Coal insights Sept 2013

Chief Editor Rakesh Dubey, Tel: +91 91633 48159, Email: rakesh.dubey@mjunction.in Executive Editor Arindam Bandyopadhyay, Tel: +91 91633 48016 Email: arindam.bandyopadhyay@mjunction.in Editorial Board Alok Srivastava, General Manager, MMTC Ltd Amitabh Panda, Group Director (Shipping & Logistics Operations), Tata Steel Group Anirudha Gupta, Mining & Metals Professional and former Director of 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, WT Director, President & CEO, Ennore Coke Ltd Lawrence Metzroth, Vice President – Analysis & Strategy, Arch Coal Inc M K Palanivel, President – All India Bulk, Samsara Group P S Bhattacharyya, Executive Director, Deepak Fertilisers and Petrochemicals Corporation Ltd S N Choubey, Head – Commercial, ABG Cement Ltd Sandeep Kumar, EIC (Secondary Products), Tata Steel Ltd Shyamji Agrawal, AVP-Central Procurement Cell, Ultratech Cement Ltd Suresh Thawani, Former Managing Director, Tata Sponge Iron Ltd Advertising Soumitra Bose, Tel: +91 92310 00232, Email: soumitra.bose@mjunction.in Sumit Jalan, Tel: +91 91633 48243, Email: sumit.jalan@mjunction.in Subscription Rachita Das, Tel: +91 91633 48045, Email: rachita.das@mjunction.in Toll Free No.: 1800 4192 000 1. Press 8 for publication Email: publication.tbss@mjunction.in Design Debal Ray, Sobhan Jas For suggestions, feedback and queries, please write to coalinsights@mjunction.in

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EDITORIAL

Dear Readers, This is what you call much ado about nothing.

It is still not clear what made Coal India’s trade unions back-track, just two days before the onset of their three-day strike. What all the management discussed and offered in their marathon meetings and the unions fell for is not known to the world. However, strangely what the Ministry of Coal (MoC) failed to do through over a month’s persuasion, the management accomplished in two meetings!

Apparently, the management has offered a voluntary retirement scheme (VRS) that has helped to win the workers’ hearts. There is nothing against a VRS, especially in a company that is increasingly relying on contract mining.

The question is, If VRS was the key issue, it could be solved without shouting slogans against disinvestment. And remember, the unions said “this time no inducement will work to break the movement”. Didn’t they?

Nevertheless, we are happy that the country has been saved from unnecessary production loss (both CIL and SCCL taken together production loss could reach more than 4 million tons), especially at a time when imports are putting tremendous pressure on the economy as well as on our purse.

Talking about the economy, let us take note of a fervent appeal from the government to stop wasting conventional fuel sources and, if possible, avoid consumption of petro-products to the extent possible. Use pool cars and bicycles, the government said. On the face of it, the suggestions look wellmeaning even though they fall on deaf ears. But the questions raised are not any less impressive, either. What little forex outgo would a commoner save when the government fails to curb multi-crore scams? Or, for that matter, could one really do some cycling (in cities, of course because rural people do that anyway) without putting his life to risk?

These are arguments, of course, just as much valid as the government’s appeal is. The point that goes missing is that in times of emergency, a country needs, more than ad hoc policies, a collective resolve to change the collective character. We have witnessed such changes during the post-War Russia and Japan, and even in pre-independence India. It is seldom the case that a government has changed its people for the betterment of society.

It has rather been the people that have changed the government for the betterment of the country.

That said, let us take a quick look at the coal and energy sector that is driving the economy. International coal prices are still at very low levels, but traders and buyers expect things to look up once China and India resume full-fledged buying. Here again, the point that goes amiss is that China is seriously considering curbing its use of coal. In the long term, the country plans to depend more on nuclear and renewables for meeting a large chunk of its energy demand. While this may sound good to the Green brigade, it rings an alarm bell for the international coal community. And by now, the world knows what China thinks today, it executes before long.

What is India thinking? Only if we knew …!

Happy reading,

(Rakesh Dubey)

Coal Insights, September 2013

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Contents

6 | Cover Story

32 Indian buyers defer thermal coal shipments on rupee volatility 34 Coking coal contract price fixed at $152 for Dec quarter

‘At present, coal is not a constraint’ CIL’s supply commitments to power sector may look daunting, but we will cope, says S Narsing Rao.

36 SCCL production hits low, may see a pick-up from Oct 40 Coal India unions back-track on strike, officers step in 42 WCL, non-power consumers bury hatchet 44 CIL modifies scope of grades for non-power consumers 46 Indian cement sector receives 39.46 mt coal in 2012-13

20 | INTERVIEW

NTPC is not impacted by slowdown or poor demand The utility is firmly on its path to grow organically and also looks for acquisition.

50 | Corporate

47 Indian power sector’s capacity addition at 921 MW in August 58 US coal consumption expected to rise to 942.5 MMst in 2013

MCL plans silos, concrete roads to remove evacuation hurdles

59 RBCT’s coal exports up 2% in Jan-Jul

The company will set up at least 10 silos, the first of which will be ready within a year.

60 Sunny side of China’s shift from coal 62 Coal India may start import by September end 63 The curious case of CIL’s stagnation – Part II 70 Traffic handling by major ports up 1.85% in Apr-Aug 71 Railways’ coal handling falls 7.25% m-o-m in Aug 72 CIL’s price realisation from e-auction suffers as economy faces slowdown 74 E-auction data 76 Port data 78 Annexure

4 Coal Insights, September 2013

51 | Opinion

‘Better equipment utilisation will raise CIL’s output’ The Indian miners should overhaul tendering process, suggests Anirudha Gupta.

68 | In Focus

National Solar Mission delay impacting installations Solar installations in India suffers a slowdown, says Vikalp Mundra of Ujaas Energy.

Cover Story

Slump to clip India’s coal demand

At present, coal is not a constraint: Rao Rakesh Dubey

A

midst continuous scrutiny and criticism from various quarters, Coal India Ltd (CIL), the primary supplier of coal to India Inc, has finally got a breather. The miner, squarely blamed for the chronic (domestic) supply shortfall, is suddenly finding the pressure easing. Even a negative production growth is being overlooked by the government as well as industry, and also being justified in some quarters.

Why produce more if the power generators don’t lift the coal? Why blame the miner if the (power) distribution companies cannot buy the electricity generated? Why add new generation capacity if industry loses appetite for consumption?

6 Coal Insights, September 2013

So, is India’s coal demand overestimated? Ask S Narsing Rao, Chairman, CIL, and he is quick to adopt a cautious stance. The medium term demand projections may be on the higher side, he observes, but affirms that CIL is not going to ease up. Instead, the company is taking a re-look at operational shortcomings such as procurement, utilisation of equipment and delay in tendering.

On the whole, Rao says, in an exclusive interview to Coal Insights, that the world’s largest miner, slowdown or none, is confident of taking care of India’s future coal needs.

Cover Story Excerpts: Coal India Limited (CIL) has been forced to sign fuel supply agreements (FSA) with power utilities for an aggregate capacity of 78,000 MW. Are you in a position to supply that quantum of coal, given the huge impediments to increasing production?

The capacity additions for generating 78,000 MW in the 12th Five-Year Plan period (2012-17) are based on certain presumptions and projections. However, we believe that all of these projects may not really come up. There are various constraints. These include lack of transmission networks in some areas and issues related to power purchase agreements (PPA), which are likely to restrict growth.

Also, there is a general slowdown in the economy which may reduce power demand.

Keeping in mind these factors, I believe, we may not really go beyond 60,000 MW of capacity addition (over this Plan period), although we may have signed FSAs for 78,000 MW. The scenario as of now, i.e. the presidential directive on which we based our plans, is that the new power projects should be commissioned before March 31, 2015. Thus, we have around one-and-a-half years of time left. However, I don’t really feel the capacity additions would go beyond 60,000 MW. Nevertheless, let’s see...

As for CIL, our business model is based on the 60,000 MW projections. Thus, we have no issues supplying 65 percent of that.

In case, the quantum goes beyond that level, we will still be able to address that since we have kept some windows open to re-negotiate the percentages. However, it is too early to say anything...

As of today, out of 60,000 MW, around 40,000 MW has materialised, ie, we are supplying coal to projects generating close to 45,000 MW of power. We have to see if projects worth another 20,000 MW can come up in the next one-and-a-half years. Moreover, the projects need to be commissioned – the date of commissioning needs to be declared, PPAs must be put in place and these projects must be able to start generation and transmission. We will have to see how the scenario unfolds in the next 14-18 months.

8 Coal Insights, September 2013

The capacity additions for generating 78,000 MW in the 12th Five-Year Plan period (2012-17) are based on certain presumptions and projections. I believe, we may not really go beyond 60,000 MW of capacity addition (over this Plan period), although we may have signed FSAs for 78,000 MW. Demand for coal from the power sector has seen a drop in the past 4-5 months. Do you think the expected growth in coal demand from India’s power sector was exaggerated?

During the past 4-5 months, the non-lifting of coal by some companies cannot be taken as an indicator of lack of demand. That could be special to that particular company.

Overall, I agree that capacity expansion has not taken place according to the original targets, but I won’t say the targets were higher than what could actually be achieved. There are some factors acting as impediments.

In 2005-06, when we were drafting our coal consumption planning, the inference was that generation is the biggest constraint to the economy’s growth. Therefore, it was decided that power plants should be set up at a fast pace and the increased generation capacity will address our growth concerns.

Therefore, the huge capacities were added during the past 5-6 years. However, concomitantly, hurdles emerged in the form of transmission and distribution issues.

The financial health of the distribution companies (discoms) is a bigger threat today than generation, because discoms have no means to buy the kind of power that is being generated. Whatever be the reason, political or otherwise, they are neither passing the burden to consumers, nor revising tariffs.

So, the power sector is facing challenges today mainly in the form of transmission and distribution. And the financial position of the distribution companies is a major cause for concern. Resultantly, we are seeing stranded generation capacities.

Do you think the situation will improve?

I hope so, despite the rate of growth in

the power sector being lower than the anticipated level.

One of the reasons (for the slow growth) could be the low GDP growth of the country against the projected rate of 8-10 percent. Many industries are operating at lower capacity utilisation. Sponge iron and cement industries are not doing well.

Consequently, their consumption of coal and power has dropped to some extent.

At a broader level, the economy is the driver of growth for all the industry sectors.

If it grows, demand for energy and power automatically goes up. But if the growth is subdued, demand for power will go down in tandem.

What is the current coal production scenario? August was comparatively better than July 2012, but lower than July 2013. In fact, production has been falling month-onmonth since the beginning of the current fiscal.

Month-on-month calculations are no big deal. I don’t understand why people react so much to that. Month-on-month shows how good was your last month vis-à-vis this month.

If last month’s performance is exceptional, even though there may be good performance this month, it may not be considered great growth. And vice-versa if last month’s performance for any reason was not very good and yet this month’s was average, it will give an impression that it is a stellar performance.

So, one should not read too much into every month’s performance and rather consider a quarter or an aggregate. Our coal production levels are satisfactory, but not

Tear along the dotted line

82 Coal Insights, September 2013 Tear along the dotted line