Coal Insights, September 2015

Contents

6 | COVER STORY

32 Sharp demand slowdown weighs on steam coal offers in September

‘NLC can reduce CIL’s stress by entering coal mining’

34 Coking coal offers continue to slide in September 36 India’s Apr-Jul coal output short of target

The lignite miner is allotted two coal blocks but seeks more, says CMD, B Surender Mohan.

40 Govt green signal to CIL on price rationalisation 42 CIL’s equipment procurement task force moots revised norms 46 India adds 500 MW of generation capacity in July

16 | Interview

48 India’s cement production continues slipping

Faster land acquisition is the wonder pill for coal: Swarup

49 CMPDI to take up detailed study of 90 UG mines

Coal secretary warns of poor health of state electricity boards and its impact on economy.

50 Mining safety: A priority area for miners

54 | Opinion

52 CIL’s first belt pipe conveyor system starts at NCL 54 Reorganising Indian coal sector

Reorganising Indian coal sector

56 New technology can snuff out opencast method

Five industry stalwarts put down their views about Indian coal and power sectors, suggest improvements.

57 Coal block auctions: A Himalayan blunder?

58 Unlocking wealth in spares 60 Indian mines, not Indonesian or S African, will meet country’s needs 64 Some NLC projects facing EC, land hurdles 65 Ultratech Cement to hike capacity to 75 mt in 2016 70 Indian Coal Markets Conference to delve into key issues 71 US power sector coal consumption estimated to fall 7% 76 Shipping Ministry mulls transloading facility at congested ports 77 SER handles 10.67 mt of coal till August 78 Thermal coal handling by major ports up 22.66% in April-August

4 Coal Insights, September 2015

66 | Corporate Phoenix rises to serve!

Braving odds, the conveyor belt major is aspiring to become a one-stop shop for Indian buyers.

72 | International

Chinese checkers: Decoupling coal and development Knowing China, one shouldn’t assume the current slide as the beginning of the end of Chinese juggernaut.

Cover Story

“NLC can reduce CIL’s stress by entering coal mining”

T

hough much is written about coal on a large scale, its slightly lesser famous cousin, lignite, or brown coal, hardly ever gets a mention. But out of the global lignite reserves of 201 billion tons, India’s share is a chunky 44 bt. And navratna PSU Neyveli Lignite Corporation is blazing all guns to increase its lignite production and power generation capacities with a slew of projects. Investments worth `4,205 crore have been planned in 2015-16 and `29,239.3 crore during the XII Five-Year Plan period. But, as B Surender Mohan, Chairman-cum-Managing Director, Neyveli Lignite Corporation, tells Rakesh Dubey of Coal Insights, lignite is low calorific value fuel, with a GCV that ranges from 2,600 to 3,000 Kcal and because of the high moisture content and inherent combustion properties, it cannot be transported for a long distance. Hence, lignite is best suited for pithead power plants.

6 Coal Insights, September 2015

Cover Story Excerpts from an interview: How would you describe your experience as CMD, NLC? What were the major steps taken by you to achieve higher production and excellence?

Really, it is a nice and challenging experience to head a navratna public sector undertaking.

I had a very good team of functional directors, dedicated officers, executives, supervisors and workmen who supported all our endeavours to achieve the higher production volumes and ensured consistency in lignite production by resorting to availability-based maintenance standards and excellence in financial performance.

I believe the employees and the motivation given to them created a conducive atmosphere which resulted in higher goals and achievements.

You will retire this month. Can you please highlight some of your achievements and also the things which you could not achieve during your tenure?

The production and financial performance have always been high throughout my tenure. I have cultivated the habit of creating new records, breaking our own records and setting new benchmarks.

This is first time in Neyveli’s history that in one financial year more than 1,500 MW was added to our capacity, which is a 55 percent increase in a year. By commissioning the 1,000-MW coal-based power plant at Tuticorin, we have made an entry into coal-based power generation.

Being more environmentally-conscious, we have already marked our footprint in the renewal energy sector also. This has to be further explored for setting up largescale solar power projects in line with the National Solar Mission .

Indian discoms are incurring losses due to poor pricing, subsidy, higher transmission and distribution losses. In order to mitigate the issue of realisation of power dues, we have introduced a graded rebate scheme, a one-time waiver of surcharge and signing of amended PPAs with improve payment security mechanisms. These steps improved

realisation of power dues and improved the financial position of NLC. Towards a faster growth of NLC, we had planned to acquire coal assets abroad, but this move could not fructify due to the improvement in domestic coal production and uncertainties in the international market.

In India, much is written about coal, while lignite hardly gets any mention. Could you brief us on the current lignite reserves in India (proven, indicated and inferred) and the volume of production? Where are the deposits found? In short, what is the scenario like for the brown coal industry in India?

Yes, lignite, the brown coal, is a premature form of coal with low calorific value as compared to coal. The reserves are comparatively smaller, ie, coal reserves are about 307 billion tons (bt) but lignite reserves are at around 44 billion tons. Also, lignite mining started late in India, that is, only after 1956.

Out of that 44 bt of total reserves of lignite available in India, only 6 bt are proven, 26 bt indicated and 12 bt, inferred.

Out of these reserves, only 20 percent of the reserves are within 150 metre depth and the remaining 80 percent lie below 150 metres.

In India, lignite is available in Tamil Nadu, Rajasthan, Gujarat, Pondicherry, Kerala and Jammu & Kashmir.

Nearly, 80 percent of the reserves are available in Tamil Nadu, 13 percent in Rajasthan and 6 percent in Gujarat and 1 percent in other states. Lignite mining technology is now also available with us. Out of the 6 bt of proven reserves, about 1 bt have only been mined out so far. The balance proven reserves have to be exploited, efficiently, judiciously and wisely.

Though major lignite reserves are available in the southern parts of the country, these are deep-seated, making mining uneconomical. The lignite mining technology presently available could be effective only up to the depth of 150 metres.

The annual lignite production in our country is around 45 million tons (mt).

During 2014-15, NLC’s lignite production was 26.54 mt. NLC is contributing 60 percent of the country’s lignite production.

What is the global market scenario for lignite production, consumption and prices?

World lignite reserves are about 201 bt, of which India has reserves of 44 bt. Annual production for the year 2013 was 8.61 at bt. Electricity generation consumes more than half of the world’s lignite production. The global market for lignite mining is influenced by the increased need for energy and the rising prices of various energy resources. Coal-to-liquid (CTL) technologies provide a huge scope for the lignite mining market. Coal to liquid (CTL) technology is used in many countries. In India, it is in an experimental stage.

Coal contributes to 60-70 percent of the electricity generation. Developing countries mainly depend on coal for power generation, hence, it is an increasing trend.

But developed countries are trying to reduce their coal consumption and move towards renewable energy resources like solar. Internationally, the cost of setting up renewable energy-based projects, particularly in solar, are coming down drastically. Developing countries, including India, is also moving towards renewable energy resources. Projections reveal that the increase in demand for coal in developing countries is likely to be continued till 2030, and demand from developed countries is likely to reduce early.

Compared to the price of coal of similar GCV, lignite price is higher due to difficult mining conditions for lignite. As the cost of setting up of coal mines is comparatively cheaper than other sources of fuel, ie, oil and gas, and the availability of coal is also more than other fuels, the price of coal is likely to rule the energy market.

However, concern for environmental issues are likely to curtail the growth of the coal sector in the years to come.

What role can lignite play in light of the fact that CIL is under a lot of stress to increase production, high levels of imports which drain foreign exchange, and inadequate

Coal Insights, September 2015

7

Interview

F

or the last few months, India Inc has been wondering what made the country’s coal mining giant, Coal India Ltd. (CIL) rev up its production growth so dramatically from an average 3.5 percent over the last 4 years to nearly 10 percent in 2015-16.

There were imprecise explanations from within the ranks of CIL. Even the top management, when asked about the trigger, could only offer: “Why go for an investigation into something good that is happening?

We are happy and hope the trend continues…!”

The government and the Ministry of Coal (MoC), meanwhile, kept on harping on how efficiently they could manage to resolve the impasse in captive coal block allocations and how a crisis was turned into an opportunity wellutilised.

As the second quarter of the year (July-September) comes to a close, there emerges a scenario dramatically different. The captive production drops significantly (thanks to the post-auction complications in handing over ownership), while CIL continues to march ahead, now expecting to cross the yearly production target of 550 mt.

Recently, while addressing an investors’ meet organised by Motilal Oswal in Mumbai, Anil Swarup, Secretary, Coal, unravelled the real impetus behind CIL’s maverick performance – land.

It is faster acquisition of land which primarily led to the spurt in CIL’s output. At a time when the prolonged political row over the Land Bill continues to cripple industrial projects, this may stand as a case in point, feels Coal Insights.

16 Coal Insights, September 2015

Faster land acquisition is the wonder pill for coal: Swarup

Excerpts: What have been the key takeaways for the government and the industry from the stupendous success of the captive coal block auctions?

I think it was lucky for us that the block auctions went off well because I would not have been standing here speaking before you had the auctions not gone well.

It was an immensely challenging job… including the task of formulating the legislation which became the basis for the coal auctions that happened.

I remember when we were trying to put this in Parliament I was called by the Finance Minister (Arun Jaitley) at his residence where the Chief Minister of Odisha (Naveen Patnaik) was present. He (Jaitley) was trying to convince various parties to agree to the laws that we were trying to bring in. So when I reached his

residence, the atmosphere was very sombre and the finance minister asked me to explain to the chief minister what exactly we were doing in the auctions. The chief minister was really upset that they were not getting the real value of coal that is distributed through the state. What really eased the situation was when I told him that not a single penny from this coal block auction would come to the central government and will only go to the state governments. He really did not believe this. Then I told him that some of my friends tell me why are we spending sleepless nights when neither you nor this central government is benefitting and yet we are going through all this?

The second thing that I told him (the chief minister) is that the auction process is completely transparent. I took my phone and opened the web portal and showed him that right now a block in Odisha is being auctioned and told him that for every `2 increase in the bidding price, the state

FEATURE Feature mines, according to provisional data available with Coal Insights.

India’s coal production during July 2015 stood at 42.27 mt, up just 0.27 percent from 42.16 mt in July 2014, the data showed.

CIL’s output in July 2015 was 34.83 mt but failed to achieve the targeted 36.03 mt and was also unable to beat the June production figure of 38.82 mt.

SCCL, on its part, produced 4.56 mt and the captive coal mines 2.88 mt in July, 2015.

Captive output drags down production

India’s Apr-Jul coal output short of target

Captive coal output falls 48% y-o-y

Sanjoy Bag

I

ndia’s coal production crossed 186 million tons (mt) in the April-July period of the current financial year. The production level in these first four months is just 27 percent of the annual targeted volume 700 mt.

The April- July, 2015 target was 207.80 mt.

And, going by the trend, many feel, it would be hard to achieve the targeted production volume of 700 million tons (mt) for fiscal 2015-16.

The monsoon affected production during this period and the country failed to achieve the quarter’s target of 208 mt. However, to meet the annual output target of 700 mt, it has to be on course to meet the shortfall of the April-July in the coming quarters. The 21 mt shortfall seen in the first four months needs to be achieved during the rest of the financial year of 2015-16.

Of the total targeted production of

36 Coal Insights, September 2015

700 mt, 550 mt is to be produced by Coal India (CIL), 56 mt by Singareni Collieries Company (SCCL) and 94 mt by captive coal

Coal production from the captive blocks in India fell 47.50 percent to 2.88 mt in July 2015, compared to 5.49 mt produced in the corresponding month of 2014. A volume of 3.19 mt was produced by captive blocks in June 2015.

Coal output from the captive blocks failed to go past the June production figure of 3.19 mt and also the May production figure of 3.29 mt. While in April 2015, captive output stood at 3.12 mt.

Production of 12.43 mt for April-July, 2015 just crossed the 13 percent mark of the 94 mt which is the target for FY2015-16.

Captive blocks produced 5.34 mt in March, 5 mt in February 2015, 6.14 mt in January 2015, 6.29 mt in December 2014, 5.63 mt in November 2014 and 5.21 mt in October 2014 respectively for the past few months.

Captive block produced 65.81 mt for FY2014-15.

India’s coal production, April-March (in mt)

70 60 50 40 30 20 10 0 Apr

May

Jun

Jul

Aug

2013-14

Sep

Oct

2014-15

Nov

Dec

2015-16

Jan

Feb

Mar

FEATURE

India adds 500 MW of generation capacity in July U-13, and 371 MW at Lanco Kondapali St-3, U-1

Coal Insights Bureau

I

ndia added a total of 871 MW of power generation capacity in the month of July, 2015, as per provisional data released by the Central Electricity Authority (CEA), a wing of the Ministry of Power.

The generation capacity-addition in August this year was significantly lower compared to 3,320 MW added in August 2014. However it is higher than the target of 735.6 MW for August 2015.

India added a total of 500 MW of power generation capacity in the month of July, 2015.

With the addition in August, the country’s total installed generation capacity stood at 276,088.94 MW as on August 31,while the nation’s total installed generation capacity stood at 275,911.62 MW as on July 31, 2015.

During August 2015, capacity-addition target for the thermal and hydro sectors were 695.5 MW and 40 MW respectively. But the actual addition was 871 MW in thermal and nil in hydro.

During July 2015, capacity-addition target for the thermal and hydro sectors were 500 MW and 90 MW respectively. But the actual addition was 500 MW in thermal and nil in hydro.

The details of generation capacity addition in the thermal sector in August 2015 are: ♦♦ 500 MW at Vindhyachal STPP St-V,

46 Coal Insights, September 2015

India’s August power generation up 2.03% m-o-m

With this, the country has added a total of 4,651 MW of generation capacity during the first five months (April-August) of 2015-16 as compared to 8,318.44 MW added during the corresponding quarter of 2014-15.

India’s power generation in August 2015 stood at 94.768 billion units (BU), up 2.03% from 92.880 BU generated in July 2015.

However, it is lower from the targeted 95.683 BU for the month of August 2015, according to provisional data released by the Central Electricity Authority.

However, the generation in August 2015 was 5.22% higher than 90.069 BU generated in August 2014, the data revealed.

There seemed to be mixed improvement in a year-on-year analysis.

Monthly capacity addition during FY15, FY14, FY13 and FY12 (in MW)

Months

2015-16

2014-15

2012-13

April

965

535

282

1760

May

0

2716.1

1570

1070#

June

2315

978.67

660

2376

July

500

768.67

0

950

August

871

3320

921

550

September

660

1365

870

October

600

530

1400

November

363.3

1635

803

December

668.67

1765

15

January

2020

700

877

February

2305

2711

2863.8

6630.9

5286.01

7028

March

#

2013-14

Total (April-August)

4651

8318.44

3433

5636

Total (April-March)

4651

21566.31

17,425.01

20,562.80

Figures may not tally due to revision of data by CEA.

86 Coal Insights, September 2015

Tear along the dotted line

Tear along the dotted line