 124 mt allotted last fiscal, sources said.

However, volume offered is expected to fall sharply from a record 507 mt offered last year, leading to a rise in premium.

Spot auction premium might even reach 70-80 percent as the stock from previous auctions get lifted, said S N Tiwari, Director Marketing.

“You will see from next month onward the spot auction will be much, much higher than what you are seeing right now for July or even for the average of April to July,” Tiwari said.

Rising auction allocation

Triggered by rising demand for coal,

e-auction allocation has grown by 28.6 percent to 35.5 mt during April-July period of 2021 compared to 27.6 mt in the year ago period.

E-auction net sales were over `4,700 crore during April-July 2021, up by 87 percent over the same period of previous year.

According to Coal India CMD, buyers are preferring domestic coal over imports due to spiraling prices in international markets.

There is now a beeline for the special auction meant for importers who have booked 70 percent of the 2.4 mt offered to them resulting in e-auction premium touching 52 percent over notified prices.

And in July 2021, almost all of 1.6 mt offered to these importers got booked.

“Under exclusive auction for non-power consumers the allocation was 11.8 mt during the first four months of the current fiscal logging around 69 percent growth. It would help consumers of this segment in increasing their blending percentage and cap the coal cost in production of their respective products. Last year same period 7 mt was booked by them,” Coal India said in a release.

Power sector also clocked 37.5 percent growth under special forward auction at 11 mt during April-July 2021 as against 8 mt in the same period of last year.

In July 2021, CIL allocated 8.3 mt, which

Pramod Agrawal, Chairman, CIL (right) inspecting Dipka, Gevra and Kusmunda mines

Coal Insights, August 2021

7

FEATURE

Monetisation scheme puts 160 coal projects in pipeline

raise innovative and alternative financing for infrastructure, and included a number of key announcements.

The Budget has laid out the importance of “monetising operating public infrastructure assets for new infrastructure construction”.

Towards this, the Budget provided for preparing a National Monetisation Pipeline (NMP) of potential brownfield infrastructure assets and an “Asset Monetisation dashboard” for tracking the progress and to provide visibility to investors.

Need for monetisation

Coal Insights Bureau

T

he Union Finance Ministry along with Niti Aayog has announced the National Monetisation Plan that aims to monetise `6 lakh crore of assets in the next 4 years involving gainful deployment by the private sector of underutilised brownfield infrastructure assets of the government under 12 ministries including the coal and mines ministries.

The projects constitute 14 percent of the National infrastructure pipeline.

Currently, only assets of central government line ministries and Central PSUs in infrastructure sectors have been included.

Process of coordination and collation of asset pipeline from states is currently ongoing and the same is envisaged to be included in due course.

The monetisation process includes selection of de-risked and brownfield assets with stable revenue generation profile with the overall transaction structured around revenue rights.

The primary ownership of the assets

under these structures would continue to be with the Government with the framework envisaging hand back of assets to the public authority at the end of transaction life.

Sectors being covered

♦ Mining – `0.29 lakh crore ♦ Railways – `1.52 lakh crore ♦ Stadium – `0.11 lakh crore ♦ Roads – `1.6 lakh crore ♦ Power generation and transmission – `0.85 lakh crore ♦ Oil and gas and pipelines – `0.47 lakh crore ♦ Aviation – `0.21 lakh crore ♦ Ports – `0.13 lakh crore ♦ Telecom – `35,100 crore ♦ Urban real estate – `0.15 lakh crore ♦ Warehousing – `0.29 lakh crore Laying foundation for monetisation

The Union Budget 2021-22 laid a lot of emphasis on asset monetisation as a means to

India’s National Infrastructure Pipeline (NIP) envisages an infrastructure investment of `111 lakh crore over the five-year period (FY 2020-25). Financing of infrastructure investments at such scale necessitates a reimagined approach and tapping alternative financing through innovative ways.

As estimated by the Report of Task Force for NIP (2019), traditional sources of capital are expected to finance 83–85 percent of the capital expenditure envisaged under NIP. About 15-17 percent of the aggregate outlay is expected to be met through innovative mechanisms such as asset recycling and monetisation and new longterm initiatives such as Development Finance Institution (DFI).

As per NIP, asset recycling and monetisation mechanism may finance around 5-6 percent of the aggregate capex under NIP. “In the wake of Covid-19 however, there is a pressing need on the public outlay towards social sector priorities and economic stimuli initiatives, thereby necessitating exploring of alternatives mechanisms such as Asset Monetisation,” Niti Aayog said in its report.

Key features

♦ Monetisation is not disinvestment as assets would have to be returned to the government. ♦ Monetisation through disinvestment and monetisation of non-core assets (such as land, building, and pure play real estate assets) have not been included. ♦ Innovative

financing

like

Coal Insights, August 2021

asset

21

FEATURE

Discom performance showing turnaround

10.33 percent in FY20, Power Finance Corp says in a presentation.

ACS-ARR Gap indicates that aggregate costs are higher than revenues i.e. utility is incurring loss in its operation and a negative ACS-ARR Gap indicates that aggregate costs are lesser than the revenues and utility is having profitable operations.

Steps taken to improve Discom health

Coal Insights Bureau

T

he adverse performance of Discoms seems to have gone past the inflexion point, showing green shoots of turnaround, Union power ministry has said.

The distribution sector in India is termed as the most important but also the weakest link in the power sector value chain.

However, the sector is also witnessing tell-tale signs of improvement in performance and increase in efficiencies due to a multitude of initiatives made by the Central and state governments and the Discoms themselves, the ministry commented.

As per the audited annual accounts, Discoms have shown an improvement in their operational and financial performance over past few years, it said.

state governments and electricity regulators, increase in Average Realisable Revenue has been faster than increase in the Average Cost of Supply with the gap as percentage of ACS coming down from 16.41 percent in FY10 to

The government has been taking steps to improve the operational efficiencies and financial viability of Discoms.

To tide over the liquidity problems of increasing Discoms payables to Gencos arising out of the outbreak of Covid-19 lockdowns, the government launched a Liquidity Infusion scheme under which Discoms are already availing benefits under the scheme tied to reforms.

The government has also incentivised the Discoms to transform, reform and perform by linking 0.5 percent of the additional borrowings linked to power sector reforms from FY22 to FY24.

Apart from the above, the government has also launched the revamped reformsbased results-linked scheme, which allows the states to create infrastructure tied to initiation of Reforms and achievement of results for improving their financial sustainability and operational efficiencies.

Fall in Discom cost-revenue gap

As a result of reform initiatives of Central government, steps taken by the Discoms,

Coal Insights, August 2021

25

FEATURE

Rise in coking coal prices hurting steel cos Coal Insights Bureau

S

ince June 2021, international coking coal prices have almost doubled on increased ex-China demand.

While large integrated steel manufacturers’ margins will continue to remain insulated from iron ore price movement, to the extent of their captive iron ore availability, the impact of higher coking coal prices will show up in the margins in H2 of FY22, with a lag of about two months for imported coking coal, says ICRA. The rating agency expects the recent easing of iron ore prices in the country and sharp increase in coking coal prices, besides an improvement in capacity utilisation of smaller players, to lead to a narrowing of the margin gap between these two segments going forward.

Unlike past cycles, when steel prices and coking coal prices moved in tandem, international trade disturbances between China (the largest importer) and Australia (the largest exporter) decoupled prices of these two commodities since the second half of FY2021.

Consequently, the steep steel price rally and benign coking coal prices led to a sharp increase in contribution margins of larger players to all-time highs in FY21 and Q1 of FY22, improving their credit profiles

significantly.

On the other hand, with prices of sponge iron, scrap and non-coking coal, which are typically the raw materials used by small and medium players increasing significantly over the same period, margins of smaller players were impacted. Moreover, in FY21, smaller players were also impacted by a shortage of iron ore in the market, which larger integrated players were insulated from to an extent, because of their captive sources.

“The decoupling of price trends between steel and coking coal over the past several quarters has begun to reverse after May 21. This will impact margins of large steel manufactures in H2 of FY22,” Pavethra Ponniah, Senior VP and Co-Group Head, ICRA, said.

Impact of higher seaborne coking coal prices would be fully visible in Q3 of FY22 earnings as steel players keep some inventories which would have been bought at lower prices, says Care Ratings.

While the adverse impact of higher coking coal prices on margins of integrated steel producers is inevitable, sustained high steel prices are expected to support the margins.

Steel cos see coking coal costs to rise

Tata Steel has told analysts that it expects Coking coal prices ($)

Source: CMIE

30 Coal Insights, August 2021

Some of the large integrated steel producers had entered into short-term coking coal supply contracts at lower prices prevalent in early 2021. JSPL has built up coking coal inventories at significantly lower costs of around $150/ton against spot price of $230/ton which would last till September. coking coal costs to rise by $10 per ton in the second quarter from Q1 levels.

For Jindal Steel and Power, cost of production is likely to rise in the coming quarters due to exhaustion of free of cost iron ore and sharp increase in coking coal prices.

For SAIL, Centrum broking estimates coking coal costs at `14,900/ton for this year, sharply higher than `11,200 in FY21 which will ease to about `13,875/ton in FY23.

INTERNATIONAL

China links solar tariff to thermal power prices

Coal Insights Bureau

C

hina has adopted coal-fired power generation benchmark prices as the feed-in-tariffs for all new utilityscale and commercial distributed generation projects, a leading Chinese solar power company, Xinyi Solar Holdings, recently said.

National Development and Reform Commission of China in June released a policy document related to 2021 solar ongrid tariffs, clarifying that competitive bidding methods will no longer be used to fix the feed-in-tariff in 2021.

Instead, the local coal-fired power generation benchmark prices will be adopted as the feed-in-tariffs for all new utility-

scale and commercial distributed generation projects.

“New projects may voluntarily participate in market-oriented transactions to form ongrid electricity prices to better reflect the “green power value” of PV power generation.

This gives a clear and strong incentive to solar farm investment and promotes the accelerated development of the PV power generation industry, ultimately helping China to achieve its goals of reaching carbon emissions peak by 2030 and carbon neutrality by 2060,” Xinyi Solar said.

The company is principally engaged in the production and sale of solar glass products, which are carried out internationally, through the production complexes in China and Malaysia.

The cancellation of subsidies for new PV projects could enhance the stability and predictability of future cash flows from the solar farm projects as well as lower the risks for investors.

“This could benefit the group’s solar farm development and operation business.

In addition, the more market-driven and accelerated downstream installation growth has the potential to benefit the Group’s solar glass business,” Xinyi Solar said recently while announcing the results of Q2 of 2021.

After reaching grid parity, the next strategic step to encourage the use of solar power would be to address the inherent limitations on the use of solar energy, such as instability, intermittency and sensitivity to weather changes, the company said.

Coal Insights, August 2021

37

CORPORATE retail supply of electricity in five circles comprising Balasore, Bhadrak, Baripada, Jajpur and Keonjhar serving 2 million consumers ♦ Mumbai customers has been offered a choice of 100 percent Renewable Energy supply in line with the green power tariff announced by MERC ♦ Tata Power Solar receives EPC orders worth `686 crore from NTPC to set up Solar PV projects ♦ Tata Power empaneled for 84 MW Rooftop Solar Project worth `400 crore

Tata Power Indonesia coal biz profits jump 3x in Q1 Coal Insights Bureau

T

ata Power’s profits from its Indonesian coal business has risen threefold to `279 crore in the first quarter of FY22 from `85 crore in the corresponding quarter of previous year following sharp rise in global coal prices.

EDITDA has nearly doubled to `683 crore in the first quarter of FY22 from `352 crore in the previous.

The operations mainly consist of Indonesia’s coal company - PT Kaltim Prima Coal (KPC) where Tata Power has 30 percent stake.

During the quarter, KPC mined 14.9 million tons (mt), marginally higher than 14.5 in the corresponding quarter of FY21 while per ton gross profit from operations in Dollar terms doubled to $19.3 from $9.9, the company disclosed to investors in a presentation.

Rise in power biz profits

In the Q1 of FY22, consolidated PAT before exceptional items grew 74 percent to `466 crore from `268 crore in Q1 of FY21, driven by consistent performance by all businesses, reduction in finance cost and higher execution of EPC projects.

Consolidated EBITDA stood at `2,365 crore, up 16 percent from `2,037 crore in Q1FY21 including Renewable EBITDA of `643 crore up 9 percent as compared to `588 crore in Q1FY21 mainly due to higher wind and solar power generation, all round better performances in solar EPC, rooftop, solar pumps business and favorable tariff order for Coastal Gujarat Power Ltd (CGPL).

Consolidated revenue grew 47 percent to `9,831 crore from `6,671 crore in Q1 FY21 while standalone revenue was `1,788 crore up by 22 percent as compared to `1,469 crore in Q1 of FY21.

44 Coal Insights, August 2021

Key business highlights

♦ Tata Power commenced its operations in Northern Odisha (NESCO) through a joint venture with Odisha state government for distribution and

Tata Power (Consolidated) Financial Performance Particulars

Q1 FY22

Q1 FY21

Variance

Operating Income

9,831

6,671

3,159

Operating Expenses

7,644

4,722

(2,922)

Operating Profit Other Income EBITDA

2,187 178 2,365

1,950 87 2,037

237 90 328

Interest cost

945

1,089

144

Depreciation

747

644

(103)

672

303

369

366

177

189

1,038

480

558

573

189

(383)

466

291

175

–

(23)

23

466

268

198

PBT before share of Assoc & JVs Share of Associates & JV's results PBT after share of JV Tax Expenses Net profit before discontinued ops Discontinued ops (Defence) Results Net Profit for the Period before exceptional

Fig in `cr

Quarter Variance Remarks Higher income due to Odisha DISCOMS acquisiton & higher execution of projects in TPSSL partially offset by lower generation in CGPL Power purchase costs in Odisha and material costs in TPSSL APTEL Tariff order impact in CGPL Interest cost benefit offset by increased debt for Perpetual Debt prepayment, WC and capex requirements Inclusion of Odisha Discoms & manufacturing capacity expansion in TPSSL

Higher profit in coal companies Reversal of MAT Credit due to transition to New Tax Regime (`342 cr) and tax provision on dividend from foreign companies (`71 cr)

Coal business (KPC): Key highlights Coal Company - KPC Coal Mined (mt) Coal Sold (mt) HBA FOB Revenue (USD/T) Royalty (USD/T) Net Revenue after royalty (USD/T) Cost of Production (USD/T) COGS ($/T) - Including Inv Movement Gross Profit (USD/T)

Q1 FY22 14.9 15.5 92.3 65.5 9.0 56.5 36.2 37.3 19.3

Q4 FY21 14.3 14.1 82.7 59.4 8.8 50.7 35.6 34.0 16.6

Q3 FY21 15.3 16.0 55.5 43.8 6.1 37.7 28.4 30.6 7.1

Q2 FY21 15.0 14.8 50.6 43.8 5.9 37.9 31.3 30.7 7.2

Q1 FY21 14.5 14.3 58.0 49.1 6.9 42.1 31.9 32.3 9.9

62 Coal Insights, August 2021