Coal Insights, December 2020

CONTENTS 36 Seaborne thermal coal offers firm up in December 37 Seaborne coking coal offers rise marginally in December 38 India’s October coal imports up 18% on year

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Making Indian coal competitive Experts deliberate over issues and challenges facing coal during the 14th Indian Coal Markets Conference

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39 CIL’s coal production up1.2% till November 40 SCCL’s coal production down 34% till November 41 Second tranche of auction to see more attractive mines 43 Government lays down rights of power users 45 Government sets up coal import monitoring system

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Indian Coal Markets Conference December 17 – 18, 2020

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Words of wisdom from speakers at the conference

To look at gasification after block auctions

Leader Speak

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46 No power capacity addition in October

“Need to look at tax on coal”: M Nagaraju

48 India’s cement production up 3% in October

Coal is taxed at 45-49%, says Coal Ministry additional secretary

49 November sponge iron production down 16% y-o-y 50 US coal output estimated at 624 MMst in 2021 51 Traffic handled by major ports down 11% 52 Railways’ coal handling down 12.6% in April-November 53 Corporate Update 56 Government Update 58 E-auction data 60 Port Data

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Coal India to replace 85 mt of imports in FY21 Ministry had mandated CIL to replace 100 million tons.

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Atma Nirbharata to make global coal cheap Mine auction to change coal trade dynamics: V Prakash, Adani Natural Resources CEO

Government to step on the gas

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Global coal eyeing Indian market As China eyes Indonesia, Australia banks on India

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Commercial blocks to reach peak capacity by 2030 Mines won’t start operating before FY26, says Himanshu Singh of Vedanta

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Promoting coal downstream: Indonesia experience Indonesia is making progressive changes to its mining laws

COVER STORY

Making Indian coal competitive Sumit Maitra

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COVER STORY

W

hen the Indian government wanted to device policies to revive the economy post the pandemic-induced lockdown, it turned to coal giving rise to two major policy steps: encouraging more domestic usage of coal to substitute imports and conducting auction of mines for commercial use.

But the success of both of these initiatives depends, to a large extent, on making Indian coal competitive to imports.

Dynamics of imports of coal by Indian consumers have been evolving.

From imports forced by lack of availability, today it is more about economics, says Vinay Prakash, CEO - Adani Natural Resources & Director, Adani Enterprises Ltd. “There was a deficit as consumers were not getting coal. Because of this, there were imports. Today, India is in a dictating situation, saying to the world that it would import for its coastal areas only if it makes sense economically,” Vinay Prakash said at the 14th Indian Coal Markets Conference.

Poor quality of coal, high costs and lack of a free market also restrict many of the users from using domestic coal and force them to import a part or all of their requirements.

“India was compelled to import about 250 million tons of coal in FY20 because of various grade issues and steelmakers need coking coal, which is not so easily available in India,” M C Thomas, MD, Tata Steel Mining Ltd said.

Indian government and the coal sector can overcome these shortcomings through adequate policy measures, interventions and by changing faulty industry practices, better research and development and also other steps which were discussed threadbare in the two-day virtual conference.

“While the historic and hugely successful coal block auction held in November was just the first step towards self-sufficiency, it opens up numerous other exciting possibilities such as dynamic pricing, a new distribution mode, exchange-based trading, coal exports, gasification and many more,” mjunction MD & CEO Vinaya Varma said.

The big changes in the domestic coal sector come at a time when dynamics of global coal trade is changing fast.

“We need to take a relook at taxation policy on coal.” M Nagaraju, Additional Secretary, Ministry of Coal “For the past 2-3 months, China is not importing any Australian coal which is now coming to India while South African coal is now going to China. These changes in matrix are changing the look of the global trade,” the top Adani official said.

A key to making Indian coal competitive is proper pricing discovery. A robust spot market would help, says PS Reddy, MD & CEO, Multi Commodity Exchange (MCX).

“We have built the edifice of futures market without a strong foundation of spot exchanges. We hardly find any regulated spot exchanges in the country except for India Energy Exchange. This leads to power price distortions,” he said.

Strategy to reduce imports

Higher domestic production India has grand plans to raise domestic coal production which will come mainly from Coal India’s strategy to touch 1 billion tons by 2023-24, increased production by Singareni Collieries to 80 million tons by that time, and about 50 million tons that would potentially come into production by that time from the recently auctioned commercial coal blocks.

Concurrently, production from existing captive mines, which can now partly sell coal commercially, would also rise adding some decent numbers to the domestic coal

kitty. But there is also an urgent need to raise coking coal production by exploiting the 17 billion tons of proven coking coal reserves.

Coking coal is being largely imported and its size would only go up in coming days considering the projections for rise in steel capacity.

Around 50 million tons of coking coal were imported in FY20.

Out of 109 mt of steel produced in 2019-

“Now anybody can take any amount of coal. Consumers are getting 100 percent of what they have bid and there are no cuts. We are allowing free flow of coal in the market thereby fulfilling their requirement and there is no gap of what is required in their enduse plant and what Coal India was usually giving.” S N Tiwary, Director (Marketing), Coal India Ltd Coal Insights, December 2020

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COVER STORY

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Indian Coal Markets Conference December 17 – 18, 2020

Leader Speak

“The government is trying to put in mechanism for faster operationalisation of mines.”

M Nagaraju, Additional Secretary, Ministry of Coal, Govt of India

“Coal India would continue to remain the largest supplier with consistency.”

S N Tiwary, Director (Marketing), Coal India Ltd

“The hugely successful coal block auction opens up numerous possibilities such as dynamic pricing, a new distribution mode, exchange-based trading and many more.”

Vinaya Varma, MD & CEO, mjunction services ltd

Coal Insights, December 2020

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COVER STORY

“Need to look at tax on coal”: M Nagaraju Coal Insights Bureau

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here is a need to look at taxation policies on coal to make domestic production competitive against imports, coal ministry additional secretary M Nagaraju said at the inaugural session.

“Both the central as well as state governments depend upon coal for revenues and is taxed at various stages by 45-49 percent. While costs of excavation is low, the costs of transport ation plus GST, GST compensation cess, DMF (District Mineral Fund), NMET (National Mineral Exploration Trust) all those together push up cost of coal so imported coal continues to be competitive, and sometimes cheaper than domestic coal.

So we need to take a relook at taxation policy,” he said.

There is also need to take a relook at cost of coal transportation by Railways which gets 48 percent of its revenues from coal, he said.

Impact of Railways tariff

“Tariff on coal transportation is one of the highest in the world. Railways shouldn’t

look at coal as its major revenue earning source but as something through which they can contribute to the development of the country by providing coal at a cheaper rate to consumers,” Nagaraju commented while delivering the keynote address.

Levies on coal including royalty, contributions to NMET, DMF, GST of 5 percent and GST compensation cess of `400 per ton raises the price of G8 grade coal (5,000 kcal/kg) by about 46 percent. The tax burden on the higher grades of domestic coal touches 60 percent in some cases.

In comparison, duties and taxes on same grade of imported coal from Indonesia is about 15 percent.

“While statutory levies on medium grade (5,000 kcal/kg) coal imported from Indonesia is 15 percent of CIF, it is as high as 46 percent for equivalent coal of G8 grade,” Tiwary said. For lower grade coal (4,200 kcal/kg), the statutory levies on coal is 20 percent of CIF while it is 55 percent on the price of domestic coal.

For G14 grade of domestic coal, the statutory levies are still high at 62 percent of price of coal.

GST compensation cess is levied at a flat rate of `400/te on both domestic as well as imported coal irrespective of the grade of coal that is supplied.

There are also charges on transportation and evacuation of coal. Railways typically have dynamic pricing for peak and nonpeak seasons and busy and non-busy routes besides development surcharges on railway freight.

Recent freights concessions offered by the Railways for coal has negligible impact on landed cost of domestic coal as only about 8 percent of the total commitment of Coal India for the power houses resides beyond 1,400 kilometer.

Request for tariff reduction

Coal India has asked Railway Board for rationalisation of tariff slabs similar to that of iron ore so that overall landed costs of domestic coal comes down.

Additionally, it has asked coastal power plants to give a proposal to the Railways and to the ports to provide structured reduction in freights so that domestic coal can reach coastal plants through the Rail-Sea-Road route at prices cheaper than imported coal.

Following such initiatives, coal plants of APGENCO are going for lesser coal imports, S N Tiwary, Director (Marketing), Coal India said.

There is also a need to make evacuation efficient and faster so that the ultimate consumer pays less, Nagaraju said.

“Tariff on coal transportation is one of the highest in the world. Railways shouldn’t look at coal as its major revenue earning source but as something through which they can contribute to the development of the country by providing coal at a cheaper rate to consumers.” M Nagaraju, Additional Secretary, Ministry of Coal Coal Insights, December 2020

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COVER STORY

Coal India likely to replace 85 mt of imported coal in FY21 Coal Insights Bureau

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oal India would realistically be able to substitute 80-85 million tons of imported coal through domestic supplies this year, S N Tiwary, Director (Marketing), Coal India Ltd said at the inaugural session.

Coal ministry had earlier mandated Coal India to replace about 100 million tons of coal this year.

“We are planning for 80-85 million tons of coal which we will substitute this year and will go ahead from there,” Tiwary said.

Coal India has put in place a strategy to reduce coal imports, he said.

The Maharatna PSU has identified domestic coal-based power plants and manufacturers of sponge iron, cement, fertilisers, steel and others, who are importing coal, as its potential customers. Power plants located in the southern part of the country have agreed to substitute imported coal. CIL has also introduced a new category of spot e-auction for importers only.

Despite availability of commercial coal in the market in coming years, Coal India would continue to remain the largest supplier with consistency, Tiwary said.

“Significant share of coal imports to India can’t be substituted by domestic coal,” Tiwary said.

The heterogeneity of domestic coal coupled with thin layers puts it at a disadvantageous position compared to most imported coal making replacement of much of the imports a challenge.

“As international coal was formed through ‘in situ’ (in the original place) method, there is little extraneous elements but the heterogeneous coal, which got formed after

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trees floated down rivers, sometimes disturbs the end users and they tend to blend some portion of Indian coal with imported coal,” Tiwary said.

The higher grade coal, G4 and above from 5,800 to 7,000 GAR (Gross As Received) is less in quantity whereas most of the coal of grade G8 and below or 5,000 -2,700 GAR is more abundantly available.

“So, despite 148.8 billion tons of proven reserve, still there are imports,” Tiwary explained. Tiwary however added that increase in production of coal at CAGR of 3.66 percent during FY15 to FY20 has helped curb growth of imports.

Technologies picked up by coal users like aluminium makers sometimes force users to procure specific quality of coal and achieve that quality by blending of domestic and imported coal.

Also, several power plants can use only high GCV coal of imported variety.

While imports of coking coal and thermal coal by power plants designed for imported coal have remained stable over the years, it is observed that imports of thermal coal by power plants (based on domestic coal) for blending and also imports by non-regulated sector are responsible for variations in total imports.

Met coal of low ash quality, non-coking high quality coal of 5,500 GCV (40 mt) formed a big chunk of total imports of about 248 mt in FY20.

“If we want to restrict import of coal, should the technology be a parameter so that use of technologies suitable for domestic coal can give impetus to demand? Or technology should be left to the choice of users?”

Coal India to remain dominant player

Coal India would continue to remain the largest supplier with consistency, Tiwary adding that Coal India has put in place a strategy to reduce coal imports.

“Despite the heterogeneity of coal if we can address the consistency of heat requirement of coal users then they will definitely come back to Indian coal and for that we have imposed certain steps like going in a big way to go for first mile connectivity where coal would be directly put into wagons from mines. This First-Mile connectivity will help avoid contamination during the movement of coal.”

“Despite heterogeneity of Indian coal, if we can address the heat requirement of coal users then they will definitely come back to Indian coal and for that we have imposed certain steps like going in a big way for first-mile connectivity where coal would be directly put into wagons from mines.” S N Tiwary, Director (Marketing), Coal India

COVER STORY

Atma Nirbharata to push global miners to be cost competitive: Adani Natural Resources CEO Coal Insights Bureau

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he recently concluded commercial mine auction would play a key role in changing the dynamics of the global coal mining and trade, believes Vinay Prakash, CEO - Adani Natural Resources & Director, Adani Enterprises Ltd. “(Following the success of commercial mine auction) we are going to give a signal to the exporting countries that if they are interested in exporting coal to India, they need to be competitive. Also, any mining company in India and abroad, has to be in a lower cost curve,” Vinay Prakash said.

From being a leading MDO or Mine Developer and Operator, Adani now owns mines following its participation in the just concluded commercial coal mine auction.

Being Atmanirbhar in coal would send the signal that India would not only be selfsufficient but also cost-effective in coal, he said.

Coal imports likely to be 150 mt in FY21

Country’s coal imports are likely to drop to about 150-160 million tons this year from 248 million tons shipped in the previous year, according to Vinay Prakash.

“This year according to my estimates, coal imports would be about 150-160 million tons,” Vinay Prakash said at the inaugural session of the 14th Indian Coal Markets Conference.

Commercial mine auction will not only help state governments get higher revenues but it will give a signal to the exporting

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countries that they need to be competitive, he said.

For targeting the coastal power plants tuned to imported coal, Coal India need to supply coal with low ash content.

“For this we need to see more focus on washing of coal, more underground coal and also a real revolution in the Railways,” Vinay Prakash said.

Need for competitive Road-Sea-Rail services

The government and the industry also need to see as how the coal which is in the hinterland at the center of the country can be transported in cost competitiveness ways to the coastal areas.

“It is cheaper to bring coal from Indonesia, Australia or South Africa at ocean freight which is far lower than the Railways reaching to the coastal belt in Gujarat, or maybe, through the RSR (Road-Sea-Rail) route to Andhra Pradesh and Tamil Nadu also,” he said adding that there is now an urgent need to focus on RSR route.

“There was ambitious plan in the past but I think, now has lost some stream and these is a need to make RSR competitive and make coal available to coastal belt based consumers,” Vinay Prakash said.

Being responsible coal users

As a signatory to the Paris Agreement, Indian industry needs to be responsible coal users.

“We need to see when we can achieve carbon neutrality through a balance between use of coal and use of renewable,” he said.

“We are going to give a signal to the exporting countries that if they are interested in exporting coal to India, they need to be competitive. Also, any mining company in India and abroad, has to be in a lower cost curve.” Vinay Prakash, CEO-Adani Natural Resources & Director, Adani Enterprises Ltd As for a natural resources company like Adani, it needs to see how it can keep a balance between ecology, environment and economics.

“We need to consider taking local community in confidence by making sure that they are our biggest stakeholders and put a lot of technology initiatives to not only have a safe operation, but also to have least damage to the environment. Let’s not do only on papers or for winning some awards and we need to really showcase this to the nation and to the world,” he said.

While coal is having a bad name globally, it’s up to the stakeholders to see how the image of Indian coal is changed by using, mining it and transporting it responsibly, he said.

COVER STORY

Government to step on the gas To look at gasification after block auctions

Coal Insights Bureau

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fter the auction of mines for commercial use, the government plans to look at technological innovations in coal gasification and different uses of coal.

Also, to give a push to coal gasification, Coal India would be issuing tenders for five more blocks for classification.

“We have been lagging behind and need to do much more. In fact, private sector should come forward to innovate and design new technologies for coal gasification so that the coal is not burned but gasified and that the abundant natural resource that is available in the country is fully utilised for the benefit of the country,” coal ministry additional secretary M Nagaraju said.

“In order to graduate to a gas-based economy by 2030, as declared by the Prime Minister, the country needs to gasify the coal,” V R Sharma, Managing Director, Jindal Steel and Power Ltd said.

Gasification of coal is the only solution to harness clean energy from high-ash content Indian coal, he said.

Not only gas for steel making, coal

gasification technology can also be used to make naphtha, petrol and diesel and also olefins. While China has been producing such downstream products from coal since long, India hasn’t started yet, Sharma added.

By producing such downstream products, there could be potential foreign exchange of $9.4 billion by replacing Liquified Natural Gas with syngas produced from coal and by replacing coking coal for steel making, he said.

Sharma asked for a National Policy on coal gasification for faster and smoother implementations and have senior coal ministry officials dedicated for such gasification projects.

Also, GST compensation cess of `400 per ton can be waive to promote adoption of gafification, Sharma asked.

JSPL’s gasification experience

JSPL first conceived a coal-gasification unit for steel making in 2007 and visited all major countries where such gasification projects existed and then decided upon the technology supplied by Lurgi AG of Germany to Sasol to be most suitable for high-ash coal found in India.

“In order to graduate to a gasbased economy by 2030, as declared by the Prime Minister, the country needs to gasify the coal.” V R Sharma, Managing Director, Jindal Steel and Power Construction of the project started in 2010 and got commissioned in 2014. JSPL is the only company in the world that is converting coal to gas for DRI (Direct Reduced Iron) applications to make steel.

Coal is converted to syngas with hydrogen to carbon monoxide ratio of 2:1.

Carbon conversion is more than 95 percent and effective carbon utilisation for making DRI is about 72 percent.

JSPL’s process also provides several byproducts ammonia, sulphur and also several precious carbon value-chain items including naphtha.

JSPL has so far set up 7 gasification units.

It buys coal from Coal India of ash content of 48-52 percent.

The coal is then washed and gasified giving 3,400 kcal of gas that goes into JSPL’s DRI plant.

JSPL is currently producing 225 tons of DRI per hour giving 200 tons of steel every hour. We intend to set up another DRI plant as we have surplus gas,” Sharma said.

JSPL is also using coke oven gas for DRI being the first plant in the world to try this route for steel making.

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Tear along the dotted line

Tear along the dotted line