Coal Insights, May 2015

Contents

6 | COVER STORY

16 CIL identifies 153 key projects to reach 1 bn tons 21 Steam coal offers volatile in May

200 new mines, $25 billion investments, 0 imports

22 Coking coal offers continue downtrend in May

Self-sufficiency in power and coal perfectly “doable”, says Piyush Goyal.

24 India’s coal production crosses 612 mt in FY15 26 CMPDI exploratory drilling up 19% in FY15 28 Ten SGPs successfully bid for PSDF support 30 India’s generation capacity addition up sharply in April 32 India’s cement production up 5.61% 41 International coal prices to remain low-Vipin Mahajan interview

34 | Special FEATURE

Will sun shine on India’s energy prospects?

India sets a lofty target of achieving 100 GW solar power capacity by 2022.

39 | Interview

42 Atlas Copco makes loading options easier 45 Corporate updates 48 Reliance’s pet coke gasification plant may impact supply in India

Cement and steel to become costlier, post-coal auctions

49 Earlier allocation method lacked transparency: WCL 51 Third round of coal auctions hanging fire 53 MoC aims to deal court cases first in BG issue 54 US power sector coal use to drop 6% in 2015 55 China to cut more coal capacity in 2015: NEA 56 Africa: Is lack of infrastructure boon or bane?

64 Social Buzz 65 Thermal coal handling by major ports up 36.6% 66 Linkage data 68 Supply data 70 E-auction data 72 Port data

4 Coal Insights, May 2015

Coal security is fine, but higher costs will bite till demand grows, says Amitabh Mudgal.

43 | Technology

A ‘renewable fossil fuel’ that reduces pollution Recent breakthrough in solar-to-liquid tech may not work, says Dr. Endre Simonyi.

47 | COrporate

NTPC aims to regulate coal imports Buoyed by higher domestic supply, the utility major wants to reduce imports in FY16.

Cover Story

What it takes to reach 1.5 bn tons

200 new mines, $25 bn investments, 0 imports Coal Insights Bureau

6 Coal Insights, May 2015

Cover Story

W

hat a chartered accountant and management consultant can do to address India’s perennial coal shortage? Well, he can crunch numbers. But those who have heard Piyush Goyal know the minister in charge of coal and power can achieve the figures too.

That India crossed a record 1 trillion units mark in electricity generation in 2014-15 was evidence to this. Also, the 11 percent growth in coal production after years of stagnation will make you take his numbers seriously.

On the momentous occasion of unveiling Coal India’s Vision 2020 and inaugurating the miner’s new headquarters in Kolkata, Goyal poured his hearts out, congratulating Coal India for its all-out efforts to achieve the 1 billion tons mark by the turn of the decade. He also showered praise on the trade unions for their ‘whole-hearted’ support to the cause of the nation. When asked about the past failure of Coal India to achieve its targets, Goyal said he doesn’t live in the past, and that he was absolutely convinced the new targets are actually “doable”. Rakesh Dubey and Arindam Bandyopadhyay stood witness to the new lease of energy in the coal industry.

Coal India is all set to achieve its ambitious production target of 1 billion tons by 2020.

Do you think that power plants in India are ready to consume that much of coal?

We still have 28 crore Indians who do not have access to electricity at their homes, or consume millions of liters of diesel to generate electricity. Also, the wave of industrialisation that will be seen in the years ahead following the launch of the ‘Make in India’ initiative and the double digit economic growth that we are targeting for gives me the confidence that there will be enough demand for power. In fact, I think that India will need to increase its power generation to at least two trillion units in the next five years from the current one trillion units. Obviously, the demand for coal will also rise with that growth in electricity generation. We also want to ensure that the country stops importing steam coal and source it from the billions of tons of reserve we have with us.

The inventory level at power plants is on the rise. Don’t you think it shows a mismatch between anticipated and actual demand from the power sector?

There has been an increase in inventory level because of deliberate action. We wanted to make sure no power plant faces criticality of coal stock.

I am happy to inform you that while half the questions I received in the Monsoon session of Parliament pertained to the shortage of coal at power plants, in the Budget session, there was not a single question on the issue….In the Monsoon session, at least 10-15 questions were on the criticality of coal stock, while the budget session had zero questions. I consider that an achievement. With the support of the employees of Coal India, we could ensure that all power plants are flush with coal.

Power production has increased by a record 8.5 percent last year, an achievement India has not seen in so many years. This gives me confidence to say that the country is moving very rapidly towards self-sufficiency, both in coal and power.

Are you looking at a deadline by when you think India can stop importing coal?

I think that we will start witnessing a declining trend in imports from the current year itself. In about two-and-a-half years’ time, thermal coal import will be stopped. As far as the higher calorific coal is concerned, i.e. coking coal consumed by the steel industry, we will still continue to import that because India’s reserves are much lower in that category.

What kind of investments are you looking at to achieve the 1 billion tons of production target?

At Coal India, we are going to have a mine-by-mine plan. This will include the production from each existing mine and also the number of new mines that will be opened during the coming years. So, we are at this stage identifying the big picture on that format.

We shall be inviting the detailed technological and innovative plans to be

My estimation is that this 1 billion tons target could entail an investment of $20 billion to $25 billion in technology, equipment, up grading facilities and up grading new mines. That is the level of investment we foresee at this stage. But a more detailed picture will emerge as we go further into the details of our current plan.

Coal Insights, May 2015

7

SPECIAL FEATURE

Will sun shine on India’s energy prospects?

Kingshuk Banerjee

A

fter coal, would India be a factor in global solar power too? If things go as per Delhi’s plans, this may well be the case after a decade.

This coal-rich nation has set lofty targets of generating 100 giga watt (GW) (1,000 MW = 1 GW) of solar power by the year 2022. While the pundits as well as financials experts are quite vexed about sourcing out the requisite fund of `5.6 lakh crore to implement the mother of all mega power projects, Delhi has already made a move.

34 Coal Insights, May 2015

Allocation of `1,000 crore towards the Jawaharlal Nehru National Solar Mission (JNNSM) has already been made to establish a clean energy fund. It is an increase of `380 crore from the previous budget. The 201011 Budget had also encouraged private solar companies by reducing the customs duty on solar panels by 5 percent and exempting the excise duty on solar photovoltaic panels. This is expected to reduce the cost of a roof-top solar panel installation by 15–20 percent. The Budget had also proposed a coal tax of US$1 per metric ton on domestic and imported coal used for power generation. Additionally,

the government has initiated a Renewable Energy Certificate (REC) scheme, which is designed to drive investments in low-carbon energy projects.

Meanwhile, West Bengal is warming up to 2,500 MW of renewable energy by the year 2024. Stating this, State Power Minister Manish Gupta said, the state has initiated both macro and micro ways to achieve its goal.

Non-conventional energy

As per an Energy Report by The Energy and Resources Institute (TERI), India’s total primary energy demand has grown over 4-fold, from 160 Mtoe in 1971 to 691 Mtoe in 2010 (Mtoe is million tons equivalent in oil which means the amount of energy released by burning one million ton of crude oil).

With an increasing population and a GDP that is expected to grow at 8 percent per annum, the energy demand of India can only

Interview

‘Cement and steel to become costlier, postcoal auctions’

T

he first round of coal block auctions is over. The market is abuzz with the aggressive bids put in by companies in the fray that resulted in hefty gains for the exchequer. But what are the macro implications of such bids? Amitabh Mudgal, Senior Vice-President, Marketing and Corporate Affairs, Monnet Ispat & Energy Limited, speaks on the impact of the e-auctions on power tariffs and steel sector margins, in a free-wheeling interview to Priyalina Basu of Coal Insights.

Excerpts: What are your plans to absorb the extra costs you had to shell out for e-auction?

Auctions of coal blocks have been conducted for two sectors -- power (regulated) and steel, cement and captive power plants or CPPs (non-regulated). At the time of bidding, plants with investments in both or any of these sectors had only two choices, either to shut down the plant’s operation on April 1, 2015 or to secure fuel (coal) through taking part in the auction process.

As far as the steel sector is concerned, it is already getting linkage coal from Coal India at 30 percent premium. Even after paying this premium, it is getting supplies at 60 percent of the annual contracted quantity on an average. So the higher cost of coal in steel will not have a very big impact on overall costing as it will have fuel security which will ensure better efficiency and capacity utilisation of plants .

Also, in the absence of domestic coal, imported coal is the only choice which all the plants at Monnet Ispat & Energy in Chhattisgarh are already using. Being

located in the hinterland, the landed cost of the imported coal in Chhattisgarh is almost the same or even slightly higher than the auction mine price and thus there is no significant impact. In any case, any impact on costing, in a competitive market mechanism, has to be compensated by the margin if one has to compete.

What could be the impact on this on your profitability?

As discussed above, the impact in terms of costs will be marginal for the steel sector as better utilisation of plant capacity will help

in keeping overall costing low. Secondly, current prices of steel in the market are at their lowest. A slight improvement in GDP growth will lead to growth in infrastructure projects like road, rail, and real estate and thereby demand for steel.

At present, the global commodity market is at a low, which allows profitability on an average basis because of cheaper raw materials (other than coal). Moreover, some sparks of reversal in commodity prices can be seen happening with the reversal in crude oil prices. Time lag in the rise of steel prices vis-a-vis its raw materials will allow profitability in this sector.

As far as the steel sector is concerned, it is already getting linkage coal from Coal India at 30 percent premium. Even after paying this premium, it is getting supplies at 60 percent of the annual contracted quantity on an average. So the higher cost of coal in steel will not have a very big impact on overall costing as it will have fuel security which will ensure better efficiency and capacity utilisation of plants.

Coal Insights, May 2015

39

government

Third round of coal auctions hanging fire Coal Insights Bureau

A

fter the stupendous “success” of the first two rounds of coal block auctions that mopped up over `200,000 crore from just 29 blocks, surpassing the presumptive loss of `186,000 crore that the Comptroller and Auditor General (CAG) had estimated previously, the government seems to be dragging its feet on the third round, for most likely 23 mines, with no clear indications on the kick-off date emerging so far.

This is mainly on account of the various court cases filed in relation to the cancellation of coal blocks in August last year by the Supreme Court. As many as 41 cases have been filed, challenging the bidding methodology as well as provisions in the Coal Mining (Special Provisions) Act. While 12 cases have been dismissed in the government’s favour, those relating to the Act could have an impact on the coal allocation procedure, say experts.

Shifting timelines

The third round of auctions was initially slated for the third week of April, but then both the timelines and the number of blocks to be auctioned kept on changing as the suggested deadlines went by.

In early April, Swarup had said that the third tranche would commence from the third week of April and that most of the clearances of the coal blocks (to be auctioned in the third lot) were in place. The government had also said that 16 mines would be auctioned in this round of which 11 would be reserved

Anil Swarup, Secretary, Ministry of Coal

for the power sector and five for non-power categories.

In mid-April, Swarup told Coal Insights that the coal ministry is planning to put 20 blocks for auctions which would be held by April-May. “The next round of coal mines auctions will be held soon and about 20 mines will be auctioned in this round,” Swarup said.

Asked about the timelines for the next round, he said, it would be held “this month or the next”.

However, in the third week of April, Swarup informed that the third round could begin in May and that the government would come out with a notice inviting application for the same.

Later on, a government official said that there would be 23 mines, 12 of which would be kept for the power sector and the remaining for non-power uses.

Finally, the auction got pushed to the month of May, and it still continues to hang fire with Coal Secretary Anil Swarup tweeting (on May 3) that “dates for the next

round of auctions not yet finalised. Will inform as soon as they are”.

The latest reports inform that these auctions may kick off in end-June.

Meanwhile, the Power, Coal and New & Renewable Energy Minister, Piyush Goyal, has said that there has been no delay in the third round of auctions and that the government has not committed a timeframe for it. He also assured the auctions would “commence soon”.

Noting this delay, the Prime Minister’s Office (PMO) has asked the Ministry of Coal (MoC) to expedite the third round of auctions. The directive came at a meeting between coal ministry officials and the PMO chaired by the Principal Secretary to the Prime Minister, Nripendra Mishra.

LoA/linkage auction proposals

While the ministry seems to bid time for the third round auctions of coal blocks, preparations are being made at good speed for the coal linkage auctions. The government has

Coal Insights, May 2015

51

74 Coal Insights, May 2015

Tear along the dotted line

Tear along the dotted line