Coal Insights, July 2016

Contents 1 6 CST: New sun rises on renewables 20 State govts need to play key role in CST 24 JNPT to have 25 MW solar power under PPA 25 Affordability needs greater focus in energy policy 26 Steam coal offers rise sharply in July 27 Coking coal offers firm up in July 28 Coal imports down 6% in first quarter, y-o-y 30 India’s cement production in May marginally up 30 “Outlook for FY18 is positive” 31 India adds 250-MW of generation capacity in May 33 India’s coking coal consumption to rise to 96 mt by 2020 40 Corporate update 43 Shortage of HEMMs, OB contractors a worry 45 Boundaries of participative management 47 Coal handling by major ports edge up 1.4% in Q1 48 Railways’ May coal handling up 5.4% m-o-m 50 AFDSS designed to suppress fires in high-risk areas of HEMM 55 Material handling industry banks on industry growth revival 56 Sempertrans, Agudio launch “Flyingbelt” in Brazil 62 New tech generates power using conveyor belt energy 66 US power sector coal consumption to fall 9% in 2016 70 E-auction data

4 Coal Insights, July 2016

6 | COVER STORY

Rooftop solar may burn a hole in coal’s pocket Ailing power distribution companies to be biggest casualties, may lose substantial revenues.

34 | Feature

Cement cos shift back to steam coal from pet coke The development occurred after pet coke prices jumped on demand from China.

36 | Corporate

Essar eyes blocks with both CBM, Shale potential in auctions Raniganj has shale gas initial in place of 8 tcf, says Manish Maheshwari, CEO, E&P.

58 | In Focus

Reverse auctions put conveyor belts in reverse swing Things are looking up for conveyor belting industry, says Smita Pandit Chakraborty.

68 | International

Chabahar Port to start operations from mid-2018 After Iran, India is also looking into deep sea port project at Payra in Bangladesh.

Cover Story

Thermal power projects, discoms like to be biggest casualties

Rooftop solar may burn a hole in coal’s pocket Arindam Bandyopadhyay

For those sitting pretty on coal’s continued domination in India’s energy matrix, there may be a nasty surprise in store! The NDA government’s highly ambitious expansion plans for rooftop solar power, if it fructifies, may present a queer situation in a not-so-distant future. While solar power would be a boon for the environment, according to some experts, it may also turn into sort of a black hole, pulling more and more thermal power consumers within its fold, as and when it reaches a critical mass. The discoms may become its biggest casualty. Much of coal’s future would depend on how the regulators meet that challenge.

6 Coal Insights, July 2016

Cover Story

N

Coal Insights delves into the possible impact of the growing eminence of solar power in the electricity sector, on expansion of coal-based thermal power and loss-making discoms and comes out with findings that are both interesting and thought provoking

o species on earth, except for the homonyms, produces energy from external sources; they just fit them into the energy cycle that flows from sunlight and through the food chain. So, were the humans too designed to follow suit? Have we drifted from the script? Can we, after decades of exploiting the hydrocarbons, really go back to that design of sustainability? The search for a free energy source – economic, plentiful, non-polluting – has been a prolonged process, hardly fruitful though. But, as we stand on the edge, facing a climate-induced catastrophe, a switch-over from fossil fuels to renewables looks inevitable, sooner than later.

Among all the renewables, solar power takes the pride of place, especially in a tropical country like India. No wonder, the Government of India, while chalking out a plan to detoxify the environment, has put its focus primarily on this resource, and set an overtly ambitious target of increasing solar generation capacity to 100,000 MW by 2022. And that is only the start of – what the experts might say – the emergence of a fullfledged solar economy.

While that sounds all very fine, uncomfortable questions pop up if one closely examines the path of this transition.

What if someday, not very long after, we really start running our systems primarily on solar? How will it disrupt our current power distribution and transmission business? How will it change the structure of the economy?

Will it make much of the existing plants and investments redundant? What will happen to fossil fuels we are still left with?

The ‘sunrise’ sector

Imagine a country where everybody grows his daily provisions in his (or her) kitchen garden and generates his (or her) own power requirement on rooftop. Sounds too good to be true, isn’t it?

There, however, are places on the earth, especially in the European Union (EU), where more than half of (50-70 percent) household consumption of electricity is being generated only through rooftop solar panels.

Today, more and more number of cities and communities are actively participating in the “100 percent renewable” movement. An analysis of recent EU energy data shows that about three-fourth of household energy consumption in at least 10 countries in the EU are being generated through renewables, captive or otherwise, mainly wind and solar.

Typically, household consumption of electricity ranges between 21 and 28 percent of the country’s total. By the end of 2015, the world’s renewable capacity in place was enough to supply an estimated 23.7 percent of global electricity production.1 In other words, a large number of countries is now moving towards a scenario where the electricity requirements of households 1

Renewables Global Status Report 2016

Electricity consumption by sector, 2013-14 (%)

could be met entirely from renewables, with a significant share of that coming from captive generation.

In India, thanks to the recent interest of the governments and the country’s commitment to the international community, the situation seems to be changing for the better. As of March 2016, the share of renewables (mainly solar, wind and biomass) in total electricity generation capacity stands at around 14 percent. If hydro power is included in that bracket (which is done in some countries), the share of renewables moves up to 28 percent.

Currently, a break-up of the renewables pie shows that the share of solar power in India is rather low, at about 8.9 percent of the total renewables (including hydro). The current generation capacity of solar is at 7,700 MW, which lags considerably behind wind power capacity of about 26,770 MW. However, the potential of solar in India (a tropical country) far outweighs that of both wind and hydro power. An estimate by the National Institute of Solar Energy puts solar potential at a whopping 749,000 MW, more than double the total current generation capacity of about 302,087 MW. Furthermore, this estimate is done on the basis of the current state of technology efficiency. If technology improves, solar energy potential could be increased further. In contrast, the potential of wind power stands at a lowly 50,000 MW. While the overall potential of solar power remains a matter of speculation, what has gripped the imagination of the government and businesses is the potential of

Installed generation capacity by segments (MW)

18.03

210,675

22.46 8.72

43.83 5.23

42,849 42,783

1.72 Industry

Agriculture

Domestic

Commercial

Traction & Railways

Others

Source: Energy Statistics 2015

5,780 Thermal

Nuclear

Hydro

Renewables

Source: Central Electricity Authority, March 31, 2016

Coal Insights, July 2016

7

CORPORATE

Essar eyes blocks with both CBM, shale potential in auctions

E

ssar Oil & Gas has crossed a record 1 million standard cubic metres per day (scmd) of coal-bed methane (CBM) production from its flagship Raniganj East project. In oil and gas, Essar is present in upstream (production), midstream (distribution) and downstream (refinery and retail).

It has a presence in conventional (sandstone and limestone reservoirs) and unconventional blocks (CBM and shale). Part of Essar’s exploration and production business is still in the exploration stage but it is also present in proven basins. Manish Maheshwari, CEO, E&P, tells Madhumita Mookerji of Coal Insights that the company expects to ramp up production from Raniganj to up to 2 million scmd by March 2017 and 3 million scmd by mid-next fiscal and that Raniganj has shale gas initial in place of about 8 trillion cubic feet (TCF) too.

Excerpts: What is your outlook on India’s CBM potential?

India’s total CBM potential stands at 40 TCF. Compared to the 50 TCF of conventional gas, CBM is thus quite comparable and has the potential to be the new gas frontier as India evolves to a gas-based economy. And these are prognosticated resources. Further explorations are still on. So I feel reserve estimates should only improve.

On top of it, we would have shale potential in many of these areas.

What is likely to be the way forward in relation to the CBM auctions?

The government is exploring the possibility of whether Coal India (CIL) can jointly

36 Coal Insights, July 2016

develop its mines which have CBM potential along with private CBM producers under the new Hydrocarbon Exploration and Licencing Policy (HELP) round of bidding that will happen in October 2016 .

That apart, all the 16 CBM blocks which had been relinquished by various domestic and overseas players like the Tatas, Arrow, BP etc. will also come under the auction round, for which the bidding closes on October 31, 2016. Plus, the government is in discussions with CIL, which has many captive CBM mines and some of them are deep-seated.

The relinquished blocks had been returned to the government and no bidding had happened with them since. These are mostly located in Madhya Pradesh, eastern part of India and Jharkhand.

Furthermore, with the very recent announcement of HELP, the government

is not looking at an independent policy for CBM. It has unified the conventional, shale and CBM policies together under the Unified Licensing Policy (ULP), which is a subset of HELP. However, the fine print, guidelines nitty gritty will have to be studied. The norms with regard to the discovered small fields, as per the road shows done by the government in Delhi, Mumbai, Guwahati etc., are covered in the ULP. Altogether, 67 fields will be on offer and there is already a discovery in each of these fields. However, Essar Oil & Gas would be interested in those areas where there is play in both CBM and shale gas in the upcoming CBM auctions in October 2016.

That way, we will be able to add value to both. Essar Oil will choose only those blocks which have upside potential. The discoveries are all conventional. In fact, in some cases, no data exists on CBM reserves.

We will just know the lithology, that is, where is the shale and where are the coal seams.

What are the prospects at your Raniganj East block?

Our flagship Raniganj East block is located in the CBM bowl of India – the coalrich Damodar valley and is a 500 sq km contracted acreage with the Government of India to explore and produce CBM. The primary term of the contract is for 25 years and we can extend it based on the recoverable reserves residual at that point of time . So that takes us to 2041 as the primary term of the contract. The gas in place in Raniganj East is 4 TCF which has been certified by an independent report by Netherland Sewell & Associates, Inc. With this gas in place, we can recover 1.09 TCF, based on primary techniques. The recoveries can improve if we employ secondary and tertiary techniques.

In the same block, a preliminary assessment is that we have shale gas initial in place of about 8 TCF. The timing is very relevant because the Government of India (GoI) under the Hydrocarbon Exploration and Licencing Policy (HELP) announced in March 2016 allows for the exploration and production of conventional and unconventional hydro carbons concurrently, which would help us to develop these blocks.

In Focus

Reverse auctions put conveyor belts in reverse swing

T

hings are looking up for the conveyor belting industry in India.

Coal mining, power and other industry projects are taking off.

Coal behemoth Coal India too is helping this industry to gear up and be a part of its growth story. However, pricing issues are a concern with cheap products clogging up the market both from domestic and overseas players. Phoenix Conveyor Belt, being a player at the high end of the spectrum, has been feeling the heat too, Smita Pandit Chakraborty, Managing Director, Phoenix Conveyor Belt India (P) Limited, tells Madhumita Mookerji of Coal Insights in a free-wheeling interview.

What has been the scenario like in the conveyor belting market over the last one year or so?

From the beginning of this calendar, till date, the signals are good, especially in the project market, in which there had been an absolute lull. Tendering is vibrant.

We are seeing a lot of ordering taking place. But ordering to execution again has a series of steps in terms of site getting ready, manufacturing clearance to be obtained, receiving commercial clearances across the value chain, etc which take long lead times. However, in general, the market has shown up.

In the conveyor belting market in terms of both mining and industry, there are many projects where OEM players lately have been consistently bagging quite a few projects in the mining sector. Overall, OEM projects bagged in mining add up to a sizeable `2,500-`3,000 crore of late. And in conveyor belts alone, 2-3 project add up to around `100 crore from mining itself.

The industry market for conveyor belts is 3-4 times bigger than the mining market, though the value churned out by the latter is higher. The mining market for conveyor belts in terms of replacement and projects together from January-December, 2016 would comprise around `200 crore, 2-3 percent higher from the previous years.

What factors are bolstering this growth in the conveyor belting market?

In the replacement side, the growth has

58 Coal Insights, July 2016

been primarily on account of certain decisions that were pending and in many of the cases the belts were not getting ordered, essentially because many companies had purchase holidays.

Our prime customers, in the southern part of the country had been consistently ordering but many others had budget constraints in terms of going in for further replacements.

Also, the performance of the belts has been very good and the user industries did not need to place orders beyond a cycle. For instance, our steel cord belts generally have a life of more than 5 years but the actual performance has been more, and hence, requirement for spending on replacement has been minimal.

But, the project market has now really opened up.

A major steel player has come up with a sizeable requirement of pipe belt stretching several kilometers from the mines to its plant which would be a state-of-the-art installation.

There are major cement and coal companies which are beginning to speed up execution of projects. Coal India is one such.

Now that there is stability in terms of the government, projects are taking off.

Please give an overview of the conveyor belts market in India.

The total textile and steel conveyor belts market is around `1,100 crore.

Industry:mining ratio here would be

60:40. Within textile and steel, in terms of the value, the latter would be higher, but in terms of volume lower. Here textile comprises 60 percent of the market with the balance 40 percent being steel’s share.

Mining, steel and iron ore industries mainly use steel cords belts for higher strength, durability and impact resistance in removing over burden.

Coal India’s production has increased. Is all this having an impact on the conveyor belts industry in India, because CIL is, after all, kind of a market mover in this space?

We want to be a part of Coal India’s growth and have already started doing so. CIL has started floating tenders and several EPC majors have already participated in this process. In fact, 3 projects from CIL subsidiaries have been flagged off recently, including Hingola. Bhuvaneshwari, Lakhanpur and Kushmunda.

The coal major has developed a tremendous focus on high-end technology and state-of-the-art machines in bulk material handling. There are requirements of environment-friendly pipe conveying solutions where we are playing a significant role.

Also, several projects have been launched from state power utilities. Investments are taking place in the power sector. While a government sector power utility is leading the charge with 50-60 percent share, private power producers are also coming up in a major way in terms of new projects, which is good news for conveyor belting.

International

Chabahar to start operations from mid 2018 Kingshuk Banerjee

C

habahar Port in the southern coast of Iran would start functioning from mid-2018. India is also looking into options of building a deep sea port at Payra in Bangladesh, Arun Kumar Gupta, Managing Director of India Ports Global Private Limited (IPGPL), the Government of India company responsible for setting up overseas ports, told Coal Insights.

According to Gupta, there would be two terminals in Chabahar Port which could accommodate 4 to 5 ships at a time. While the container terminal would be of 640 metres length, the multipurpose terminal would be 600 metres long.

India would be fitting cranes and other equipment to these terminals and it is expected that the cargo handling capacity could be around 85 million tons (mt). India expects commercial operation of the port to start within 18 to 24 months. So from middle of 2018, Chabahar Port could be fully operational.

During his recent Tehran trip, Prime Minister Narendra Modi assured Iran that India would help in building Chabahar Port.

68 Coal Insights, July 2016

The port, situated in south-eastern Iran, needs massive funding for full realisation of its potential, including expansion, connectivity links (railway network) and Free Trade Zone. India has already pledged $500 million for the project and would be trying to raise funds from international fora as well.

Already, India has made her entry into the Oman-Iran-Turkmenistan-Uzbekistan Ashgabat Agreement, a multimodal deal, for transporting natural gas to the Chabahar Port, and from there through LNG ships or pipelines to energy-hungry India.

The Chabahar Port fits as much into New Delhi’s plans for energy security as with her maritime security grid. The port sits astride the vital sea lanes of communication that supplies nearly 55 percent of the hydrocarbon needs of the South-East and North Asian countries, including China and Japan.

Gupta said, “India is also looking into option of building a deep sea port at Payra in neighbouring Bangladesh. The port could be used for importing coal for the thermal power stations of Bangladesh. But it’s currently at a very initial stage. Both Delhi and Dacca would have to decide key issues first and then only any concrete concept could be emerging.”

As per Gupta, all sorts of cargo ranging from container to dry bulk would be there to trade for the port. While coal could be imported for Bangladesh thermal power plants, huge amount of ready made garments could be exported via this port.

According to Shipping Ministry sources, already A

British firm has done techno-feasibility study of the port but India may not be agreeing with some of the observations in the report.

According to experts, Bangladesh badly needs a deep sea port. With an expected annual GDP growth of 7.1 percent this fiscal and being on Goldman Sach’s list of “Next 11”, Bangladesh economy is set to rise and could well be one of emerging economic powerhouses of the 21st century. On the strength of the second-most dynamic textile industry on the planet, Bangladesh’s export sector is booming, and is expected to eclipse $50 billion per year in value by 2021. Therefore, the nation would be needing adequate maritime infrastructure in the near future.

But the reality is that after emerging as an independent state, Bangladesh has never built a new port. While $60 billion of annual trade currently pours through the country’s two existing seaports, Chittagong and Mongla, both of them are too shallow for large container ships and require costly load transfers to smaller vessels to get cargo in and out. Not only this, the paucity of infrastructure costs Bangladesh an additional $15,000 per day, and is also severely decreasing the ports’ global competitiveness.

India Ports Global Private Limited (IPGPL) is a joint venture between Jawaharlal Nehru Port Trust (JNPT) and Kandla Port Trust (KPT), created and incorporated on January 22, 2015, under the Indian Companies Act, 2013, as per directions of Ministry of Shipping (MoS), Government of India for the development of ports overseas. The Ministry of Shipping has presently assigned IPGPL the task of equipping and operating Container/Multipurpose Terminals at Chabahar in Iran.

74 Coal Insights, July 2016

Tear along the dotted line

Tear along the dotted line