Coal Insights, January 2015 by mjunction services ltd

Contents 6 Steam coal prices ease marginally in January 8 Coking coal prices decline in January 10 India’s coal production up 9.4% till Nov 14 India’s coal imports at 167.6 mt till Dec 16 Of sympathy, sermon and succour 18 Dec power capacity addition up 84.05% 21 CMA wants tapering quantities restored 23 India’s cement output up 2.59% in November m-o-m 25 Cement demand growth to outpace supply growth: India Ratings 26 RIL keeps pet coke price for January loading unchanged 27 Court keeps alive BG issue for further 3 months 37 Govt could consider auctioning EUPs along with coal blocks: Mudgal 45 HEC aiming at Rs750 cr turnover 46 New chiefs take over at coal PSUs 47 CESC prunes T&D expenses to meet coal levy 48 Corporate updates 50 Social buzz 51 US power sector coal use to increase 0.3% in 2015 53 German coal industry at cross-roads 54 Coal prices likely to remain soft in 2015 55 Railways’ Dec coal handling up 2.54% 56 Thermal coal handling by major ports at 63.61 mt in Apr-Dec

4 Coal Insights, January 2015

28 | Cover story

One can’t rule out court intervention in block auctions: Swarup

40 | Interview

Govt. is getting the process vetted, but can’t promise immunity from legal hassles, says Coal Secretary.

“India’s coal import graph may not head northwards” There may not be any growth in imports in 2015 due to inland logistic bottlenecks, says Vipin Mahajan.

41 | Government

MMDR Act Ordinance set to change mineral availability scenario

43 | Corporate

Shortage of vital raw materials such as iron ore could be a thing of past, much to the relief of steel makers.

Xcoal aims to expand its India presence: CEO The US coal exporter has set a target to supply 5 million tons of coal per annum, says Ernie Thrasher.

52 | International

South Africa’s coal exports edge up 1.71% in 2014 With an import volume of 30 million tons, India ranks as top importer from RBCT.

Feature

India’s coal production up 9.4% till Nov

Coal Insights Bureau

ndia’s coal production during AprilNovember 2014 stood at 368.57 million tons (mt), up 9.43 percent as compared to 336.80 mt produced during the corresponding period of 2013, according to provisional data available with Coal Insights. Production during April-November 2014 was, however, lower than the target of 384.99 mt set for the period. Production in the month of November 2014 stood at 54.62 mt, up 14.48 percent over 47.71 mt in November 2013, the data shows. Coal output in November 2014 was the highest so far in the current financial year, though it was below the monthly target of 56.39 mt. The November output was 96.86 percent of the target, the data revealed. Production in November 2014 was nearly 10 percent higher from 49.66 mt produced in October 2014. For financial year 2014-15, India’s coal production target stands at 630.25 mt

10 Coal Insights, January 2015

of which 507.00 mt is to be produced by Coal India, 55 mt by Singareni Collieries Company Ltd (SCCL) and 68.25 mt by captive coal mines. Output from India’s captive blocks up in Nov

As expected, coal production from the captive blocks in India rose 36.98 percent to 5.63 mt in November 2014 compared to 4.11 mt recorded in the corresponding month of 2013, the provisional data shows. On a month-on-month basis too, coal output from captive blocks rose 8.06 percent from 5.21 mt recorded in October 2014, the data reveals. In September, coal production from captive blocks stood at 5.02 mt. During April-November, 2014-15, coal production from the captive blocks stood at 43.03 mt, up 30.24 percent from 33.04 mt recorded in the same period of the last fiscal. The target for the first eight months was 45.50 mt, which means output from the captive blocks during the period fell short by 2.47 mt. The production target for the

captive blocks for the month of November was 5.69 mt, same as in October, September, August, July and June. The annual production target for the captive blocks in 2014-15 stands at 68.25 mt. Coking coal output up

India’s coking coal production in November 2014 increased 8.76 percent to 4.84 mt against 4.45 mt produced in the same month of 2013. On a month-on-month basis, coking coal production in November increased 6.61 percent from 4.54 mt produced in October 2014, the data reveals. India’s coking coal output for the month of November, however, was slightly down from the target of 5.43 mt. Annual target for coking coal production in India is set at 59.70 mt for 2014-15. In the April-November period of the current financial year of 2014-15, India’s coking coal production stood at 35.33 mt, slightly up from 34.69 mt recorded in the same period of the last fiscal (2013-14). Despite overall increase in the material’s production during November 2014, Coal India Limited (CIL) was not able to meet its target. During the month its coking coal production stood at 4.30 mt, against a target of 4.53 mt. However, CIL’s coking coal production during November recorded an increase of 11.68 percent over 3.85 mt in the same month a year ago. On a month-on-month basis too CIL’s coking coal production registered a 7.23 percent increase over 4.01 mt produced in October 2014. CIL’s coking coal production in September stood at 3.68 mt, while in August it stood at 3.85 mt. In July it stood at 3.36 mt, in June, production of the same stood at 3.82 mt. In May, coking coal production by CIL was at 3.92 mt while the same was 3.73 mt in April 2014. CIL washed coking coal output up 2% in Nov

Washed coking coal production by Coal India Limited for the month of November 2014 stood at 0.197 mt, up 2.07 percent from 0.193 mt produced in the same month of 2013. On a month-on-month basis, CIL’s washed coking coal production in November increased slightly from 0.195 mt in October 2014, according to the data.

FEATURE

Dec power capacity addition up 84.05% m-o-m Sanjukta Ganguly

ndia’s power capacity addition in December 2014 stood at 668.67 MW, up 84.05 percent against 363.3 MW recorded during the previous month, according to provisional data made available by the Central Electricity Authority (CEA). With this, the total installed generation capacity of the country stood at 255,681.46 MW as on December 31, 2014 while the same was at 255,012.79 MW during the last day of the previous month, revealed the data. During December 2014, the capacityaddition target was 1460 MW for the thermal sector, but the achievement fell short of the target and stood at 600 MW. For the hydro sector, the target was 25 MW while achievement stood at 68.67 MW. For the nuclear sector, both the target and achievement stood at nil, as per the CEA data. In November 2014, the capacity-addition target was 275 MW for the thermal sector Power capacity addition in various sectors during 2014-15 (in MW) Month

Thermal

Hydro

Nuclear

Total

April

535

May

2586.1

130

2716.1

June

910

68.67

978.67

July

700

68.67

768.67

3320

September

660

October

600

November

363.3

December

600

68.67

668.67

10274

336.01

10610.41

August

January February March Total (AprilDecember)

18 Coal Insights, January 2015

and the achievement exceeded the target and stood at 363.3 MW. For the hydro and nuclear sectors, target and achievement both stood at nil. India added a total of 10,610.41 MW of power generation capacity during the first nine months (April-December) of 2014-15, registering a growth of about 22 percent over 8,728 MW added during the corresponding period of the previous financial year, as per data. In December 2014, in thermal sector, 600 MW was added at Mutiara TPP, Unit-I by Coastal Energen while in the hydro sector, 68.67 MW was added at Rampur HEP, Unit-VI by SJVNL. During November 2014, the entire capacity was added at Palatana CCPP (JV of ILFS, ONGC & Tripura government) in Tripura commissioned by BHEL.

India’s Dec power generation up 0.59% m-o-m

India’s power generation in December 2014 stood at 85.995 billion units (BU), up 0.59 percent from 85.491 BU generated in November 2014, according to provisional data from CEA. Of the total generation in December, 76.137 BU (71.591 BU in December, 2013) were in the thermal sector, 7.094 BU (8.133 BU in December 2013) in the hydro sector and 2.596 BU (3.079 BU in December 2013) in nuclear, while imports from Bhutan stood at 0.168 BU (0.143 BU in December 2013). Out of the total generation in November, 74.46 BU (65.57 BU in November, 2013) were in the thermal sector, 7.89 BU (8.78 BU in November 2013) in the hydro sector and 2.80 BU (2.92 BU in November 2013) in nuclear, while imports from Bhutan stood at 0.348 BU (0.304 BU in November 2013). During the first nine months (AprilDecember) of 2014-15, total power generation in India stood at 793.725 BU, while the same stood at 722.110 BU during the corresponding period of the previous fiscal.

Nov closing stocks of 125 TPPs at 12.892 mt Total closing stocks of coal at 125 thermal power plants (TPPs) across the country stood at 12.892 million tons (mt) as of November 30, slightly higher than 10.412 mt reported for October 31, according to data released by CEA. Closing stocks at the plants located in the eastern region were 3.918 mt (3.102 mt in October), followed by the western region at 3.574 mt (3.313 mt), northern region at 3.085 mt (2.248 mt) and southern region at 2.315 mt (1.749 mt), the data showed. The plants having the highest closing stocks were Talcher STPS (603,000 tons), Kahalgaon TPS (531,000 tons), Mundra UMPP (491,000 tons), Ramagundem STPS (423,000 tons) and Simhadri (422,000 tons). In contrast, 10 operating plants had zero stocks of coal as of October 31. Meanwhile, 28 thermal power plants (TPPs) received excess coal from domestic sources and imports compared to their requirement during April-November, 2014, according to the data available for 125 TPPs across the country. Of the 28 stations, 11 TPPs received excess coal from domestic sources, while 17 others met the supply gap through imports, the data showed. However, for the majority of 97 TPPs, total supply from domestic as well as overseas sources fell short of requirement. Another 5 TPPs neither had any requirement, nor received any coal during the period. Among the four regions, the western region had the highest number of plants facing shortage (total supply was less than the requirement), while the eastern and southern regions had maximum number of plants enjoying excess supply, the data revealed.

Cover Story

After blocks, govt mulls auction of linkages

One can’t rule out future court intervention in block auctions: Swarup

he Ministry of Coal (MoC) is leaving no stone unturned in implementing the “most transparent process” available in the market for the allotment of captive coal blocks, namely e-auction. And yet, it doesn’t promise immunity from future legal hassles. In a democracy, no one can guarantee against court intervention, questioning the validity of any allotment process, however refined and vetted, says Anil Swarup, Secretary (Coal), Government of India. A hands-on man, Swarup is known for his nononsense approach and matter-of-fact attitude. His shift to the coal ministry in November 2014 came as a logical extension of his role at the helm of the Project Monitoring Group (PMG), which monitors large investment projects. Three months into the job, Swarup feels it is prudent to take a macro view of the current challenges

28 Coal Insights, January 2015

facing the coal sector – the growing supply shortage, stalled projects, clamour for linkages, low offerings through e-auction, restricted evacuation facilities, clearance hurdles etc. – rather than taking up issues on a ”case to case” basis. Many of these challenges, he feels, have but one solution – higher domestic production. At the same time, he discloses his apathy towards bulging imports of the material. Talking about the current initiatives taken by the government, he says the master plan is to put in place mechanisms that will change the face of the industry. For instance, he reveals, after coal blocks, there could be auction of linkages as well! In a candid and wide-ranging interaction with the industry in Kolkata, Swarup, an IAS of the 1981 batch, spoke from his heart. Rakesh Dubey of Coal Insights shares the key takeaways.

Cover Story Excerpts: The Indian coal sector is passing through a critical juncture. What are the major challenges? How is the government planning to address these? As you mentioned, there are a number of challenges we are trying to address. The primary focus is on increasing domestic coal production. To start with, let me note that now you have a regular chairman at Coal India Ltd (CIL). He is one of the brightest officers in our service who has had experience in the coal sector and will hopefully take the past issues by the horns to move Coal India forward. Having said that, I must add, a number of steps has been taken to ensure that Coal India’s production is increased substantially. I am not mentioning all of these but would like to convey that the government is attempting with all seriousness to ramp up production. We are also extremely concerned about the quality of coal supplied by Coal India. Independent agencies have been identified and accredited for testing quality. My request would be to those who are using Coal India’s output to please access those sequels, get the sample tests done and put these reports out so that we also get to know where we or Coal India is going wrong. Our intention is very clear – we want to improve the quality of coal and one should pay only for the quality of coal one gets. I know these moves are not going to be easy, but a beginning has been made and I am sure, with your co-operation, we should be able to take it forward. Coming to the third aspect, which is the linkages part, let me say that a variety of linkages has been given over a period of time. Now, while considering the current linkage scenario, you must keep in mind that there were some issues at that point in time when these were granted. We later discovered that we are facing an unusual situation. Domestic coal is being supplied to a plant located close to a port but from a hinterland mine while imported coal is

moving all the way to a hinterland plant! Now, this may have happened due to the peculiarity of the situation prevailing at that point in time. Recently, KPMG submitted a report indicating that if all the linkages are rationalised, the country would save about `6,000 crore. We have gone ahead with that. Action has already started and we have rationalised about 20 linkages so far, which will save us about `1,120 crore per annum on transportation costs. It is an ongoing process. It will not only save us money, but the environment as well because unnecessary haulage of coal from point X to point Y will stop; instead, the fuel will go to the closest available plant. It will not be very easy. The low hanging fruits have already been harvested and now we have to go into slightly more difficult areas where a tripartite agreement has to be drawn up as there are pricing and quality issues; but we are moving in that direction. Broadly speaking, we are trying to improve the supply of coal. Once the supply scenario improves, I think a lot of problems we have today will get sorted out. Yet, I am sure there will be problems, but we must address them at some point in time. Let’s come to the coal block auctions. There is concern that the current process of e-auction may be questioned by the court in future. So, is the government getting the process vetted by a court? Yes, we are getting each document and processes vetted. But we cannot rule out court intervention. That’s something in a democracy which you can never rule out. We are very clear about what we are doing. Everything is based on reason and law and getting vetted. You can rest assured on that front. But you cannot be assured in terms of judicial intervention.

There are reports that coal linkages are going to be auctioned in future. The industry is concerned about this, because linkages are based on certain well-defined parameters, and if the government comes out with a system in regard to the paying capacity of the unit, that could create problems. Could you elaborate on your plans in this regard? As far as linkages are concerned, these may raise issues similar to the coal block allocation because until and unless the process of allocation (of linkages) is transparent and done through a process that stands the test of law, my hunch is that at some point in time even this will be questioned. Hence, we have set up a committee – as in the case of coal blocks – which will examine certain parameters and allocate linkages. We are not saying that what was done was wrong; we are not passing judgment on that. We have just set up a committee under the chairmanship of the Additional Secretary, Coal. It is an InterMinisterial Committee (IMC) that will examine linkages in light of the various judgments that have happened. We want to do that to examine whether it will stand the test of law, and if does not, then to correct the process and make it totally transparent. This will be similar to the case of coal block allocations, where today no one can say that we are trying to favour someone. Some may stand to lose…there could be some co-lateral damage to some of the units, but no one can say that someone in particular has been favoured. It’s a transparent process. Precisely, that’s what we are thinking of in terms of linkages. Can we make them transparent? Can we have objective parameters determined, so that no one questions us why did we give linkages

Recently, KPMG submitted a report indicating that if all the linkages are rationalised, the country would save about `6,000 crore. We have gone ahead with that. Action has already started and we have rationalised about 20 linkages so far, which will save us about `1,120 crore per annum on transportation costs. It is an ongoing process.

Coal Insights, January 2015

CORPORATE

Xcoal aims to expand its India presence: CEO

Rakesh Dubey

coal Energy & Resources (Xcoal), a specialised exporter of US origin coal, has set a target to increase its presence in India by supplying a total of 5.00 million tons (mt) coal per annum during the coming days from current levels of around 1.50-2.00 mt, a top official of the company told Coal Insights. “We have made a big commitment to expand our business in India by opening an office in Mumbai recently and will continue to expand our business,” Xcoal’s CEO Ernie Thrasher said over phone from Mumbai. Xcoal, which claims to be the largest exporter of US coal to Asia and also the

largest to India, had opened its India office in Mumbai in November last. The company, based out of Pennsylvania, primarily supplies high sulphur and high calorific value US origin coal and had exported around 16.00 mt of coal in 2014, of which around 10.00 mt were despatched to various countries in Asia, including around 1.50-2.00 mt to the Indian shores. “We believe that there is a market here in India for high sulphur coal. Of the 10.00 mt that is coming to Asia (through Xcoal), around 1.50-2.00 mt had been coming to India and hopefully we can bring it to the levels of 5.00 mt”, Thrasher said. It has been found that in India, many of the industrial consumers and small industries

are realising the benefits of using high CV low ash US coal which they either consume directly or blend with higher ash Indian domestic coal or lower CV coal imported from Indonesia or other countries, he said. The US origin coal that Xcoal supplies is cheaper on plant delivered basis compared to other coal because the cost per Kcal is quite competitive, he said, but pointed out that there are some customers who have constraint with high sulphur content in coal. However, there are others who are using pet coke, and obviously for them, sulphur is not a problem, he added. Providing the source of the coal, Thresher said the material comes from the mining operations in the US which effectively

Coal Insights, January 2015

Tear along the dotted line

62 Coal Insights, January 2015 Tear along the dotted line