Coal Insights, March 2017

Contents

6 | COVER STORY

18 Steam coal offers decline in March 19 Coking coal prices rise in March

Coal surplus is temporary, shortage permanent

20 India’s December coal imports down 24% y-o-y

Coal demand may grow by 4% till 2040, but supply will fail to keep pace, says Atanu Mukherjee of M N Dastur & Co.

21 Coal India output up 6.4% in February 22 Indian steel mills seek annual contracts in anthracite 23 Come April, grade slippage will be a thing of past: CCO 25 India’s cement production in January up 2.22% m-o-m 26 India adds 1,112 MW power generation capacity in Jan 28 Block auctions generate `1,747 cr revenue till Jan

29 | GOVERNMENT

Jharia, Raniganj CBM blocks output likely by FY21 Gas assessment from these blocks is under study, coal and power minister Piyush Goyal informs.

32 Washed coal: An analysis

MMD turns to Green mining

35 India’s solar panel Prayas

Company has built the world’s most advanced fully mobile sizer, says Subhajit Chaudhuri.

37 Coal, coke out of Railway long term freight deal ambit 38 Indian Railways’ Feb coal handling up 1% y-o-y 39 Traffic handled by major ports up 6.51% in Apr-Feb 42 Automated tensioner for conveyor belt cleaners reduces wear and maintenance 43 India on Preiser Scientific radar

33 | OPINION

40 | EXPERT SPEAK

When ‘fire’ ignites ire in public sector While the right to hire is the prerogative of the employer, the right to fire may not be so, argues C H Khisty.

48 | INTERVIEW

44 Search on for new chairman at Coal India 46 Corporate updates

SCCL plans capital outlay of `620 cr in FY18

50 ‘Mining, roads, irrigation, urban infra boosting equipment sales’

Growth in domestic mining industry will reduce import of high capital-intensive equipment, says N Sridhar, CMD, SCCL.

54 E-auction data 56 Port data Publisher’s Statement

Statement about ownership and other particulars about Coal Insights required to be published under Rule 8 of the Registration of Newspapers (Central) Rule, 1956.

1. Place of publication

: Kolkata

2. Periodicity of publication : Monthly

FORM IV (See Rule 8)

Whether citizen of India

Address

3. Printer’s Name

Whether citizen of India

: CDC Printers : Yes

4. Publisher’s Name

Whether citizen of India

Address

: Rajarshi Chattopadhyay : Yes : Tata Centre, 43 J L Nehru Road, Kolkata 700071

5. Editor’s Name

: Rakesh Dubey

Dated: March 2017

4 Coal Insights, March 2017

6.

: Yes : Tata Centre, 43 J L Nehru Road, Kolkata 700071

Names and addresses of : mjunction services ltd individuals who own the Tata Centre, 43 J L Nehru Road, Kolkata 700071 newspaper and partners or shareholders holding more than one per cent of the total capital

I, Rajarshi Chattopadhyay, hereby declare that the particulars given above are true to the best of my knowledge and belief.

Sd/Rajarshi Chattopadhyay Publisher

Cover Story

Coal surplus is temporary, shortage permanent

T

he very fact that 200-250 mt of coal are coming into India as imports to supplement the domestic supply of 650-700 mt is proof enough that there is unmet demand in the country. In the long term, this demand is expected to grow by around 4 percent per annum up to 2040 or so. In about 15-20 years, coal imports will increase by another 150-200 mt, resulting in total imports of 400 mt. And the present coal mining processes are not likely to plug that demand gap, leading to substantial volumes of imports. Even if Coal India considerably increases its production over the coming years, not all demand can be met from domestic supplies due to logistics problems.

Also, there is a requirement of imported coal on quality grounds. For the domestic power plants, it is always better to blend the imported material with domestic coal as this will increase efficiency and longevity of the boilers. Thus, in contrast to popular perceptions, Atanu Mukherjee, President, M N Dastur & Co (P) Ltd, tells Arindam Bandyopadhyay that there is huge demand for coal in the country which domestic supply is not going to meet in the long term.

Excerpts from an interview:

6 Coal Insights, March 2017

Cover Story Let’s start with the infrastructure sector.

The government is spending big money on this sector. The Union Budget for 2017-18 made a record high allocation of `396,000 crore. How do you describe the current slackness in the infra space despite such huge public investments?

There are a couple of things playing out in the infrastructure sector. We all know that the government is planning on spending substantial sums on this sector.

The potential spend on infrastructure in India will range between $0.5 trillion and $1 trillion over the next five years. There is an emergent need for spending big on infrastructure growth.

There is great opportunity in the sector, as it is the easiest way to prime growth in a developing economy. But, there are serious challenges too.

A fundamental hurdle in infrastructure sector growth is the prolonged delay in obtaining statutory permit rights, land acquisition, environmental clearances, etc.

Another spoilsport is the archaic laws of the land.

Due to these bottlenecks, investments often get stuck and projects get delayed. We need to keep in mind that infrastructure projects are inherently a risky business. There are uncertainties over the availability of labour, materials and resources in time.

Further, the contractors hardly have any control over externalities in the environment. As a result, in India, the average delay in implementation of projects is 3-5 years. Such delays limit the number of projects that actually come into operation.

Secondly, availability of finance is a big challenge. Infrastructure spend cannot be done only by the government. You need to have private source of finance in the economy.

But, India doesn’t have a well-developed debt finance market. The only source of large project finance is the public sector banks, which, again, are carrying the burden of huge non-performing assets (NPAs).

So, to boost infrastructure spending, you need to develop a debt finance market.

As such, the bond market in India is still underdeveloped.

There have been some initiatives (taken

in the past) to develop this market. There have been talks on promoting private public partnership. But, unfortunately, not much has happened on the ground and the achievements could at best be termed as modest.

As for foreign direct investment (FDI) in infrastructure, you can’t have foreign investors on board unless you have an underlying eco system ready, since risk perception is high in such projects.

Participation of the Asian Development Bank (ADB), Japanese Bank for International Cooperation (JBIC) and other developmental banks like Euler Hermes, KFW and Mitsubishi UFJ has been limited at best.

Having said that, I must say the present scenario is better than what it was, say, five years ago. But much more is needed to be done to boost infrastructure. In India, the long-term opportunity is huge, but shortterm and mid-term bottlenecks need to be removed first.

How different is the structure and size of the debt market in India vis-à-vis developed countries?

Global infrastructure spending is estimated at $40-50 trillion over the next 15 years.

This translates into $3-4 trillion every year, a massive amount. In comparison, spending

by India is pretty modest, more so if you consider the long term growth upside.

As for the structure of the debt market, in most of the developed countries, investments are majorly done through the debt finance route through a variety of debt instruments. In Europe, the EIB, for instance, has many structured debt instruments like the Project Bond Initiative, to provide loan guarantees, credit quality enhancements, debt syndication etc.

Such investments are made through innovative special purpose vehicle (SPV) structures and project-based funds.

Separation of project cash flows through project-based financing is very important from a risk identification, separation, containment, collateral and focus perspective; this is not to be mixed up with corporate finance. Earlier in the UK and US, the debt capital markets were very

innovative in terms of how they used credit rating swaps for credit enhancement and funding in project finance. The underlying principle for developing this market is based on the tradability of debt instruments.

Didn’t the seclusion from the debt market save the day for India during the global financial meltdown which followed the subprime crisis in the US? Contrary to popular lore, the sub-prime crisis didn’t happen because – as the saying goes – greedy Wall street bankers using exotic financial instruments upended and created havoc in the markets, sending the economy into the Great Recession. The US has probably the most robust, well-regulated and sophisticated financial markets in the world.

If we go back to the origin of the crisis, we will see that, beginning in 1989-90, the US economy started going through a structural change in the nature of employment, inequality, savings and the duration of recessions. Ongoing globalisation and the pace of technology change made unemployment more endemic and structural over the next two decades.

The divide between more educated haves – and less educated have-nots widened and the common American’s savings rate went negative. So, the Clinton administration thought out a way to address this brewing crisis by boosting the housing sector by encouraging home ownership through easy credit. This led to the eventual housing boom where home-owners started using their fast appreciating houses as ATM machines.

The Clinton administration, and later Bush, thus tried to use a quick-fix measure to postpone the underlying crisis which had more to do with longer term and harder solutions like college degree education for all in a changing technologydriven and globalised society. Later, as the housing frenzy heightened, greed – of both creditors and borrowers – made a mockery of the credit rating systems and regulatory oversights and things went horribly wrong.

It was not that the financial system wasn’t robust, but the eventual manipulation and mismanagement of the system accelerated and heightened the meltdown.

Coal Insights, March 2017

7

FEATURE

Come April, grade slippage will be a thing of past: CCO

Technology (IIT) Guwahati, IIT (BHU) Varanasi, Indian Institute of Engineering Science and Technology, Shibpur, and Indian School of Mines, Dhanbad, have been engaged in executing the gradation exercise. They will also collect coal samples in a scientific manner and carry out analyses of the same.

Commenting on third party sampling, Kumar said there would be no requirement of third party sampling if coal producers supply as per the declared grade and no question of trust deficit would arise between suppliers and consumers. He also said the office undertook fresh study on energy content of the fuel at 400-odd Coal India mines.

Tax refund

Diptoshree Sengupta

T

he Coal Controller’s Organisation (CCO), a wing of the Ministry of Coal, is all set to finalise the new grades of all coal mines, seams and sidings in the country and communicate the same to all Indian coal companies by March 2017.

The new grading will be based on 1,625 samples collected for this purpose. Grades for 92 mines have already been reassessed by the CCO in 2016-17, of which 70 mines have confirmed their existing grades, 1 mine has been upgraded and 21 have been downgraded.

The purpose of the entire exercise is to introduce a concept of “hallmarking the grade of coal of each siding”, Coal Controller Anjani Kumar said recently at a seminar on coal quality organised by the Coal Consumers’ Association of India (CCAI) in Kolkata.

“There should be no grade slippage. To achieve this target, in 2017, our organisation has planned and entrusted the job of gradation (of coal) to scientific institutions,” he said.

“I am 100 percent confident that from April 1, 2017 consumers will get coal as per the declared grade,” Kumar said. He further assured that CCO will be hallmarking the grade of coal at each siding. “The concept of coal hallmarking is similar to gold hallmarking which is an indication of purity.

Invoicing by coal companies are to be based on the grades finalised by the CCO,” said Kumar.

The Coal Controller further said that institutions like the Indian Institute of

Commenting on the consumers’ plight of not getting refund for grade slippage, Coal India (CIL) chairman Sutirtha Bhattacharya said that CIL is ready to refund the additional cost charged by the company, but refunding the additional tax paid by them is beyond its capacity.

Bhattacharya, who also spoke at the CCAI seminar, said that CIL always refunds its consumers if grade slippage is proved through third party sampling, but the tax which is already paid remains unchanged.

Elaborating further, he said, if a consumer takes coal of G10 grade and pays for it, automatically the tax applicable on that grade gets deducted. Later, if it is found that the coal received is of G12 grade, which is lower in terms of quality and price, the customer faces problem as he cannot get back the higher tax he paid on G10 grade.

On the variation in coal quality, he said that due to the highly diversified nature of coal deposits in India, different grades are

I am 100 percent confident that from April 1, 2017 consumers will get coal as per the declared grade,” Kumar said.

He further assured that CCO will be hallmarking the grade of coal at each Anjani Kumar, CCO siding. “The concept of coal hallmarking is similar to gold hallmarking which is an indication of purity.

Coal Insights, March 2017

23

Interview

SCCL plans capital outlay of `620 cr in FY18

S

ingareni Collieries Company Limited (SCCL) produced 60 mt of coal in 2015-16 and plans are afoot to enhance production to 80 mt over the next 5 years. The company is anticipating a capital expenditure of `610 crore with regard to plant and machinery for the current financial year. There are plans to invest its capital outlay in procuring 15 Cu.M shovels, 5 Cu.M shovels, 100 T dumpers, dozers, drills, LHDs and SDLs. The share of SCCL in the country’s total production is only about 10 percent.

Growth in the domestic mining industry will reduce the necessity of the coal industry to import high capital-intensive equipment. But the equipment industry must also be able to meet the expectations of the coal industry in terms of capacity as well as standards and quality, N Sridhar, CMD, SCCL, tells Arindam Bandyopadhyay.

It is often said that lack of manufacturing base for high capacity mining equipment is a weak spot for the Indian mining sector, which includes coal. What is your take on this?

Energy in the form of electricity is required by most Indian industries and around 61 percent of the electricity is generated from coal-based thermal power plants. Still, there is a gap between demand and supply of coal in India.

Production of coal has to be increased as per demand which, in turn, requires heavy mechanisation, skilled manpower and suitable technology.

In the present scenario, it is felt that demand of coal in India will remains higher than supply for the next 1 to 2 decades. To bridge the gap and sustain in a competitive market, mining with high capacity equipment is required. High capacity equipment improves production, productivity and safety .

It is true that there is lack of manufacturing base for high capacity mining equipment in India which is compelling the

48 Coal Insights, March 2017

country to become dependent on imports.

Further, imports of machinery/equipment create problem of availability of spares.

The Government of India, however, is promoting policies and initiative like “Make in India” which augurs well for the industry.

The major machinery being used in opencast mines, like shovels, dumpers, dozers etc, are procured from BEML (formerly Bharat Earth Movers Limited).

Underground mining equipment like load haul dumpers and side discharge loaders are being indigenously manufactured in India. SCCL welcomes partners and manufacturers for establishing manufacturing plants in India as a part of Make-in-India.

Singareni Collieries is poised for high production growth in the coming years. In view of the anticipated growth, how do you see opportunities for the domestic mining equipment industry?

SCCL produced 60 million tons (mt) of coal during the year 2015-16 and plans to enhance its production to 80 mt during the next 5 years. The share of Singareni in the country’s total production is only about 10 percent. Growth in the domestic mining industry will reduce the necessity of the coal industry to import high capital-intensive equipment. But the equipment industry must also be able to meet the expectations of the coal industry in terms of capacity as well as standards and quality.

Regarding underground mining, six new Longwall (LW) units and 10 new continuous miners are required in the various underground mines of SCCL in the coming years. LW manufacturing requires various equipment and special testing facilities also. At least, if some of the major spares are manufactured in India, the operation of LW faces will become much easier. Coal India is also aiming to increase its production to 1 billion tons by 2020 with the help of underground mining machinery.

All the equipment used in underground – like Longwall, continuous miners and road headers – are being imported so far. As part of Make-in-India, manufacturers should come forward to indigenously manufacture the above equipment to meet the demands of the Indian coal mining industry.

Please tell us about SCCL’s 2016-17 procurement plans in mining equipment and machineries? What was the capital outlay and how much was spent on this front?

SCCL has planned a capital outlay of `517 crore in plant and machinery for the year 2016-17 for procuring 60T dumpers, dozers, shovels, drills, SDL etc.

In the present scenario, it is felt that demand of coal in India will remains higher than supply for the next 1 to 2 decades. To bridge the gap and sustain in a competitive market, mining with high capacity equipment is required. High capacity equipment improves production, productivity and safety.

Interview

T

he construction and mining equipment market has started making a come-back from 2016 onwards, which has pushed up the revenues of SREI Equipment Finance Limited, a leading infrastructure financing company, by 24 percent in the first nine months of 2016-17.

Even though the company experienced degrowth in some segments, there was a healthy growth in topline due to the spurt in the construction and mining sectors. And if one considers only these two sectors in isolation, then the growth figure stands at 30 percent, which is aligned to the industry growth rate, Devendra Kumar Vyas, CEO, Financial Services, tells Madhumita Mookerji.

Excerpts:

50 Coal Insights, March 2017

‘Mining, roads, irrigation, urban infra boosting equipment sales’ What is the current scenario in the equipment financing business? How has the market been behaving in the last few years, considering the economic constraints?

In around 1992-93, the construction equipment market size in India was only `500-600 crore. This figure touched a peak of `30,000-crore-plus in 2010. The market had thus seen huge growth in past two decades. However, since then, it has gone down to around `22,000 crore.

From 2008 till 2011-12, the growth in the construction equipment market was at a compound annual growth rate (CAGR) of 20-25 percent, which, year-on-year was quite substantial. That’s how the capacity got doubled. But, the market started decreasing from 2012-13, degrowing by around 20 percent year-on-year.

Again, in 2016, the construction

equipment market started staging a come-back. In tandem, if you notice, our disbursements have grown by 24 percent in the first nine months.

In the construction equipment market, the share of backhoe loaders and excavators is 16 percent. In calendar 2016 (most overseas companies follow the calendar year), the latter has seen a growth of 50 percent for the first time after continuous degrowth in past three years, while the former has experienced a growth of 35-40 percent year-on-year. Last year, the growth was around 38 percent.

Equally important, other equipment growth has been at around 30 percent.

What do you attribute the sudden spurt in growth in 2016 to?

In 2016, the key growth drivers in equipment sale was the road

58 Coal Insights, March 2017

Tear along the dotted line

Tear along the dotted line