Coal Insights, June 2019 by mjunction services ltd

Contents 22 Thermal coal offers ease on low booking

6 | COVER STORY

23 Seaborne coking coal offers ease 24 India’s April coal imports up 44% y-o-y

Mine Developer & Operator

25 CIL’s coal production down 1.1% in May 26 SCCL’S May coal production up 15.3% y-o-y 29 No power capacity addition during April 31 May sponge iron production up 0.5% y-o-y 34 Centre approves Dispute Resolution Committee for solar, wind sector 35 India’s cement production up marginally in April

New captive mines and planned commercial mining to open up opportunities for MDOs

12 | COVER STORY “The captive mine owners need to have trust in their MDO partners” Vinay Prakash Goel, CEO, Coal & Mining discusses Adani Enterprises’ experience in MDO

20 | COVER STORY

39 Energy Outlook for FY20: Care Ratings 41 NDA regime’s continuity augers well for industry: ICRA

“Private sector in mine development will enable quicker decision making”

42 Coal India integrating Lakhanpur, Belpahar and Lilari OC mines 43 Corporate Update 46 Government Update 48 Traffic handled by major ports up 2.5% till May 49 IR’s coal handling in May down 3% y-o-y 50 China, India lead in global coal subsidies 53 Coal consumption in 2018 grew fastest in 5 years: BP 56 US coal consumption estimated at 602 mmst in 2019 57 China’s coal production up 1.7% till May 58 E-auction data 60 Port data

4 Coal Insights, June 2019

27 | FEATURE

Niladri Bhattacharjee, partner, Mining and Metals, KPMG India talks about challenges for MDOs

Coal India eyes 1 billion tons output by 2025 To pick up minority stakes in foreign mines, company tells investors

36 | FEATURE

Switch from coal to drive global gas demand China to account for global demand growth of 1.6% a year till 2024.

Cover Story

Mine Developer & Operator:

The Gen Z of coal mining Sumit Maitra

6 Coal Insights, June 2019

Cover Story

rojects formulated for mining under Mine Developer and Operator (MDO) mode is one of the key strategies of Coal India Limited to raise production. In no unclear terms, the miner acknowledge the growing importance of MDOs in its Annual Report for FY18: “In order to meet the growing demand of coal, constant emphasis is being placed on taking up of new projects in CIL. Initiatives are being taken for development of new projects through MDO route/outsourcing. Not only several new projects have come up, but many of the existing and ongoing projects have also undergone capacity expansion, wherever feasible. Even some of the existing mines have been reorganized for better management and control.” MDOs not only help CIL raise production but also bring down overall costs as these private operator can carry out mining at costs much lower than what CIL incurs by deploying close to 2.8 lakh workforce. While CIL plans to gradually cut down the size of the army of miners, it would take years to bring it down to level at which it can compete with private miners. A MDO can bring down costs of mining not only by cutting corners but by implementing modern machine driven mining. “MDOs need to make significant upfront capex in equipment and infrastructure during the mine development phase, followed by recurring replacement capex for machinery every five years during the mine operation phase based on asset usage. The overall investment outlay is in the range of 8%-10% of project revenues over the MDO tenure,” said India Ratings in a report. In order to step coal production to meet growing demand, CIL in 2013 decided to focus on the MDO mode, identifying seven mines in the first phase. MDO’s presence in coal sector has come a long way since then. And with growth of private sector in coal mining, its importance is only going to go up. “Mine developers and operators are likely to play a critical role in coal mining, especially in the private sector. The MDO contract must be drawn up with care so that it does not lead to disputes and issues of interpretation, hampering the growth of coal mining. With the opening of the coal sector to private mining and trade, dedicated coal mining companies may also be expected

to enter this business,” Niti Aayog’s draft Energy Policy says. Beyond investing in men and machines, a MDO need to invest into a lot of expertise and skills including land acquisition and community engagement. In effect, a MDO becomes the face of the owner of a mine to the outside world. What exactly is the role of a MDO vis-à-vis the owner of a coal mine? What the Model Contract Agreement says

A meeting with the stakeholders to discuss Pre-Notice Inviting Tender was convened in May where model bid documents comprising of Request for Bid and Model Contract Agreement (MCA) for “Development and Operation of Opencast and Underground mines” of Coal India were discussed at CMPDI office. As per the documents, Coal India would appoint a mine operator to develop and operate and to excavate coal for delivery for a period of 15 years provided that, not later than one year before the expiry of the Contract Period, the parties may, with mutual agreement, extend the contract period for further period of up to 10 years. Obligations of the Mine Operator

The responsibility of the Mine Operator includes development of the mines under the project including: 1. Obtaining physical possession of the land in respect of which legal notification has been obtained by Coal India

2. Undertaking rehabilitation and resettlement activities, obtaining applicable permits, licenses, for development and operation of the mines, operation and maintenance of the mines for extraction and delivery of coal and performing all other obligations of the Mine operator in accordance with the Contract Agreement 3. The operator should also employ suitably qualified and skilled persons for the development and operation of the project and be responsible for payment of wages to them in consonance with the recommendations of the high power committee recommendation. 4. Environmental monitoring and management, including reclamation and progressive mine closure, will also be the responsibility of the operator. 5. If the final mine closure occurs during the period of the Contract Agreement, the responsibility for undertaking final mine closure shall be that of the Mine Operator. The responsibility of the Mine Operator will be to extract and deliver coal in accordance with the Annual Production Programme specified in the Contract Agreement, and in consideration thereof, receive a mining charge from Coal India. Damages shall be levied on the Mine Operator for any shortfall in actual production against targets specified in the Annual Production Programme.

Coal Insights, June 2019

Cover Story

“The captive mine owners need to have trust in their MDO partners”

n about two years after setting its mining business division, Adani ventured into the Mine Developer and Operator space in 2009 starting with the Parsa East and Kanta Basan coal block. The project, commenced coal production in a record time of 3.5 years, becoming sort of a benchmark for the coal mining industry. Vinay Prakash Goel, Chief Executive Officer of Coal & mining business and Director, Adani Enterprises Limited, spoke to Sumit Maitra on a range of issues faced by the MDO space.

12 Coal Insights, June 2019

Over 40 mines with an annual capacity to produce more than 500 million tons of coal have been allocated to state and central governments besides public sector units through competitive bidding. What kind of opportunities you see for MDO operators in developing these mines? The Mine Developer and Operator or (MDO) sector, which has developed over the past 10-12 years, comprises of many activities in which I believe Adani as a group has sort of mastered in the last 25 years. That’s why we feel comfortable getting into this space. Interestingly, MDO is one entity, which

takes care of all the activities related to mining of the block. Despite not being the owner of the mine, a MDO operator does all the activities to ensure that coal is delivered at the doorstep of the customer. For that, one needs expertise of land acquisition, which is there with us since we acquired good amount of land while developing our port, power and renewable projects. When it comes to Rehabilitation and Resettlement (R&R), we did it perfectly for our projects in Mundra and in Kawai (for coal-fired power project in Rajasthan). When we talk about another major

FEATURE

Centre approves Dispute Resolution Committee for solar, wind sector

Ritwik Sinha

n a major decision to facilitate the solar and wind energy projects, the Centre has approved a proposal to set up a Dispute Resolution Committee (DRC) to consider the unforeseen disputes between solar and wind power developers and Solar Energy Corp of India and NTPC, beyond contractual agreement, according to an official release. The move will give further fillip to the smooth implementation of renewable energy projects in India. It fulfils a long pending demand of the industry to resolve expeditiously, unforeseen disputes that may arise beyond the scope of contractual agreements,” said RK Singh, Union Minister of State for Power and New & Renewable Energy and Skill Development & Entrepreneurship. The solar and wind industry have been demanding setting up of dispute resolution mechanism by MNRE for quite some time, to resolve expeditiously, unforeseen disputes that may arise beyond the scope of contractual agreements between solar power developers / wind power developers and SECI/ NTPC. “The issue was considered and it was felt that there is need to erect a transparent, unbiased dispute resolution mechanism, consisting of an independent, transparent and unbiased Dispute Resolution Committee, for resolving the unforeseen disputes that may arise in implementation of contractual agreements and also for dealing with issues

34 Coal Insights, June 2019

which are beyond the scope of contractual agreements,” Singh added. The government after careful examination of the issues involved, have decided as follows: (i) A three member DRC will be set up with the approval of New & Renewable Energy minister, consisting of eminent persons of impeccable integrity. The upper age for the DRC members shall be 70 years. The committee members of DRC shall be chosen from the eminent persons located in NCR of Delhi so as to avoid expenditure on Air Travel & accommodation. The selection of DRC members would be such that there is no conflict of interest involved. (ii) The mechanism of DRC will be applicable for all solar/ wind Schemes/ Programmes/ Projects being implemented through/ by SECI/ NTPC. (iii) The DRC will consider following kinds of cases: (a) All cases of appeal against decisions given by SECI on Extension of Time requests based on terms of contract: All requests for extension of time due to recognized ‘Force Majeure’ events like flood, earthquake, delay in handing over of land by Solar Park Developers, delay in connectivity, etc. will be dealt strictly as per contractual agreements. In all such cases, the solar power developers/ wind power developers shall make an

application for grant of extension of time (EoT) within the time specified in the contractual agreement. If application is not made within the time limit prescribed in the contractual agreement, it shall be summarily rejected by SECI/ NTPC. If application is made within the time limit, the request will be examined and final decision given to solar power developer/ wind power developer within twenty-one (21) days from the date of application. No separate extension of time shall be granted for overlapping periods of effect by two or more causes. If the developer is not satisfied with the decision of SECI/ NTPC, then it may appeal to the DRC, within 21 days of SECI/NTPC’s order after paying a fee, to be decided by the DRC, which in any case shall not be less than 5 percent of the impact of SECI’s/ NTPC’s decision being challenged. This fee shall be deposited into the Payment Security Fund maintained by SECI/ NTPC for the project concerned. In case, the Government upholds the appeal in toto, after taking into consideration the recommendation of DRC, and strikes down the SECI order, then the fee so collected shall be refunded, provided the DRC makes a recommendation for the same and the Government passes a specific order to that effect. The fee which may be received and is not required to be refunded, shall be credited to the appropriate payment security fund being maintained by SECI/NTPC. (b) All requests of EoT not covered under the terms of contract: All cases involving unforeseen issues/ circumstances not covered under contractual agreements like cases where the site is to be procured by the developer but there is delay in land allotment due to policy change or registration by the Government, delays in grant of proposed connectivity due to court stays, etc., will be placed before the DRC for consideration and make recommendations to MNRE for appropriate decision. (iv) The DRC will examine all such cases referred to it, including the cases where the developer is not satisfied with the decision of SECI/NTPC and it decides to appeal after paying the required fee as laid down under Para (ii) (a) above, in

INTERNATIONAL Sumit Maitra

hina and India have provided the largest chunk of subsidy to the coal sector in the past one decade followed by Japan, South Africa, South Korea, Indonesia and the US, according to a recent report published by Overseas Development Institute and others. “India’s banking system is dominated by domestic public institutions that together provide around $10.6 billion per year of public finance for coal mining and coalfired power domestically. This has led to significant challenges for the country’s finance sector, undermined by coal assets at risk of bankruptcy driven in part by the transition to clean energy,” said a report prepared jointly by ODI along with Natural Resources Defense Council, International Institute for Sustainable Development and Oil Change International. State owned entities SOEs in China and India invested nearly $8.8 billion and over $6.4 billion annually, respectively, the report claimed. Several countries also provide substantial subsidies to the consumption of coalfired power though there is very limited transparency, and these measures and the resulting support are not easily captured, the report claimed. Indonesia, for example, allegedly provides over $2.3 billion in fiscal support per year, with the stated reason being to compensate electricity generators for the increase in coal prices and for having to sell electricity to domestic consumers under regulated prices. “Similar subsidies relating to provision of below-market prices for electricity consumers also exist in China, Indonesia, Mexico, Russia and South Africa, with much electricity for this consumption coming from coal-fired generation,” the report claimed. While China, world’s largest consumer of coal for power generation and industry, had pledged in 2014 to reduce coal consumption to 58 percent of total energy consumption or below by 2020, continues to provide international public finance for coal mining and coal-fired power overseas of $9.5 billion per year, the report says. In terms of public finance, this year’s G20 host, Japan, remains one of the largest providers of public finance for coal overseas

50 Coal Insights, June 2019

China, India lead in global coal subsidies at $5.2 billion per year, which the report claims threatens to undermine the credibility of Japanese Prime Minister Shinzo Abe’s call for other governments to step up their action on climate change. The research undertaken by the institutions identified numerous mechanisms provided by governments purportedly for energy transition, but that in fact continue to support coal-fired power.

“These include subsidies for capacity mechanisms designed to guarantee security of power supply in France, Germany, Italy, Russia, South Korea, Turkey and the United Kingdom, the allocation of free allowances to industry under the European Union Emissions Trading Scheme (EU ETS), research and development (R&D) support for coal-fired power generation with carbon capture and storage, and for

62 Coal Insights, June 2019

Tear along the dotted line