Coal Insights, September 2019

Contents

6 | COVER STORY

24 Thermal coal offers rise in September 25 Seaborne coking coal offers slid in September

Captive, commercial mine auction

26 India’s July coal imports remain flat y-o-y

Industry demands “attractive” block auction norms

27 CIL’s coal production down 10.3% in August 28 SCCL’s August coal production down 7.5% y-o-y 29 “India’s energy demand to grow by 4.2%: Minister Dharmendra Pradhan 35 Coal India launches tranche 5 of linkage auction for steel companies 36 Coal India sees commercial mining, FDI bringing in efficiencies 37 Coal block auction date reset to get more response

18 | INTERVIEW “Given its experience and competence, CIL is confident of staying ahead” S N Prasad, Director (Marketing) of Coal India talks about competition from private sector, growth of renewable energy.

38 Coal India eyes coking coal mines in Russia 39 August sponge iron production down 0.9% y-o-y

Adani gets Maharashtra regulator’s nod for higher coal prices

40 Power capacity addition during July at 1,320 MW 41 India’s cement production up 7.9% in July

Tiroda plant to get compensation for nonavailability of coal from Lohara block

42 Traffic handled by major ports up 2% till August 43 Indian Railways’ coal handling in August down 9.5% y-o-y 44 Corporate update

33 | FEATURE

45 Government update

India’s met coke dilemma

47 Policy changes fueling outlook for coal in China

Time to review anti-dumping duty?

50 US coal production estimated at 328 MMst in H2 of 2019 51 PM Modi pledges to more than double nonfossil fuel target to 450GW

31 | FEATURE

48 | INTERnational

54 E-auction data

China planned thermal capacity 2.5 times of India says Urgewald report

56 Port data

NTPC has most capacities

53 Indian Coal Markets Conference 2019

4 Coal Insights, September 2019

Cover Story

Industry demands “attractive” block auction norms Sumit Maitra

6 Coal Insights, September 2019

Cover Story

T

hese are quiet times in the Indian coal sector. The country’s thermal power plants, at least the majority of them, are no more running short of coal as the state-run coal mining companies are fighting all odds to raise productions and employ some deft supply management to ensure that coal is made available round the clock to the power units.

The happy situation, however, appears deceptive as coal imports continue to surge being done even by power plants which are away from the coasts thus having little logistical incentive to bring the consignment up to their gates at competitive prices.

“Out of 235 million tons (mt) that was imported last year, about 50 percent has to be compulsorily imported in the form of coal for power plants located at coasts and coking coal used by steel plants. But the rest 50 percent is thermal coal for non-shore based plants which can be clearly substituted.

Unfortunately, this component was close to zero in 2007,” Partha S Bhattacharyya, former chairman of Coal India Ltd said.

According to Bhattacharyya, government’s effort at that time to raise production was restricted only to asking Coal India to raise production without encouraging entry of multiple players in the coal mining space.

“This has led to a clear gap of 125 mt that needs to be met. The gap would expand once the stranded power capacity of 40,000 MW comes into operations leading to demand for 200 mt of coal,” he said.

Additional demand would come once the Plant Load Factors of power plants, now at a historical low of 60 percent due to inability of distribution companies to buy power, said Bhattacharyya.

If this gap, set to grow wider, has to be closed, Bhattacharyya estimates that about 20 billion tons reserves of coal needed to be given out, either allocated or auctioned through a transparent process to bring down imports.

“Allocations have to be done to players with proven competence as their numbers are restricted within the country. So we have to reach out to miners outside the country,” he said.

Even as Coal India aims to achieve 1 billion ton production target in the next 5 years and lands up in Australian or at the far eastern corner of Russia to secure coal assets

there, Indian government is opening up the mining sector by allowing commercial mining, permitting captive mines to sell 25 percent of their output in the open market and also liberalise foreign direct investment norms.

All these steps would help the country achieve energy security at a time of rising geo-political tension across the globe.

“There is massive geo-political development in the middle east which is impacting energy scenario while we have seen government of India promoting commercial mining and foreign direct investment even as we have to deal with the ground scenario where Coal India workers have called for strike (in protest against the move to liberalise FDI norms),” Niladri Bhattacharjee, Partner with consultancy major KPMG said.

Even as the country needs to preserve foreign exchange to prepare itself for any likely global crude oil crisis, avoidable imports of coal lead to precious outflow of forex.

“Imports of thermal coal which has been in steady decline since FY15 has rebounded last year. There’s nothing wrong if domestic shortfall is met through imports at competitive rates. But sucking out foreign exchange for a material that is available domestically is not sound economics,” Vinaya Varma, MD & CEO, mjunction services Ltd, said.

Following not so encouraging response from potential bidders in the sixth and the seven rounds of auction in March when 19 blocks were on offer, which was subsequently cancelled, this time, the government plans to make each of the upcoming 8th, 9th and 10th round a success story.

This time 42 mines are on offer, of which government would be auctioning 27 coal mines and allot 15 mines to central and state PSUs. There are however several restrictive norms set for the auction and coal consuming sectors like steel and cement as well as experts and consultants expect the government to relax some of the restrictive norms set for the upcoming captive coal block auctions.

Unless the rules are relaxed and made more attractive, the response to the proposed tranches could be tepid, they warned.

The government has already pushed backed the deadline for auction from September to November and if responses from prospective bidders continues to be weak, the process might get shelved

altogether as happened in the 6th and 7th tranches.

Supriyo Gupta, Director & Head (Government & PSU Business), Deutsche Bank questioned fixing the price bid criteria in rupee per ton terms for something which is a commodity and hence is subjected to price volatility.

Bid price based auction

“Revenue sharing could have been a better option; Ministry of Mines has stipulated percentage of value of mineral despatched as bid parameter for auction of iron ores and other minerals,” Gupta said while addressing a session.

According to the tender document, final price offer would be price per ton of coal extracted which has to be submitted as part of the financial bid on the electronic auction platform.

The successful bidder shall be required to pay an additional premium of 15 percent, over and above the final bid price on per ton basis, for the actual quantity of coal sold in open market.

“Additional 15 percent is only going to discourage optimal production and may result in reducing production to 80-70 percent. In such a scenario, government will miss out on even the bid premiums against the peak production,” said Bhattacharjee of KPMG. The qualified bidder would have to put its final price offer over and above the displayed highest bid by a minimum increment of `2 per ton to become the highest qualified bidder.

Minimum bid number

Looking at the poor responses to the previous shelve tranches, Gupta suggested that if there could be relaxation of stipulation that the auction would be cancelled if number of bids falls below three.

This could be done specifically in cases where the previous auctions were cancelled because of poor response.

“In the event that the aggregate of total number of independent Technically Qualified Bids and/or Cluster in IPO round is less than 3, then no Technically Qualified Bid shall be considered to be Qualified Bid(s) and the tender process for the Coal Mine shall stand annulled,” the norm for number of bidders mentions.

Coal Insights, September 2019

7

interview

“CIL is confident of staying ahead”

C

oal India, the largest coal mining entity in the world, is entrusted with the task of powering most of country’s electricity generation. While it needs to gear up to face the challenge of growing power consumption in line with growing urbanisation and economic growth, Coal India also has to brace up for a world more reliant of renewable energy and where private miners would bring in their technologies and efficiencies, Shyam Nandan Prasad, Director (Marketing) of Coal India tells Arindam Bandyopadhyay in an exclusive interview.

18 Coal Insights, September 2019

FEATURE

Adani gets Maha regulator’s nod for higher coal prices

Coal Insights Bureau

A

dani Power Maharashtra Ltd (APML), a wholly-owned subsidiary of Adani Power, has been allowed compensation by Maharashtra Electricity Regulatory Commission (MERC) on account of non-availability of coal from Lohara Coal Block.

This compensation has been granted in respect of the 1,320 MW Power Purchase

Agreement (PPA) signed in 2008 signed with the Maharashtra Electricity Distribution Co Ltd (MSEDCL), for its power plant at Tiroda in Maharashtra.

The Tiroda thermal plant has an installed capacity of 33 00 MW (5 X 6 60 MW supercritical units), of which Unit 2 and 3 have been tied up under the PPA dated while Units 1, 4 and 5 have been tied up under separate PPAs executed with MSEDCL for 1765 MW.

“De-allocation of Lohara coal block by the Ministry of Coal would qualify as Change in Law, and APML is entitled to compensation for alternative coal used to meet the shortfall from the commencement of power supply under the PPA. Further, APML is also entitled to claim carrying costs on the claim amount till the date of the subject Order,” Adani Power said in a release.

MERC in its earlier order had laid down

Coal Insights, September 2019

31

INTERNATIONAL

China planned thermal capacity 2.5 times of India says Urgewald report NTPC has most planned capacities

Sumit Maitra

C

hina is building about 226.2 GW of coal-fired power plants, close of 2.5 times of what India is currently creating at and 40 percent of the total global capacity additions planned, according to a detailed study recently published by Germany based Urgewald and 30 partner NGOs. The Global Coal Exit List, considered to one of the most comprehensive database of companies operating along the thermal coal value chain, lists around 2,300 companies parents and subsidiaries providing key information on these companies’ coal share of revenue and power production, installed coalfired capacity and annual coal production.

It also identifies, which companies are planning an expansion of coal mining or coal power activities or are developing other coal infrastructure.

“While the world’s leading climate scientists and the United Nations have long warned that coal-based energy production

48 Coal Insights, September 2019

must be rapidly phased out, over 400 of the 746 companies on the Global Coal Exit List are still planning to expand their coal operations. It is high time for banks, insurers, pension funds and other investors to take their money out of the coal industry,” says Heffa Schuecking, director of Urgewald.

Companies listed represent 89 percent of the world’s thermal coal production and almost 87 percent of the world’s installed coal-fired capacity.

While the global coal plant pipeline shrank by over 50 percent in the past three years, new coal plants are still planned or under development in 60 countries around the world. If built, these projects would add over 579 GW to the global coal plant fleet, an increase of almost 29 percent.

Out of the 746 parent companies listed on the GCEL, 361 are either running or developing coal power plants, 237 are involved in coal mining and 148 are primarily service companies, which are active in areas such as coal trading, coal processing, coal

transport and the provision of specialized equipment for the coal industry.

The 4 countries with the most coal companies are China (164), India (87), the United States (82) and Australia (51).

World’s largest thermal coal producer is Coal India, accounting for 8 percent of world thermal coal production.

Around 27 companies account for half of the world’s installed coal-fired capacity.

The world’s largest coal plant developer is India’s NTPC with plans to build 30,541 MW of new coal-fired capacity while China Energy Investment Corp is the largest existing player with 175,000 MW installed coal-fired capacity.

One of the largest equipment providers for the coal plant pipeline is General Electric, being involved in the construction of new coal plants in 18 countries, out of which half are frontier countries, with little or no coalfired capacity as of yet.

Another important manufacturer and EPC contractor is Doosan Heavy Industries

58 Coal Insights, September 2019

Tear along the dotted line

Tear along the dotted line