Article

COAL-QUALITY CONFORMANCE IN INDIA’S COAL SUPPLY CHAIN

Srikanta Kumar Naik Coal Supply-Chain Professional

Disclaimer: Opinions and recommendations in this article are exclusively of the author and not of any other individual or institution.

Coal is one of the most important sources of energy for the country and a significant contributor to its economic development. Coal production and use in India has the highest backward and forward linkages with mining, power generation, railways, steel, fertiliser, cement, transport and other industries. Coal is the mainstay for commercial energy catering almost 60% of the energy demand which in turn fuel the growth engine of the economy. Around 75% of the entire power generated in the country is coal based. The National Coal Inventory places the hard coal resources at 319.02 Billion Tonnes up to 1200-meter depth in 68 different coalfields as on 01.04.2018.

Indian users mostly use domestically produced coal. Imported coal accounts for only 16% of all purchases by volume (weight). 183 Million Tonnes of non-coking coal (which is 20% of the total demand for non-coking coal) was imported in last fiscal due to high demand supply gap of coal in the

country. The domestic production is dominated by the subsidiaries of Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL). Other producers produce only 6% of the domestic coal by volume. Presently the coal market is dominated by Public Sector CIL and SCCL. More than 50% of total CIL coal production is from two subsidiaries, SECL and MCL.

"Coal quality" is the term used to refer to the properties and characteristics of coal that influence its behaviour and use. In a coal-supply value-chain, consumers are concerned on the flow of quality. In this changed ambiance of competitiveness and efficiency enhancement, quality conformance of the coal assumes utmost significance. The matter is not simply confined to commercial transactions only, but has high direct relevance to the efficiency of end use.

Disputes regarding low grade supply have been an integral part of India’s domestic coal scenario. Consumers are facing slippages

in quality from some of the delivery points. It is noteworthy that when the price of coal is based on the grade//quality, the buyer has right to get the grade for which he is paying the price. The significance of the problem of grade-slippages is very high for consumers in terms of financial losses due to less quantity realization of Annual Contracted Quantity (ACQ) under Fuel Supply Agreement (FSA), non-refund of statutory levies (such as Royalty, DMF & MMDR charges) in creditnotes, poor-utilization of rail/road transportation modes (wagons & trucks), blockage of working-capital due to prolonged delay in issuance of credit-notes.Coal quality from a single mine can vary over time and thus revision related to its gradation have to be made. The variation is more predominant in India on account of its formation and origin.

Under GCV based grading system of CIL which came in to effect from January 2012, the bands are classified in to 17 bands of 300 Kcal/ Kg ranging between 2200 to 7000 Kcal/Kg. To address the concerns of consumers regarding coal quality, third party sampling procedure was put in place. Tripartite agreements were signed between Supplier (coal companies), Purchaser and third party sampling agency for sampling and testing of coal at the loading end. This process is termed as “Third Party Sampling - TPS”.Procedure for sampling and analysis of quality of coal is of great significance to power producers. CIL, being the dominant supplier of coal in the market, is required to take into consideration the quality related issue fairly and in a non-discriminatory manner.

Particulars Issues/Challenges in “AS-IS” Situation Way-Forward aligned with Best Practices % Sample collection in Rail-dispatch Samples are collected from 6 wagons (as per FSA), representing only ~ 10% of the dispatch quantity, failing towards sample representativeness Samples should be collected from 15 wagons (25%) in a rake as per BIS specifications, IS:436, Part I, Section I, 1964 % Sample collection in Road-dispatch Samples are being collected from every 8thtruck(as per FSA), representing only ~13% of the dispatch-quantity, failing towards sample-representativeness Sample should be collected from at least 25-30% of the trucks so as to increase sample- representativeness Use of Random Table in sample collection in Road-mode dispatches Samples are being collected from every 8thtruck as per FSA Sample should be collected from Trucks with the use of random table Sample Preparation & Storage Manual sample preparation leads to risk of sample contamination, scope for human error, Inadequate sample storage facility Mechanical sample preparation & adequate sample storage room under surveillance of CCTV Sample Coding & De-coding Modalities Manual coding& de-coding process leads to potential human error during code allocation System-based coding & de-coding for effective masking & better process accuracy Inordinate delay in sending sample for referee analysis & issuance of credit/ debit notes Current cycle time is as high as 6-12 months (more than 2 years in some of the cases)to get the credit/debit notes from the date of dispatch due to huge delay in getting referee analysis reports& subsequent reconciliation between consumer & coal-companies Empanelment more number ofNABL accreditedthird party agencies having skilled samplers&Govt. Labs by Apex Committee for referee-analysis to cater the high volume, Interest claim for delay in issuance of credit/debit notes after stipulated timeline of receipt of third-party/referee reports, in order to have timely reconciliation between consumer & coal-companies Standard Operating Procedures (SOP) Inadequate SOP resulting in ineffective implementation of third party sampling facility Comprehensive SOP with clearly defined activities, timelines, responsibilities, documentations etc. IT-Application/Automation Manual interventions resulting in scope of errors, poor-visualization & accurateness of data Automation in Data Management & Reporting for Transparency & Reduced Risk of Error, System generated reports, Minimum human interventions Penalty Provision for Supply of Ungraded Coal (Below G-17 Grade/Below 2201 EGCV) There is no provision in current FSA for Non-Power (NRS) for issuance of credit notes for supply of Un-graded coal Stricter Penalty Provisions should be incorporated in FSA for Non-Regulated Sector viz. Purchaser shall limit the payment of cost of coal to @ INR, 1 per tonne along with statutory levies (in parlance with FSA Provisions for Power Consumers in Regulated Sector) Grade-Slippages Continuous & significant grade-slippages from some of the mines/siding resulting in lesser quantity realization, financial losses due to non-refund of Royalty, DMF & MMDR charges in credit-notes Revision of Grades of Mines/Siding supplying coal with continuous & significant grade-slippages Refund of Royalty, DMF & MMDR charges in credit-notes Substantial Financial Losses (Rs. 20-80 per tonne) due to non-refund of Royalty, DMF & MMDR charges in Credit Notes in case of gradeslippages Provision should be made for refund of Royalty, DMF & MMDR charges in credit notes in case of grade slippages Implementation of GCV (Kcal/Kg) based pricing system Kept in abeyance, still following 17-quality grades, each grade comprise of 300 band-points GCV(Kcal/Kg) based pricing is worldwide standard practice CCAI Monthly Newsletter February 2020 | 7