Coal Insights, November 2020

FROM THE CHIEF EDITOR Chief Editor Dr Mahul Brahma, Tel: +91 85840 08241, E-mail: mahul.brahma@mjunction.in Editor Arindam Bandyopadhyay, Tel: +91 91633 48016 Email: arindam.bandyopadhyay@mjunction.in Associate Editor Sumit Kumar Maitra, Tel +91 85840 08181, Email: Sumit.Maitra@mjunction.in Editorial Board Alok Srivastava, General Manager, MMTC Ltd Amitabh Panda, Group Director (Shipping & Logistics Operations), Tata Steel Group Anil Razdan, Energy Consultant, Formerly of the IAS, Former Secretary Power & Sp. Secretary Petroleum & Natural Gas, India Anirudha Gupta, Mining & Metals professional and former Director, P&H Joy Mining Equipment India Ltd Ashok Jain, Managing Director, Saumya Mining Ltd Deepak Bhattacharyya, Chief - Horizon 1 businesses, mjunction services ltd Ganesan Natarajan, Former Whole Time Director, Ennore Coke K C Gandhi, Joint President (Material), Shree Cement Ltd Lawrence Metzroth, Vice President – Analysis & Strategy, Arch Coal Inc Sandeep Kumar, Managing Director, Tata Metaliks Ltd Senior Correspondent Ritwik Sinha, Tel + 85840 08234, Email: ritwik.sinha@mjunction.in Balaka Ghosh Chatterjee, Tel + 85840 08190, Email: Balaka.Chatterjee@mjunction.in Analyst Sanjoy Bag, Tel +91 85840 08215, Email: sanjoy.bag@mjunction.in Business Lead Soumitra Bose, Tel: +91 92310 00232, Email: soumitra.bose@mjunction.in Advertising Soudipto Malakar, Tel: +91 91633 48243, Email: soudipto.malakar@mjunction.in Sumit Jalan, Tel: +91 83369 25981, Email: sumit.jalan@mjunction.in Subscription Niladri Kar, Tel: +91 83369 96510, Email: niladri.kar@mjunction.in Email: publication.vspl@mjunction.in Toll free number 1800 41 920 001, press 6 for publication.

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Dear Reader, I am happy to announce that inspite of the challenges posed by Covid, we are able to curate for you the 14th edition of Indian Coal Markets Conference on December 17-18, 2020, on a virtual platform. The focus this year that the industry heavyweights will be discussing for you is ‘Indian Coal: Reignited…!’

The much-anticipated auction of commercial coal mines concluded with moderate success this month ushering in a new era in the energy sector. In an optimistic scenario, coal would get transformed from a duopoly – with Coal India and Singareni Collieries controlling most of the production – to a buyers’ market where numerous miners and sellers will compete among each other in a transparent manner striking deals – spot as well as long terms - with buyers over coal exchanges where prices would get discovered for quality coal mined with state-of-the-art mining equipment. And all this might materialize in the next three to four years.

On the other hand, excess supplies by private sector players might drive down prices of coal to uneconomic levels hurting Coal India financially. While there is need for private players to bring in greater competition in any sector including coal, there is also a case for a public sector entity in the market that would ensure discipline and fair business practices.

How the future will turn out depends much upon how responsible the stakeholders are and how effective the regulations are.

Apart from established players like Vedanta, Adani or JSPL, we have seen real estate developers and iron ore miners winning many of the blocks. It would be interesting to see how a real estate developer approaches the business of mining and there could be much learning here.

The risk of frivolous players and rent seekers have been addressed through several auction norms.

The month also witnessed another milestone which provides a vision of a future to come. While coal mine auction was taking place, another auction got conducted by the government where price of renewable energy touched a low of `2 per unit following a fierce competition among bidders. Interestingly, NTPC, country’s largest consumer of coal, put in a second lowest bid at `2.10 per unit.

It is common wisdom that in the near future both renewable energy and coal will co-exist in India. But how responsibly we handle coal would determine how long it continues to burn.

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Coal Insights, November 2020

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CONTENTS 14 Seaborne thermal coal offers firm up in November 15 Seaborne coking coal offers fall in November 16 India’s September coal imports up 12% on year 17 CIL’s coal production up 1% till October 18 SCCL’s coal production down 38% till October 21 India to lead renewable energy surge in 2021: IEA 24 No power capacity addition in September 26 Power producers ask FM for financial support to revive sector 27 October sponge iron production down 3% 34 Peabody Energy fears bankruptcy due to fall in India imports, US demand 36 US coal production estimated at 627 MMst in 2021 37 Traffic handled by major ports down 12% till October 38 Railways’ coal handling down 14% in April-October 39 Inteview of Navrattan Green Cements chairman Himansh Verma 44 Slowdown in power sector drives BHEL to loss 45 Coal India Q2 net profit falls 12% on higher OBR, low auction premium 48 Coke sourcing key driver for Tata Metaliks merger with Tata Steel Long Products 50 NTPC to have 25% of its capacity based on renewable by 2030 51 NTPC to have 25% of its capacity based on renewable by 2030 54 Corporate Update 56 Government Update 58 E-auction data

4 Coal Insights, November 2020

6 | COVER STORY

Commercial Coal Mine Auction: Dawn of A New Era The event marked country’s transition to a liberalised coal sector

12 | COVER INTERVIEW “It’s unlikely that government relied on global participation.”

Dr. Rahul Tongia, Senior Fellow at CSEP discusses impact of coal mine auction.

19 | FEATURE Coal Ministry seeks advice for coal trading platform Consultant to provide assistance in detailed study on the current state of the coal sector.

30 | INTERNATIONAL

Troubled Eskom to ‘repurpose’ old thermal plants South Africa’s power major plans to move away from coal.

42 | CORPORATE

Coal India eyes 58 mt additional output in FY21 Signs Memorandum of Understanding with coal ministry.

COVER STORY

COMMERCIAL COAL MINE AUCTION

Dawn of A New Era Sumit Maitra

T

he month of November turned historic with the execution of country’s maiden auction of coal mines for commercial usage that marked the country’s transition to a liberalised coal sector that promises access to a fuel on demand

6 Coal Insights, November 2020

at competitive prices without bureaucratic hassles and monopolistic attitude.

Moderate response

The auction, conducted under the shadow of the still raging pandemic and in an

environment of economic hardship saw moderate success with 50 percent of the mines – 19 out of 38 – receiving financial bids.

Moreover, few very large mines like Chhendipada, Kurloi (A) North,

COVER STORY Machhakata, Brahmanbil - Kardabahal, North Dhadu with average annual production of around 15 mt received one or no bids and hence, were not eligible for being awarded.

The highest premium touched 66.75 percent with average premium at 29 percent.

The average success rate of the previous 10 tranches of coal auctions remained at about 30 percent as only 35 mines could be auctioned, out of 116 mines put on auction during the last 10 tranches.

Majority of 42 companies which participated in the auction, were from private sector with just two PSUs - NALCO and Andhra Pradesh Mineral Development Corporation Ltd – came from the public sector.

Out of these successfully auctioned 19 mines, 11 are opencast, 5 are underground mines and remaining 3 are a mix of underground and opencast mines located in 5 states - Madhya Pradesh, Chhattisgarh, Odisha, Jharkhand and Maharashtra having consolidated Peak Rated Capacity of 51 million tons a year.

More than half are “Nontraditional” players

With the removal of end-use criteria and significant net worth requirement, 65 percent of bidders are “non-traditional” players, meaning these players have no experience of owning or managing or operating coal mines.

These bidders were from sectors like real estate, infrastructure, pharma as ‘end use’ criteria was removed from the bidding process.

That isn’t a bad thing though as many of the winners have either prior experience in minerals like iron ore or have significant business operations giving them the bandwidth to manage diversifications.

Aurobindo Realty & Infrastructure Pvt Ltd, which has own the Takli Jena Bellora North, Takli Jena Bellora South in Maharashtra and Urma Paharitola in Jharkhand in the auction, describes itself as a new breed of real estate developers having 14 million sq ft of area under development.

Yazdani International Private Ltd of Odisha which has won the much talked

about Marki Mangli II block, is an exporter of iron ore.

The group describes itself as an “export house, active in the commerce of metals and minerals including iron ore, chrome ore and manganese ore” and claims to have established itself as a “reliable mine owners in Odisha”.

Fairmine Carbons Pvt Ltd is a petroleum and coal products manufacturing company in Jharkhand according to a Dun & Bradstreet database.

Chowgule and Company Pvt Ltd which won the Sahapur (East) mine in Madhya Pradesh, is part of the Chowgule Group and has mining operations in Goa and Karnataka.

The group’s mining division, located in Goa’s rich iron ore belt, produces and exports over 5 million tons of iron ore and iron ore pellets per annum, all around the globe.

After winning the mine, Chowgule appointed Rajeev Bora as the CEO of its mining division, who was previously vice president of mining at Hindustan Zinc, company officials said.

The Chowgule Group claims to be the first to mechanise mining operations in India, in 1952 at Sirigao Mines in Goa. It is difficult to pre-judge whether entry of such non-traditional players would improve the coal mining sector and contribute positively when many of the mines belongs to ecologically sensitive areas.

“How can you judge a startup, which is valued as being disruptive? On the other hand, a track record gives comfort as well as a sense of how they would operate. The key need is for a stakeholder with a long-term vision and the ability to see through shortterm ups and downs,” says Rahul Tongia, Senior Fellow at the Centre for Social and Economic Progress who has been studying the coal sector closely.

Safeguards against ‘fly-by-night operators’

The government, on its part, tried to ensure that no frivolous players took advantages of relaxed entry norms.

“The relaxation of end-use plant norm liberalised the entry and anybody could now

get in. But if we are allowing anybody to get in, then eligibility condition must be liberal which meant there need not be any prior experience or any networth of hundreds of crores of rupees. But when you participate and take a mine, we are taking a hefty performance bank guarantee to make sure that fly-by-night operators don’t get in and consequence will follow if one tries to trivially get out of the mine,” coal secretary Anil Jain said.

But the government has also created provision of ease of exit as for mines which are not fully explored, successful bidders have been given 15 months to explore and then be able to decide whether they want to retain or exit the mine, he said after conclusion of the auction.

Challenges

A moderately successful commercial coal mine auction indicates the present efforts and ingenuity of the government and also the medium term outlook of the industry based on which the bidders responded.

But the long term viability of commercial coal would depend to a large extent on longevity of coal as commercially viable fuel which has to compete chiefly with renewable energy.

Unequal competition from renewable energy

NTPC, the largest producer of coal-fired thermal energy in the country has recent put in a bid of `2.01 per Kilo Watt hour for 470 MW capacity, the second lowest bid in an auction conducted by Solar Energy Corp of India where the lowest bid hit `2/ kWh put in by Saudi Arabia’ Aljomaih Energy and Water Company and Singapore headquartered Sembcorp’s India arm’ Green Infra Wind Energy Ltd. Even as coal has to compete with cheaper renewable energy now available all day long, it has to take the enormous burden of taxes and duties to support the mammoth Indian Railways and also several resource rich but economically poor coal bearing states.

Railways overcharges coal transporters by about 31 percent to subsidise passenger traffic while there is a coal cess of `400 a ton

Coal Insights, November 2020

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FEATURE

Coal Ministry seeks advice for trading platform

regime (e-auction, spot e-auction, forward eauction, exclusive auction, linkage auction, SHAKTI auction etc.) ♦ Regulatory (including tax structure) framework w.r.t. to coal sales ♦ Coal market scenario with coal supplies in the market from coal mines allocated from commercial mining Module II - Study of global experience for development of coal trading exchanges (covering any 2 exchanges)

Coal Insights Bureau

C

oal Ministry has floated request for bid for selection of consultant for providing strategic and implementation consulting services for setting up coal trading platform exchange.

Opening up of the coal sector with commercial coal mining has necessitated setting up of an exchange where coal for commercial sale would be traded, coal ministry had earlier indicated.

Ministry of Coal plans to take services of a consulting firm to provide assistance in carrying out a detailed study on the current state of Indian coal sector, international coal sector, and government’s priorities and to recommend further course of action for successful establishment of coal trading platform/coal trading exchange in the country. Selection will be on quality-cumcost based selection.

The bidder, selected in accordance with the provisions of the RFB, shall assist the

Ministry of Coal by deploying dedicated professionals in order to provide assistance and coordinate various implementation aspects of the project.

The project would be implemented in accordance with the terms and conditions stated in the consultancy agreement to be entered into between the Ministry of Coal and the Consultant.

Scope of Work

Module I: Assessing the current state of coal sales transaction in Indian coal sector including following aspects ♦ Scenario on current and future coal demand and supply (domestic & imported sources) in the country (including coking coal, thermal coal, washery rejects, middlings etc.) ♦ Domestic and imported coal pricing regime (NCI, WPI, auction prices, notified price, global indices) ♦ Current form of coal trade with contractual

Identify global coal markets having coal trading hubs/exchange and analyze their critical success factors including policy, regulatory, market and institutional dimensions to draw specific learnings for India. This may include aspects such as ♦ Broad policy and regulatory framework including Industry structure ♦ Supply and demand scenario ♦ Evolution of Coal Trading Hub/ Exchange and its ownership ♦ Market design and structure including the hub design, products, market rules, settlement mechanism, role of market and system operators, etc ♦ Pricing index/ benchmark / reference ♦ Identify various key enablers and successful models of trading hubs and draw specific learnings for India ♦ Facilitate international study visits to two countries, to understand the functioning of exchange and draw specific learnings for India Module III - Identification of various trading hub concepts/models On the basis of the international learnings and the analysis of the Indian coal markets, develop various models for the trading hub that are implementable in the Indian coal market. Analyse the following key aspects of the trading hub: ♦ Commercial and regulatory arrangements for coal trading. y Voluntary vs mandatory trading – the implications. y Institutions (regulator, market operator, settlement institutions, shipping and logistics, warehousing)

Coal Insights, November 2020

19

FEATURE

India to lead renewable energy surge in 2021: IEA

Coal Insights Bureau

I

ndia will contribute the most towards pushing renewable energy (RE) sector up in 2021, according to the International Energy Agency’s (IEA) new report, Renewables 2020 – Analysis and forecast to 2025.

“India is expected to be the largest contributor to the renewables upswing in 2021, with the country’s annual additions almost doubling from 2020. A large number of auctioned wind and solar PV projects are expected to become operational following delays due not only to Covid-19 but also to contract negotiations and land acquisition challenges,” IEA said in the report.

In the European Union, capacity additions are forecast to jump in 2021. This is mainly the result of previously auctioned utility-scale solar PV and wind projects in France and Germany coming online.

Growth is supported by member states’ policies to meet the bloc’s 2030 renewable energy target and by the EU recovery fund providing low-cost financing and grants. In the Middle East and North Africa region and Latin America, renewable energy additions

recover in 2021, led by the commissioning of projects awarded previously in competitive auctions.

In the first half of 2020, 13 countries awarded almost 50 GW of new renewable capacity to become operational during 202124, the highest amount ever. China’s national solar PV auction awarded 25 GW in June 2020, marking the global trend. Despite a sharp slowdown in construction activity,

“Growth in renewable capacity in India slowed significantly – but this started happening prior to the nationwide lockdown imposed at the end of March and resulted largely from the persistent challenges of utilities’ poor financial health and projects delays.” IEA India awarded 11.3 GW of solar and almost 1 GW of wind capacity in central and state auctions, reversing the downward trend that had begun in the second half of 2019.

Renewable capacity to achieve record growth in 2021

Renewables will achieve record expansion in 2021, with almost 218 GW becoming operational – a 10 percent increase from 2020.

Renewable electricity auction results by technology and country/region, 2018-20

Coal Insights, November 2020

21

INTERNATIONAL

Troubled Eskom to ‘repurpose’ old thermal plants Coal Insights Bureau

S

outh Africa’s state-owned power utility monopoly Eskom Holdings SOC Ltd which supplies close to 95 percent of the country’s thermal energy need, is moving away from coal as a survival strategy burdened with aging plants and demand slump and to take benefit of financial incentive for using renewable energy.

The decision comes at a time when the power major has suffered three consecutive years of loss touching $1.3-billion in the year ending March 2020.

“As older power stations approach their economic end of life, we are investigating the impact on surrounding communities when the time comes for retiring or repurposing existing coal-fired units or stations; this will inform plans for shutting down these power

stations. The use of operational units at these stations is being reviewed for extended use beyond 2025 or until sufficient new capacity comes online,” André de Ruyter, Group Chief Executive said in the recently released annual report.

“We are considering a repurposing programme to investigate projects that may provide alternative employment, and potentially create opportunities and jobs to support economic activity using the available power station land and infrastructure. Conceptual mitigation plans are being investigated, such as repowering with renewables or gas, repurposing or extension of existing services. To this end, we are implementing our Just Energy Transition Strategy, specifically regarding the repurposing of power stations,” he added.

Energy transition strategy

Eskom has set up the ‘Just Energy Transition Strategy’ initiative focuses on: ♦ Commitment to a lower carbon future ♦ How repurposing and renewables plans contribute to meeting this goal ♦ Impact of this approach on all environmental goals – air quality, carbon emissions and water, with no compromise on environmental integrity ♦ Impact of this approach on socioeconomic factors, including dealing with shutting down coal-fired stations ♦ Medium- to long-term technology requirements and the associated financing and policy enablers ♦ How to attract and sustain financing for initiatives Based on a life of plant of 50 years, approximately 12,000MW of coal-fired capacity is expected to be shut down by 2030.

The pace of this transition must consider the capacity of the electricity supply system, elements of the value chain, employees, suppliers and communities surrounding the power station to adapt.

“As older power stations approach their economic end of life, we are investigating the impact on surrounding communities when the time comes for retiring or repurposing existing coal-fired units or stations; this will inform plans for shutting down these power stations.” André de Ruyter, Group Chief Executive 30 Coal Insights, November 2020

CORPORATE

Coal India eyes 58 mt additional output in FY21 Signs Memorandum of Understanding with ministry

Coal Insights Bureau

C

oal India plans to produce an additional 57.86 million tons of coal production in FY21 touching 660 mt over 602.14 mt mined in FY20, the PSU mining major has said in its Memorandum of Understanding signed recently with the government.

While production from 3 mines were suspended during 2019-20, 4 new mines are likely to start during 2020-21, CIL’s MoU document states.

42 Coal Insights, November 2020

Apart from starting 4 mines, Coal India has targeted achieving significant milestones for about 65 mining projects. Relatively larger projects among these are: ♦ Gevra Open Cast expansion (70 mtpa) ♦ Magadh OC (51 mtpa) ♦ Kusmunda OC expansion (50 mtpa) ♦ Jayant (20 mtpa) ♦ Budhichua (20 mtpa) ♦ Ananta OCP Expansion, Phase-III (15 mtpa) ♦ Baroud OC Expansion (10 mtpa) ♦ Pelma OC (15 mtpa)

♦ ♦ ♦ ♦

Bhubaneswari OCP (20 mtpa) Durgapur OCP (6 mtpa) Madannagar OCP (12 mtpa) Amadand OCP (4 mtpa)

Coal India also plans to increase overburden removal in FY21 by a maximum of 34 percent over FY20 level.

In terms of financial health, Coal India has promised to cut down outstanding trade receivables in terms of number of days of revenue from operations from 37 days in FY20 to 14 days in the current year.

62 Coal Insights, November 2020

Tear along the dotted line

Tear along the dotted line