Coal Insights, July 2015

Contents 1 6 Steam coal offers remain volatile in July 18 Coking coal offers fall in July 20 CIL chairman attributes strong Q1 growth to proactive government 22 India’s April-May coal output starts on slow note 28 CIL seeks to replace West Bengal coal cess with royalty 30 CMPDI to launch digitised land acquisition monitoring system for CIL 31 CIL spends `1,200 crore to make clean 32 June power capacity addition at 2,315 MW 33 ‘Emphasis must be on efficient use of coal’ 35 The black diamond of Jharkhand – Good times ahead?

40 ‘We will continue to bring new technologies to India’: Sardana 52 ‘Assessment of quality, grade of coal a big challenge’ 55 Hydrokrimp aims to become preferred supplier 56 Time to create our own testing labs, shed dependence on imports 57 Terex geared to ride the growth momentum in mining 58 India poised to see growth in heavy-duty mining equipment segment 59 No decision to offer 24 mines in next phase: Goyal 63 NCL shows marked improvement in grade slippage 64 Corporate updates 66 US power sector coal consumption to drop 7% in 2015 67 Railway infra, coal mine auctions create buzz 72 Dual classification misuse to be addressed: SER 73 Thermal coal handling by major ports up 22.7% in April-June 74 Annexure

4 Coal Insights, July 2015

6 | COVER STORY

Go a long way, look beyond Singareni Good growth is here again, but we’ve a long way to go, says N Sridhar.

26 | FEATURE

Commercial mining unlikely to impact CIL: Experts Ample demand will ensure CIL’s commercial interests are protected.

36 | Interview

India is like a beacon of light in a storm: Xcoal After China’s withdrawal, India is the last market standing, says Ernie Thrasher.

44 | In Focus

Mining equipment makers gear up for good run Amid global slowdown, equipment makers find hope in India’s mining growth.

70 | Logistics

Krishnapatnam Port to focus on coastal traffic The southern port is looking for second hinterland in Kolkata area.

Cover Story

SCCL aims at 75 mt by 2020

T Go a long way, look beyond Sigareni

6 Coal Insights, July 2015

o achieve its production target of 75 million tons (mt) by 2020, Singareni Collieries Company Limited (SCCL) must increase output by an additional 20-25 mt in the next 5 years. For this, the company, in a three-way approach, aims to open new mines, expand or extend the existing ones and take up coal mining projects outside the Godavari Valley Coalfield (GVCF). Results have been quite encouraging for this coal mining PSU in the last 6 months since N Sridhar, Chairmancum-Managing Director, SCCL, took over the reigns. Production and despatches both have climbed up.

But the new CMD tells Arindam Bandyopadhyay of Coal Insights in a free-wheeling interview that the company still has a long way to go (if the country has to meet its power demand), with an accent on decreasing the cost of production.

Cover Story Excerpts: It has been six months since you took over as CMD, SCCL. How would you describe your experience with the Indian coal sector so far?

My experience at SCCL has been very good. In fact, during the first three months of my tenure, the results were excellent and SCCL as a team rose to the occasion and achieved the desired results and targets with regard to coal production and despatches.

Also, in the first quarter (Q1) of the present financial year (2015-16), the results are very encouraging. Despatches and production are higher by 1.8 million tons (mt) and 4.2 mt, respectively, than that in the same period last year. I hope, if the current trend continues, we will achieve the targets set for this financial year.

That said, I must draw attention to the fact that we still have a long way to go. The power projects in the country are being put on fast track to meet the power demand from industries and other sectors. Now, to meet the coal demand from the power sector, coal supplies have to be improved in a substantial way. To this end, Coal India Limited (CIL) is planning to increase its production to around 1 billion tons by 2019-20. Additionally, around 400-500 mt are being targeted to be met from the private sector, for which, coal block allocations have been made or are in the pipeline. In the same way, SCCL is also planning to increase its output to 75-80 mt by augmenting production from the existing mines as well as by commencing new projects, including the Naini coal block which has been given to us under the recent allotment scheme.

Along with increasing coal production, the Indian coal sector must also focus on reducing the cost of production by introducing high capacity machinery such as longwall equipment, continuous miner and shortwall mining, etc in underground mining. This is particularly important as conventional methods have limitations in exploitation of deep-seated reserves. SCCL is working towards fast adoption of such high capacity equipment and the Adriyala longwall project is a case in point. A few more continuous miners will be added to the existing two working at SCCL. Similarly, in

case of opencast mining, challenges of fire and quality issues will have to be dealt with.

So far as quality is concerned, washeries play a key role in avoiding transport of low grade and high ash content coal and we are focusing on the same too. SCCL is also going for diversification into the power sector and manufacturing of bulk explosives.

In addition to our mining operations, we are also engaged with various welfare activities. These include “Mee Kosam – Mee Chenthaku”, “Mee Kosam – Mee Arogyam Kosam,” a health programme and “Singareni Animuthyalu” on job awareness for the unemployed youth of Singareni employees and surrounding villages.

So, overall, I would say, my experience at SCCL so far has been very satisfying.

Could you give us the performance highlights, both physical and financial, of SCCL for 2014-15?

The year 2014-15 saw a positive growth of around 4 percent in coal production to 52.53 mt. This was quite reassuring since we had witnessed a negative growth in the previous year (2013-14) due to factors that were beyond our control. In 2014-15, there was growth in off-take as well, which stood at 52.73 mt. Overburden (OB) removal was up by as much as 54 percent year-on-year.

Lastly, average productivity, measured in terms of output per man shift (OMS), increased to 4.20 tons from 3.86 tons a year ago. So, overall, the company fared well so far as the physical performance is concerned.

But, of course, it can do much better.

On the financial front, our gross turnover (provisional) was `14,083 crore in 2014-15, which again showed an improvement over `11,870 crore registered in 2013-14. Profit after tax (PAT) rose by 12.18 percent to `469.75 crore, compared to `418.74 crore a year ago.

Now, if you compare with 2014-15, our performance so far this year (2015-16) has been exemplary. Coal production in the first quarter (April-June, 2015) has grown by a whopping 39.57 percent to 13.65 mt, compared to 9.78 mt registered for the same quarter last year. Despatches too have shown a double-digit growth of 10.74 percent in Q1 to 13.91 mt, against 12.56 mt in the

Snapshot of SCCL’s performance in 2014-15 Indicators

Unit

2014-15

Production

Million tons

52.53

Off-take

Million tons

52.73

Million cubic metres

262.82

OB removal OMS

Tons

4.20

PAT

` crore

469.75*

Gross turnover

` crore

14,083.00*

* Provisional

SCCL’s performance in first quarter (Q1) of 2015-16 vs 2014-15 2015-16

2014-15

% increase

Coal Production (mt)

Parameters

13.65

9.78

39.57

Despatches (mt)

13.91

12.56

10.74

OB Removal (mcm)

75.14

62.95

19.36

year-ago period. Overburden (OB) removal was up 19.36 percent to 75.14 million cubic meters (mcm) versus 62.95 mcm last year.

What are the targets set for the current fiscal?

The target set for coal production is 56 mt, about 6.6 percent increase year-on-year (y-o-y). Given our production performance so far this year, we hope to achieve this number. In fact, we are confident of surpassing this target comfortably, if no extraneous factors come in the way.

As for OB removal, the annual target is 300 mcm. This shows a 14 percent increase over 262.82 mcm achieved in 2014-15. In this segment also, our Q1 growth number (19.36 percent) has exceeded the annual growth target given to us.

What is the cost of production of coal at SCCL? What is the profitability of mining operations?

There has been a steady increase in the cost of mining coal over recent years, thanks to the increase in fuel and wage costs, among others. As of 2014-15, SCCL’s average cost of production was `2,045 per ton (provisional), compared to `1,838 per ton in 2012-13 and `1,944 per ton in 2013-14.

This shows an average annual increase of about `100 per ton per year.

Coal Insights, July 2015

7

government

No decision to offer 24 mines in next phase: Goyal

S

tressing on his government’s thrust on transparency, Piyush Goyal, the Union Minister of State for Coal, Power, New & Renewable Energy, foresees an India where production by the nation’s coal miner, Coal India, will touch 1 billion tons and the excess supply will force the company to go looking for buyers, unlike today, when it has to bend backwards to keep power plants happy with enough of the resource. The minister unveiled a slew of measures that his ministry is undertaking to achieve a 24x7 power supply footprint across the country, the 1 bt volumes being a stepping stone to that. These include selling coal through e-auction to non-PPA holders, new ultra-mega power project bid norms, and transmission projects worth `100,000 crore. However, the minister cautioned against impractically aggressive bidding in the forthcoming third round of auctions. Rakesh Dubey of Coal Insights gets a ring-side view of things.

T

he Union Minister of State (with independent charge) for Coal, Power, New & Renewable Energy, Piyush Goyal, recently looked surprised when asked whether the government planned to auction off 24 mines in the third tranche. He termed such reports as baseless and also made it clear that sector-wise earmarking of blocks has not been done so far either.

“Who said that 24 more mines are coming up?” Goyal asked when questioned when the government was planning to offer 24 mines in the next phase of the auctions.

“My work is totally transparent. I make public whatever actions I take. I do not talk in secret with anyone. We have never given this figure of 24. From where and how did it come?” he wanted to know.

He reminded that 42 mines in Schedule II were auctioned off and only those mines were offered which were in operation or were nearing operation and that is why prioritising was done for those mines.

“There is no commitment on other mines, as to which sectors these will be offered in.

I am required to see each and every mine.

Today, if I auction a mine but it does not come to operation in the next 10 years, then the efforts will not serve any purpose. I only want to auction those blocks, which a bid winner can start mining within a reasonable

time. Therefore, we are moving carefully and cautiously,” Goyal said.

He said the government is looking at the position so far as forest, environmental and land-related issues are concerned and only after those are cleared will they put the mines up for auction.

“That is why I do not give any figure without any home-work done. Only when the clearances come in on a set of mines and that work can be started on them, will we auction the blocks,” he said.

“We would want to put all the 204 mines on auction immediately. But if there are issues related to forest clearances, or if a mine is located in an area where land is not available and there are no EC clearances, then what is the point in putting up those mines for auction? In such a situation if the auction happens, then the winners will be put in more trouble,” the minister said.

“Please allow me to have the ability to put up only those mines on auction which are going to come up faster,” he asserted.

Coal purchase window

The government seems to have decided to offer a new window to power plants to purchase coal through the e-auction route till March 2016. This is aimed at those players who do not have power purchase agreements

Coal Insights, July 2015

59

government but have the power to sell on a merchant basis, but is not possible to provide coal to them at Coal India’s notified price, Goyal said.

Goyal, speaking at a meeting organised by the Bharat Chamber of Commerce, said the plants which have linkages will have one set of rules to participate in the auction of coal while those having short-term power purchase agreements (PPAs) or no PPAs will have a separate rate.

For plants which have PPAs, bidding will start at a base price which will be 20 percent above the notified price and for those players who have short term or no PPAs, bidding will start at 40 percent above the notified price.

For each category, 5 million tons each of additional coal will be offered and after that, depending on the response, this quantum will be increased, the minister said.

Goyal said the government is working on a framework to bring transparency in coal linkages and this dispensation will be applicable till March 2016.

It may be recalled that in view of the government’s decision to auction coal linkages and LoAs, it had decided to cancel all FSAs with a termination notice of one year instead of continuing till their validity till 2016. It may also be mentioned that among the existing FSAs, those with the non-regulated sector will not be renewed.

And for those players whose FSAs will be expiring within the next one year, will not get theirs’ renewed either.

Consequently, to meet their coal requirements so that they can keep their plants running, the government has announced this procurement route.

‘Be practical while bidding’

Goyal has some advice for prospective bidders of coal blocks that would be auctioned off in the next tranche. He tells them to be “practical” while bidding.

“I request you not to get those mines at impractically higher prices. We will provide a fair and reasonable opportunity to all. But don’t come back later, saying you paid a high price for it,” he said.

“It is also unfortunate that some people are now saying they have paid high prices for the blocks. (vidambana hai ki kuch log aake bol rahe hain ki jyada de diya),” Goyal said.

New UMPP bid norms on anvil

A new set of norms for bidding in the ultra

60 Coal Insights, July 2015

mega power projects (UMPPs) will look at protecting the interests of bankers. The Ministry of Power (MoP) is coming up with a new procedure for bidding for UMPPs. Goyal said the MoP has received the report prepared by the Pratyush Sinha Committee and is studying the recommendations couched in the report.

The new bidding guidelines, which will focus on protecting the interests of the bankers, will be finalised soon, the minister said.

No more bailout support to discoms

The government is not keen to offer any further bailout to power distribution companies (discoms) but is willing to work

towards alleviating the latter’s distress situation.

Goyal said there will be no further bailout for discoms. However, the government is in touch with the various state governments and decisions are being taken according to each state, the minister informed.

The average transmission and distribution (T&D) losses in the country are at 22-24 percent. However in states like Bihar and Jammu & Kashmir the same touches 50 percent and 62 percent respectively.

“We have severe stress but we have to resolve the problem. This has to be dealt with sensitively and one has to be politically sensitive as well, because elections are won or lost on electricity,” Goyal said.

Goyal seeks instances of supply-demand mismatch Goyal expressed concerns over allegations that some subsidiaries of CIL were charging the price of washed coal even though such coal is not being supplied to the consumer.

“I will immediately order a vigilance enquiry if you give 10-12 instances where prices of washed coal are being charged but unwashed coal is being supplied to consumers,” Goyal said while interacting with members of the Coal Consumers Association of India (CCAI).

Earlier in April this year, Coal Secretary Anil Swarup, while addressing the same association, had said: “If BCCL is charging for washed coal, it should give washed coal – as simple as that. No one can charge for something which it has not been asked to supply. If that is the case, I will take up the matter with the chairman of BCCL. If it supplies washed coal, it will charge for the same. But if it supplies unwashed coal, it cannot charge for the washed version. Monopoly cannot be used to push consumers to a corner.”

Responding to complaints of problems in third-party sampling introduced by CIL, Goyal said: “We keep on hearing about this but no one has given us any specific example.” He, however, said, if there is slippage in grades on e-auction coal, it is a matter of concern.

“I will instruct my officials to revisit some of the places where this slippage is happening. However, as an association, if you point out specific mines where grade slippage is more, then I will order that those mines be put under inspection and set things right once and for all,” the minister said.

Told that CIL subsidiaries, at times, mix boulders and stones with coal somewhat like the milkman adding water to milk to increase supply to meet demand, the minister urged consumers to provide specific instances. “Please give me specific instances and I will certainly put a stop to that,” he added.

He, however, said it has been found that in India people are generally sceptical of all work being done by the government. “We have to acknowledge that in our country it has been a habit to see everything in a negative light. There is cynicism for everything. I think it will take some time to get out of it or to convert this to optimism but I would say there is much improvement (since the NDA came to power in May 2014),” Goyal added.

Logistics

Krishnapatnam Port to focus on coastal traffic

Plans afoot to look for second hinterland in Kolkata area

Priyalina Basu

K

rishnapatnam Port, one of the prominent private ports in India, is focusing on coastal movement to increase cargo volumes, especially that of coal, from the current fiscal onwards and will soon operationalise two more berths at the port to handle additional capesize vessels, an official from the port told Coal Insights.

According to the official, the port has set a target to handle 55 million tons (mt) of cargo for the current fiscal (2015-16) as against 41 mt handled in the previous fiscal (2014-15).

“Of the 41-mt cargo handled in 2014-15, as much as 12 mt comprised iron ore imports, a business which is unlikely to be there in 2015-16, following the increased availability of domestic material,” the official said.

“We are concentrating chiefly on coastal movement to increase cargo volumes. If

70 Coal Insights, July 2015

we base our volumes only on imports and exports cargos, as we are doing at present, cargo handling volumes will be static,” the official said.

He said that in the initial phase, the companies that import coals through other east coast ports, especially the ones with lower drafts such as Haldia and Paradip, have been approached.

“For example, at present, Haldia Port has a draft of around 7.5 metres and is unable to handle capesize vessels. So, at the present capacity, the port can berth vessels up to 25,000 tons, while Krishnapatnam Port has the capacity to berth capsize vessels up to 160,000 tons,” he explained.

“As a matter of fact, we are looking for a second hinterland in the Kolkata area,” he added.

The official said that the port is in talks with Kolkata-based traders and consumers such as Saraogi Udyog Private Limited, Tata

Steel, Rashmi Cements and Usha Martin among others so that they can bring their imported coal to Krishnapatnam in bigger vessels and unload the same there and then ship to Haldia in smaller vessels.

“Our logic is that these players can bring their cargo to Krishnapatnam in capesize vessels instead of panamax or supramax,” the official said.

Asked why one will bear the extra cost on transloading of vessels, the official said, “We agree that the discharge rate is a little high but we can give concessions to them while unloading and reloading if the volume is good. We can come out with attractive rates on good volumes. Also, the turnaround time would be much less as there is no congestion at our port.”

He further explained that, at present, standard charges of transshipment at the port are around $12 (or almost `756) per ton while in transloading cases they can give

82 Coal Insights, July 2015

Tear along the dotted line

Tear along the dotted line