Contents 7 On the favourable track? CIL growth trajectory owing to collaborative reforms
6 | COVER STORY
10 Government intervention required for mining sector growth
An unfinished agenda
Experts look at priorities for new government
14 Coal scenario looks positive but stressed discoms remain a matter of concern 20 Consumer as a partner in progress for the power sector 22 Thermal coal offers ease on low booking 23 Seaborne coking coal offers rise on restocking 24 India’s March coal imports up 21% y-o-y 25 CIL’s coal production up 1% in April
28 | FEATURE CERC order in GMR Warora case settles coal cost pass through issue Tariff order allows compensation beyond March 2017
26 SCCL aims at 10% growth in production every year
42 | INTERNATIONAL
30 Power capacity addition in FY19 at 5,922MW
Coal a dirty word?
32 India’s cement production surges 13% in FY19
Rising collective global mood against coalfired power plants
33 CIL to appoint consultant for foreign coal mines buy 35 Sponge iron April production up 1.5% y-o-y 36 Corporate update 39 Traffic handled by major ports up 5.7% in April 40 Indian Rail’s coal handling in April up 5% y-o-y 41 Wagon crisis to hit coal transportation 44 Russia’s coal exports down 1.8% in April 48 US coal production estimated at 170 mmst in Q1 OF 2019 54 E-auction data 56 Port data
4 Coal Insights, May 2019
45 | INTERNATIONAL Surging global renewable energy story Global renewable energy market to hit USD 777.60 billion by 2019
50 | Interview
“Policy support to push mandatory coal washing” R K Sachdev, President, Coal Preparation Society of India talks about need for coal beneficiation.
Cover Story
Coal sector reforms:
An Unfinished Agenda
A
resounding majority for the National Democratic Alliance under the leadership of Narendra Modi paves the way for some pending reform in the mining sector. Currently, both coal production as well as power generation are growing at the same pace creating a fine balance. However, as economy revives and stranded power plants start billowing smoke, there would be significant jump in demand for coal. Contribution of private sector from captive blocks would be crucial. However that would be possible only if there is encouragement from the government in the form of enabling regulations and initiatives. Production from captive blocks have remained stagnant while commercial mining is yet to start. Again, it’s not enough that we produce more coal, the new coal has to be cleaner and less polluting as well. Several industry experts look at various priorities for the new government and how these concerns need to be addressed.
6 Coal Insights, May 2019
Cover Story
On the favourable track? CIL registered a fair growth trajectory in coal production owing to collaborative reforms
Partha S Bhattacharyya
T
r a d i t i o n a l l y, the power sector has been seized by a plethora of problems. Low per capita power consumption at a third of China, substantial T&D losses, Discoms bleeding due to tariff subsidisation disabling purchase of power from gencos, low PLF of thermal plants affecting the capacity to service bank debts and shortage of fossil fuel affecting power generation, were the major pain points. Concerted efforts initiated at policy formulation and implementation to tackle these issues in recent times seem to be yielding an encouraging outcome. Regarding fossil fuel, the power plants are largely coal-based except for around 14 GW gas-based capacity mainly built on the indicated potential of the KGD6 basin. These
became stranded as the gas production from the basin fell off dramatically to a tenth of its peak level seen in 2010. Reportedly, the deep sea gas in High-Pressure High Temperature (HPHT) conditions were unviable to at the general price of domestic gas. Besides, technological challenges were substantial. Efforts at reviving these gas fields through an infusion of appropriate technology and allowing special price commensurate with complexities have been initiated. However, the power generated from such high-cost gas may find a challenge of distribution under the Merit Order system. Hence, even if availability improves, the possibility of the stranded gas-based capacity coming into operation may remain a question mark. For the coal-based power plants, the problem initially was an acute shortage of coal. Over 200 coal blocks allocated earlier to end users for mining were cancelled by orders of the apex court in 2014, effective 1st April 2015. Collectively the production from this segment was around 45 Mtpa in
2014-15 - the last year before cancellation. This production dropped to NIL from April 1, 2015. A transparent auction-based process for allocation of these blocks was promptly brought in place. However, the new allottees had to face quite a few hurdles before coal production could recommence. Inexperience was also a hurdle in some cases. Finally, in 2018-19, the aggregate coal production from this segment regained the pre-cancellation level of 2014-15. This segment is expected to be on a medium growth trajectory now, particularly with companies like NTPC commencing mining operations with plans to grow fast. The dominant coal supplier, namely Coal India Ltd (CIL), stopped growing from 2010-11, largely due to the imposition of a blanket ban by MOEF on all projects in critically polluted industrial zones. The zones were identified based on an evaluation of the Comprehensive Environment Pollution Index (CEPI) developed by IIT Delhi. This was based on measures of air, sound and water pollution. Industrial clusters with CEPI higher than 70 were classified as critically polluted. Most coal projects were located in such clusters and hence suffered the ban. Incidentally, coal mining does not release toxic waste into water. A quick measurement of CEPI in coal mines yielded scores of less than 50. In other words, coal mining per se was not found responsible for the clusters being critically polluted. Demand for sub-cluster analysis to identify industries responsible for critical pollution were made. The outcome in terms of lifting the ban was painfully slow. As a result, after a phase of 6 per cent plus CAGR during 2007-2010, when coal production increased from 361 to 431 Mtpa, the CAGR in the next 3 years, 2011-2014, plummeted to 2.33 per cent production rising from 431 to 462 Mtpa during this period. Ironically, the capacity addition in the coal-based power generation picked up substantially onwards 2007. This coupled with muted growth in coal supply resulted in thermal coal imports rising exponentially. The higher cost of imported coal led to a higher tariff on one hand and, at times compelled the power plants to operate at reduced PLF. The situation became acute by 2014. The reversal of the situation demanded a warlike multi-pronged approach. The Ministry of Coal and CIL acted in unison
Coal Insights, May 2019
7
FEATURE
CERC order in GMR Warora Energy case settles coal cost pass through issue Sumit Maitra
T
he recent ruling of Central Electricity Regulatory Commission on a petition filed by GMR Warora Energy would settle, once and for all, the much debated issue of pass through of higher cost of imported coal necessitated by lack of availability of cheaper domestic supply from Coal India. The tariff relief provided by CERC is not something new but follows similar orders issued for other Independent Power Producers capping a series of legal remedies sought by IIPs that had signed Power Purchase Agreements. Verdicts by other forums were challenged by state electricity distribution authorities with which the PPAs were signed.
28 Coal Insights, May 2019
CERC order on the GMR Warora case is significant as this is the first such order where compensation for shortfall in linkage coal has been allowed for a period beyond March 31, 2017 recognizing that shortfall in supply of coal is a continuous cause of action. On earlier occasions, relief had been limited till 2017 necessitating power generators to again approach regulatory for seeking relief. In some cases, generating companies are yet to receive compensation beyond March 2017 despite Supreme Court having allowed the same by way of its Judgment in Energy Watchdog vs. CERC and others in April 2017. “Pass through on account of increase in costs of coal had been allowed by the Supreme Court and other forum. Unfortunately, that
had been limited to March 2017. There was an entire debate going on such orders quantifying the compensations from early 2018 to mid 2018. Generating companies were facing a problem as they were already into a period where they were not being able to recover the coal costs which were substantial component for them. Significance of this judgement is that moving forward this issue is now settled till the term of the PPAs. So, in terms of cash flow and in recovery of costs, the generating companies need not go back to the CERC again and again,� said Vishrov Mukerjee, Joint Managing Partner at legal advisory firm J. Sagar Associates. J Sagar advised and represented GMR Warora Energy in its petition against Maharashtra State Electricity Distribution
INTERNATIONAL
Rising collective global mood against coal and coal fired power plants
Sumit Maitra
I
s the era of building new coal-fueled power plants coming to an end? Some recent developments, particularly in developed economies would suggest so even as China and India continues to commit fresh capital in building new thermal power capacities. What triggered the obituary of coal-fired energy is a handful of recent developments ranging from a collective decision by some global and regional banks to henceforth stopping funding such power plants; United Kingdom spending a month without using coal fired power and a report by International Energy Agency that essentially said decisions to invest in coal-fired projects declined to their lowest level in 2018 since the beginning of this century even as retirement of old plants rose. Likely end to fresh investment in coal-fired power in developed world
A call by United Nations Secretary General
42 Coal Insights, May 2019
Antonio Guterres, during his address to Pacific Island Forum to stop making new coal-based power plants next year signaled how voices being raised by the developed economies are finding strength from support by key global institutions. “First, we must shift taxes from salaries to carbon. We need to tax pollution, not people. Second, we must stop subsidizing fossil fuels. Taxpayer money should not be used to boost hurricanes, spread drought and heatwaves, melt glaciers and bleach corals. Third, we must stop building new coal plants by 2020,” Guterres said at Port Vila in Vanuatu located on the South Pacific Ocean. It’s likely that some developed country would indeed start planning for that achieving that goal, encouraged by the Secretary General’s prodding which came from what is described in his speech as his observation of widespread impact of global warming triggered by use of fossil fuel. “The risks are all too real. Entire villages are being relocated, livelihoods are being destroyed, people are getting sick from climate-related diseases, and in Tuvalu I
saw an entire country fighting to preserve its very existence,” he said in a passionate address which comes ahead of the planned UN Climate Action Summit 2019. Industry has already started listening. US Minneapolis-based thermal power plant on May 2O disclosed its plans to retire its two remaining coal plants by 2030. The utility had earlier announced its target to deliver all its energy from carbonfree sources by 2050. “This is a significant step forward as we are on track to reduce carbon emissions by more than 80 percent by 2030 and transform the way we deliver energy to our customers,” Chris Clark, president of Xcel EnergyMinnesota, said as reported by news agency AP. Earlier, PacifiCorp, a Berkshire Hathaway Energy subsidiary that provides electricity to about 1.8 million customers in six western US states, said it would retire its coal-based plants by 2023. National Grid Electricity System Operator of UK announced in April that it will be able to fully operate Great Britain’s
Interview
“Coal beneficiation should be made mandatory, needs policy support�
I
t is intriguing to note that in a country like India, where coal has a very high ash content, neither the consumers nor the producers of coal seem to be any keen on beneficiation of the dry fuel. The situation is completely different in countries where coal has much better quality and less impurities. The prolonged debate over the need for beneficiation and the procrastination in setting up washeries is actually costing the consumers and the environment alike, R K Sachdev, President, Coal Preparation Society of India (CPSI), tells Arindam Bandyopadhyay in an exclusive interview. Excerpts:
50 Coal Insights, May 2019
How do you describe the current scenario in coal and mineral beneficiation in India? Let us first take a look at the history of coal washing in India. The concept of washing of coking coal started as early as 1918, when Tata Steel began looking into the washing possibilities of coking coals from Jharia and West Bokaro coalfields. The company was the first to set up two coking coal washeries, one each at West Bokaro and Jamadoba. After the Coal Board was set up in 1952, four more centralised coking coal washeries were established at Dugda, Patherdih, Bhojudi and Kargali for supply of washed coal to the government steel plants. Initially, only coking coal was being processed for supply to the steel plants. There was one exception. ACC had set up the first non-coking coal (thermal coal) washery at Nowrozabad to
get rid of Pyritic Sulphur from coals. In the mid-1960s, erstwhile National Coal Development Corporation (NCDC) established the second non-coking coal washery at Giddi. This was done on the insistence of the government on supply of washed coal to the Indian Railways. This, however, proved to be an ominous start for thermal coal washing, as the Railways refused to buy washed coal because dieselisation of locomotive had already begun. This washery remained unutilised for next 15 years or so till it was partially modified to process coking coal. Since the late 1970s, there has been a debate in the Indian coal industry on the necessity of washing of thermal coal. This issue has been debated till about 10 years back, when all the stakeholders got convinced that washing of domestic coal
58 Coal Insights, May 2019
Tear along the dotted line
Tear along the dotted line