Vedanta drops rejig plan - Quoted in the Economic Times

MUMBAI: There’s been a last-minute change in Vedanta’s script. Strong shareholder opposition coupled with somewhat gloomy global market conditions have prompted the Anil Agarwal-owned Vedanta Resources to call off its recent restructuring plan that would have simplified the metals major’s business in India and also defined its holdings in growth areas.
Speaking to ET from London, chairman Anil Agarwal explained his move. “On our roadshows we found that some of our shareholders had mixed reactions to the restructuring. Also, soon after we announced (the restructuring), there was a collapse in the (global) financial markets. So, we have decided to drop the plan and wait, as the timing is not right,” he said.
The LSE-listed resource major on September 9 announced a major restructuring plan to split its organisation into three groups: aluminium and energy, copper and zinc, and iron ore. The scheme, however, ran into stiff opposition from shareholders and investor funds, who said the move benefited promoters more and brought a relatively unknown African mining asset into the Indian shareholders’ fold.
Under the restructuring plan, Vedanta’s unit, Sterlite Industries, was to transfer its aluminium and power businesses to Madras Aluminium Company (Malco), and Vedanta was to transfer its 79.4% in the Zambian copper entity Konkola Copper Mines to Sterlite.
Also, Sterlite would have issued one equity share in exchange of one equity share in Konkola Copper Mines. In the final stage, investors in Malco would have got one Sterlite share for every 51 they held in Malco. The revamp scheme was also opposed on the grounds that it was designed to give tax and regulatory advantages rather than any strategic benefits.
Investor funds have been up in arms against the scheme which would have given promoters a greater say in the consolidated aluminium and energy businesses - two high growth areas for the company - which is now seeing a sharp fall in copper and zinc prices.
ET had reported in its September 22 edition that The Children’s Investment Fund (TCI), an activist hedge fund, was contemplating legal action against Vedanta, as it felt that the trifurcation move was skewed against minority shareholders. The Chris Hohn-owned TCI, which holds about 2.01% equity shareholding in Vedanta, is one of the 10 funds that has stakes in Vedanta.
The company has so far completed roadshows in Singapore and India, and had just commenced meeting various stakeholders in the UK. A senior company official, who spoke to ET before flying to the UK, had admitted that the number of dissenters was growing, since many investors were confused and also didn’t welcome the transfer of the Konkola Copper Mines to Sterlite Industries.
Under the scheme, small investors of the company would have got 21.44% stake in Konkola Copper Mines, post restructuring. The mines which are still being developed - Mr Agarwal said only about half of the mines were producing - have also been overrated, said analysts. A recent Citigroup report said the Konkola valuation was expensive and the dilution wasn’t justified. Konkola had last year reported a profit of $211 million, while Sterlite Industries posted a net profit of $2 billion.
Also, most of the Indian investors are relatively less aware about the copper business, compared to energy, the business which was being grouped along with aluminium. “There may be a gap in comprehension of the difference in asset characteristics in power generation and mining,” said PricewaterhouseCoppers principal consultant (mining) Dipesh Dipu. “Mining assets in a falling price scenario have impact on their valuation from the lower revenues as well as shrink in the reserve base due to higher cut-off grade.”

While it is easier to estimate an average 85% plant load factor in the energy sector in India, the copper business, especially in a period of falling prices, is uncertain. Because when prices are down, reserves of mines also come down as the feasibility of mining lower grade copper, also falls.
But the decision to stop the restructuring was welcomed. “It is a wise decision on the behalf of the management,” said Rakesh Arora, a metals analyst with Macquarie Securities. “Minority shareholders have been unhappy that the copper mines in Zambia were to be merged with Sterlite at a higher valuation.”
Despite the positive news, most fund managers don’t expect the stock to rebound to the level seen prior to the restructuring announcement. After the restructuring was announced on September 9, Sterlite scrip fell 30% to Rs 439.30, from Rs 622.35, though it managed to bounce off lows later last week. On Wednesday, Sterlite ended at 487.55, up 8.36%, after rising as much as 15% earlier in the session.
Traders partly attribute Wednesday’s rebound, after the company shelved its restructuring plans, to covering of short positions, which were created when the proposal was announced.
Also , Sterlite would have issued one equity share in exchange of one equity share in Konkola Copper Mines. In the final stage, investors in Malco would have got one Sterlite share for every 51 they held in Malco.
The revamp scheme was also opposed on grounds that it was designed to give tax and regulatory advantages rather than any strategic benefits.
Investor funds have been up in arms against the scheme which would have given promoters a greater say in the consolidated aluminium and energy businesses — two high growth areas for the company — which is now seeing a sharp fall in copper and zinc prices. ET had reported in its September 22 edition that The Children’s Investment Fund (TCI), an activist hedge fund, was contemplating legal action against Vedanta, as it felt that the trifurcation move was skewed against minority shareholders. The Chris topher Hohn-owned TCI, which holds about 2.01% equity shareholding in Vedanta, is one of the 10 funds that has stakes in Vedanta.
The company has so far completed roadshows in Singapore and India, and had just commenced meeting various stakeholders in the UK. A senior company official, who spoke to ET before flying to the UK, had admitted that the number of dissenters was growing, since many investors were confused and also didn’t welcome the transfer of the Konkola Copper Mines to Sterlite Industries.
Under the scheme, small investors of the company would have got 21.44% stake in Konkola Copper Mines, post restructuring. The mines which are still being developed — Mr Agarwal said only about half of the mines were producing — have also been overrated, said analysts. A recent Citigroup report said the Konkola valuation was expensive and the dilution wasn’t justified. Konkola had last year reported a profit of $211 million, while Sterlite Industries posted a net profit of $2 billion.
Also, most of the Indian investors are relatively less aware about the copper business, compared to energy , the business which was being grouped along with aluminium. “There may be a gap in comprehension of the difference in asset characteristics in power generation and mining,” said PricewaterhouseCoppers principal consultant (mining) Dipesh Dipu. “Mining assets in a falling price scenario have impact on their valuation from the lower revenues as well as shrink in the reserve base due to higher cut-off grade.”

While it is easier to estimate an average 85% plant load factor in the energy sector in India, the copper business, especially in a period of falling prices, is uncertain. Because when prices are down, reserves of mines also come down as the feasibility of mining lower grade copper, also falls.
But the decision to stop the restructuring was welcomed. “It is a wise decision on the behalf of the management,” said Rakesh Arora, a metals analyst with Macquarie Securities. “Minority shareholders have been unhappy that the copper mines in Zambia were to be merged with Sterlite at a higher valuation.”
Despite the positive news, most fund managers don’t expect the stock to rebound to the level seen prior to the restructuring announcement. After the restructuring was announced on September 9, Sterlite scrip fell 30% to Rs 439.30, from Rs 622.35, though it managed to bounce off lows later last week. On Wednesday, Sterlite ended at 487.55, up 8.36%, after rising as much as 15% earlier in the session.
Traders partly attribute Wednesday’s rebound, after the company shelved its restructuring plans, to covering of short positions, which were created when the proposal was announced.

Tata Steel targets Brazil iron ore assets of London Mining - Quoted in The Business Standard

May 7, 2008: Tata Steel, is looking to acquire Brazilian iron ore assets of the UK-based London Mining (LM), which will help ensure raw material supply for its Anglo-Dutch subsidiary, Corus. The valuation of the asset is yet to be completed, but analysts said, it would be in the range of $2 billion.
Tata Steel is among various global steel and mining majors that have shown interest in acquiring the assets after London Mining said it was reconsidering its investments in Brazil last month.
"London Mining is conducting a strategic review after receiving numerous expressions of interest regarding sale or partial sale of its operations," said a source familiar with the development.
When contacted, a Tata Steel spokesperson said, "While Tata Steel is scanning all opportunities to ensure raw material security for its global operations, we are not in any position to communicate any details on any of them. But specifically about London Mining, we have no specific interest and therefore cannot comment on details."
London Mining has appointed UBS as its financial advisor for the deal.
London Mining, which owns assets in Sierra Leone, Saudi Arabia, Greenland and Mexico, is currently undertaking studies to verify the level of resources contained in its Brazilian mine, in the Serra Azul region, in the southeastern state of Minas Gerais.
Raw material security is the prime concern of the steel makers in the wake of volatile steel prices. Companies are planning their expansions upon cheaper and sustainable raw material availability. Brazil gives geographical advantage to ship the raw materials to Corus units at relatively lower costs, said sources in the know.
The Indian conglomerate is interested in Brazil because it has one of the world's largest reserves of minerals and iron ore. According to the US Geological Survey, Brazil has produced 300 million tons of iron ore last year, which stands second to China's 520 million tons.
Raw materials for Tata Steel's plants in India are sourced from captive mines. Corus, which produces 20 million tonnes of steel a year, is facing raw material shortage. The company's iron ore security stands at just 15 per cent.
Tata Group chairman Ratan Tata had earlier said that the Indian conglomerate plans to invest about $15 billion in Brazil through various group companies. "Brazil has a huge potential market. I am naturally attracted to it," a reqport quoted Tata as saying.
The Tata Group has nearly 20 executives in Brazil to decide where to make investments, the report said, adding that the group is especially interested in ethanol, beverages, automobiles and metal production.
Recent reports said that Tata Steel had made a hostile offer to acquire Brazilian iron ore miner AVG, which is owned by global mineral giant MMX. Though Tata Steel later denied the takeover rumours, company executives didn't deny interest in the iron ore company.
"For steel manufacturing in Europe, the Brazilian iron ore may have lower transportation costs. Also, of late, the Latin AMerican countries have become attractive destinations due to large good quality reserves and comparable cost of mining. The foreign investment environment has also improved with governments supporting fund inflows in mining," said Dipesh Dipu, Principal Consultant, PricewaterhouseCoopers.
London Mining is investing in expanding production and sales in Brazil from 1.5 million tonnes per annum (mtpa) to 10 mtpa, with the sales of sinter fines expected to begin in July. The company bought the iron ore mines in Minas Gerais in May 2007.

(The Business Standard dated 07 May 2008)

Chaturvedi suggests increase in coal prices - Quoted in the Mint

New Delhi:Planning Commission member for power B.K. Chaturvedi has suggested an increase in domestic coal prices as they are significantly below international levels.
Currently, domestic coal is priced 65% cheaper than international coal. Any correction in prices will benefit state-owned Coal India Ltd, the largest coal miner in the country.
Chaturvedi, the chief author of the much-debated report on oil subsidies, has suggested a similar correction in petroleum product prices as well.
Speaking at the India Electricity 2008 conference in New Delhi, Chaturvedi stressed the need for policy measures to increase domestic prices as an attempt to encourage coal imports. He also stressed the need to develop a mechanism to enable companies to set up coal mining capacity overseas.
“There is a limitation in the domestic coal production capacity. It cannot meet all the demand,” he said.
Coal India chairman Partha Bhattacharyya agreed to the view that there were capacity limitations on domestic coal mining. “It is a fact that coal requirement have increased at a rate which is unprecedented. While the (government’s) Integrated Energy Policy (on production and use of different forms of energy) had envisaged coal demand to grow by 6.5% per annum, it has grown by 20% per annum,” he said.
Indian coal (3,500 kilo calorie per kg) is priced at around Rs2,000 per tonne. Till 2002-03, domestic coal prices were in sync with international prices. However, domestic prices have risen only by 2.4% per annum over the last four years, leading to a price differential of 30% between the international and domestic prices in May 2007, which rose to 65% in May 2008.
“There is a huge scope for increasing prices, but we would not like to do it at a time when the government is trying to fight inflation. However, the domestic prices will have to gradually increase in correlation with an increase in our washed-coal capacity,” Bhattacharyya said.
Coal India mines 380 million tonnes (mt) of coal and plans to increase this to 405mt by 2009-10. It plans to increase the capacity of more-efficient and less-polluting washed coal from around 8% of the total capacity now to 35% in three years and 70% by the end of the 12th Plan period (2012-17).
“Under present circumstances, (a) completely market-oriented pricing mechanism may not help, although the eventual aim of the government should be to move towards such a regime in (the) long term,” said Dipesh Dipu, principal consultant, mining, at audit firm PricewaterhouseCoopers.
“For the short to medium term, efforts should be made to facilitate greater participation from private sector and enhance production. With a sufficiently large number of sellers and buyers in the market, and demand and supply nearly kept matching, open market pricing can be implemented,” he said. “For that to shape up, a coal regulator can be a facilitator.”
Meanwhile, Coal India wants its overseas coal venture, Coal Videsh Ltd, to be treated along similar lines as International Coal Ventures Ltd, where an empowered committee of secretaries is to take expeditious decisions for making acquisitions. In an intensely competitive environment, quick decision-making helps make deals successful. A similar practice is followed for companies such as the ONGC Videsh Ltd unit of Oil and Natural Gas Corp. Ltd.
Coal India is also yet to get the navratna status which will help its board to take investment decisions up to Rs1,000 crore without seeking government approval.
A public sector company that is large, profitable and has been granted a certain level of autonomy in management is called a navratna.

(http://www.livemint.com/Articles/2008/09/14223106/Chaturvedi-suggests-increase-i.html)

Post-waiver, power output at N-plants may double - Quoted in the Business Standard

India could nearly double its nuclear power generation with around 2 kg of fissile uranium per day (the fuel that is ready to be fed into nuclear reactors), according to an official of the Department of Atomic Energy (DAE).
Unlike fossil fuels like coal or gas, uranium — a radioactive material — generates many times more electricity per unit weight of fuel. This means, a gram of fissile uranium will generate 1 Mw of electricity based on nuclear reactors installed in India, the official added.
At present, state-owned Nuclear Power Corporation of India (NPCIL) alone produces nuclear power in the country. It has an installed capacity of 4,020 Mwe (mega watt equivalent), and produced 16,930 million units of electricity in financial year 2007-08.
Power generated from the NPCIL-run reactors has been low due to unavailability of fuel. The company, however, refused to give details of its exact fuel requirement and availability citing the Atomic Energy Act, 1962, which prohibits Uranium Corporation of India, which carries out mining of nuclear fuel resources, from divulging production and consumption details of uranium.
The process of getting fissile uranium from the uranium ore is a five-stage process — mining, milling to remove the impurities, conversion, enrichment and fabrication. From the first stage where uranium ore (called ‘yellow cake’ or ‘uranium oxide’) is extracted, only 0.7 per cent comes out as fissile uranium, two nuclear experts said.
According to the Atomic Minerals Directorate for Exploration and Research, India has around 95,000 uranium oxide or uranium ore. In such a case, why does it suffer from uranium shortage?
“These deposits (referring to uranium ore) are spread over 28 deposits in 10 states. About 19 of these deposits have less than 3,000 tonnes, which makes mining an expensive proposition. Such deposits may not sustain investments in mining and milling facilities for the life of extraction in the present circumstances,” said Dipesh Dipu, principal consultant (mining), PricewaterhouseCoopers.
“The lack of fuel availability for NPCIL is due to issues related to uranium mining. At present, mining is being carried out only in Jharkhand. There are mining prospects in Meghalaya but it could not be opened because of local opposition. Similarly, mining could not be carried out in Andhra Pradesh because we do not have the permission,” according to the DAE official.
In 2007-08, nuclear power contributed only 2.5 per cent of the total electricity generation, though installed capacity is 3 per cent of India’s total. This is mainly due to unavailability of fuel to run the 15 nuclear plants. The atomic energy department estimates that nuclear share would increase to 8.5 per cent by 2032 and 16.5 per cent by 2052.
India, as a part of its nuclear strategy, has embarked on a three-pronged approach. First, natural uranium will fuel pressurised heavy water reactors. The second stage involves using fast breeder reactors based on plutonium which will be extracted from the spent fuel of the first stage. Finally, the country’s vast thorium reserve will be used to generate electricity.
The central government has commercialised the first stage of the programme and pilot projects have been set up to test the second stage.
In the Eleventh Five-Year Plan period (2007-12), the government wants to set up eight more indigenous 700 Mwe pressurised heavy water reactors, in addition to the 10 light water reactors of 1,000 Mwe based on foreign co-operation.
The recent waiver from the 45-member Nuclear Suppliers Group (NSG) is likely to increase capacity addition and also better plant load factor of existing plants.
At present, NPCIL is undertaking five projects — 2,000 Mw from two plants under the Kudankulum Atomic Power Project in Tamil Nadu, 440 Mw from two plants under the Rajasthan Atomic Power Project, and a 220-Mw plant from the Kaiga Atomic Power Plant in Karnataka — which will add 2,660 Mwe of additional capacity.
These two alone will increase the installed capacity by 15,600 MWe, though it will take a minimum of five to six years to commission a nuclear power plant after a site has been identified.

(http://www.business-standard.com/india/storypage.php?autono=334441)

Coal India uses deal sweetener to land Mozambique blocks - Quoted in the Mint

New Delhi: In an attempt to secure concessions to mine 40 million tonnes (mt) of coal per annum in Mozambique, International Coal Ventures Ltd, a special purpose vehicle formed by Coal India Ltd (CIL) and other public sector firms, is trying to use CIL’s infrastructure-building skills as a deal sweetener.
“We have proposed to build local infrastructure including institutions such as Central Mine Planning and Design Institute Ltd (CMPDIL) in Mozambique in an attempt to get coal mining concessions,” Coal India chairman and managing director, Partha Bhattacharyya said.
CMPDIL is regarded as India’s premier resource exploration and development institute.
Coal India is keen to acquire equity in overseas coal blocks to bridge the gap between the demand and supply of the fuel in the domestic market, even as coal production in the country continues to decelerate.
“We will do the mining (in Mozambique). Raising money will not be a problem for the acquisition. CIL already has $4 billion (Rs18,320 crore) as cash reserves,” Bhattacharyya added.
The SPV also has companies such as Steel Authority of India Ltd, Rashtriya Ispat Nigam Ltd, NTPC Ltd and National Mineral Development Corp. Ltd as partners. It plans to invest $1.5 billion to develop coal mines having 10 billion tonnes of gross reserve in Mozambique, once it gets the concession.
“Mozambique currently does not have any major operating coal mines, but has a large number of prospecting and exploration tenements held by global mining majors. The country may have potential to be a source for Indian coal requirements, but may have lead time involved in reserves assessment and mine development,” said said Dipesh Dipu, principal consultant, mining, with audit and consulting firm PricewaterhouseCoopers.
“There may also exist challenges of support infrastructure and socio-political balance, which have had telling impact on mining sector of the country in the past,” Dipu added.
However, the company faces stiff competition from Brazilian iron ore firm Companhia Vale Do Rio Doce—a company that Coal India had lost out to, for a coal block in Mozambique around two-and-a-half-years back.
“If we feel that joining hands with private sector will help, we will be open to partner with them for the same,” Bhattacharyya said.
He declined to elaborate.
Mint had reported on 5 May about Coal India’s plan to partner with private sector companies such as Reliance Power Ltd, part of the Reliance-Anil Dhirubhai Ambani Group, to acquire coal blocks overseas.
India has 256 billion tonnes of coal reserves, of which around 455mt is mined every year. The country currently imports around 40mt of coal.
Demand for the fuel is expected to reach about 2 billion tonnes per annum by 2031-32, about five times the current rate of extraction, with the maximum demand coming from the power sector.

(http://www.livemint.com/2008/09/14224023/Coal-India-uses-deal-sweetener.html?h=B)

MMTC, Tata Steel will join hands for overseas mining - Quoted in the Mint

New Delhi: State-owned minerals trader MMTC Ltd and integrated steel company Tata Steel Ltd will form a venture to bid for overseas coal, diamond, gold and iron ore mining projects.
“While MMTC will have a 26% stake in the new company, Tata Steel will have a 74% stake. We are the world’s largest importer of diamond and gold with a yearly volume of $10 billion (Rs40,000 crore) each. This is a right and logical thing to do,” minister of state for commerce and power Jairam Ramesh said on Tuesday.
While a Tata Steel spokesperson confirmed the development, an MMTC spokesperson declined comment.
“To start with, the new company will focus on Africa and Central Asia. When I was in Angola and Namibia, we were offered diamond mines. This company will start operations from there,” the minister said.
The Indian government wanted MMTC to be party to such an arrangement as mining concessions are easier to secure in government-to-government negotiations.
India wants to leverage its strong relationships with African nations to land mining concessions, where a large quantity of minerals are found. India has discovered in recent years that China’s economic diplomacy had put its interests at a significant disadvantage.
“Looking for mines outside India is now a trend for many companies,” said Dipesh Dipu, manager at audit and consulting firm PricewaterhouseCoopers.
“In this particular case, MMTC has the expertise in trading goods while Tata Steel specializes in mining. So, the thought process could be that the Tatas would mine more than their own requirement and sell the balance amount either within the country or in other Asian countries.”
The government has taken this approach as there has been a growing demand for coal from the Indian power sector.

(http://www.livemint.com/2008/04/10001733/MMTC-Tata-Steel-will-join-han.html?d=1)

PMO turns down price hike request by Coal India - Quoted in the Mint

New Delhi: Avoiding potentially big trickle-down price hikes for consumers, Prime Minister Manmohan Singh’s office has turned down a move to increase coal prices by Coal India Ltd (CIL), a holding company under the ministry of coal that contributes 85% of India’s coal production and is generally free to fix its price. The last price revision by CIL took place in June 2004.
“Coal India had proposed a hike of 10% in the coal prices. Even the NTPC Ltd had agreed to the hike. However, the move was stalled at the behest of the Prime Minister’s Office (PMO),” said a senior coal ministry official who did not wish to be identified because of the sensitive nature of the issue.
“The PMO has rejected CIL’s demand and directed that there will be no price hike for the time being,” confirmed a senior CIL official, who also did not wish to be identified.
A spokesperson for the PMO would only say: “We neither confirm nor deny” the move.
By deciding against the hike, the Prime Minister—who is also the minister for coal—appears to have managed to contain a cascading effect of the proposed CIL move, as any increase in input costs would have forced NTPC and other consumers of coal to pass on the price increase.
But, according to some experts, coal prices globally have been rising since 2004, when CIL last hiked its price.
Thermal coal prices, which ranged between $30 and $35 (Rs1,218-1,421) per tonne between 1986 and 2003, are now trading in the range of $60-65 per tonne.
A comparable quality of coal in India would cost about $45 per tonne.
Meanwhile, the increase in the demand for coal required for power projects has been putting upward pressure not only on domestic coal prices but also on coal imports.
It is expected that India’s coal imports will double to 40 million tonnes (mt) per annum by 2012.
“While there may be reason in CIL’s eagerness to raise prices in light of rising input costs... the increase in energy prices, in particular, may have an adverse impact on the economy that seems (to be) firing on all cylinders,” says Dipesh Dipu, a manager with accounting firm PricewaterhouseCoopers.
However, Dipu makes a case for overhaul of the coal pricing regime. “Pricing of coal requires structural changes, from being grade-wise (useful-heat-value based) to internationally well-established gross-calorific-value based. The current system of grading of coal has a large range of quality parameters for each class and does not ensure consistent quality of supply to the consumers. Hence, it is time to overhaul the system rather than increase prices across the board, incrementally or otherwise,” he says.
Coal continues to remain the mainstay of the power sector with over 54% of the total installed power generation capacity in the country, as of December, in coal-fired thermal units.
With around 67% of total power generation currently based on coal, the power sector is the major consumer of coal in the country, absorbing nearly 78% of the country’s total coal production.
NTPC is the country’s largest thermal power generating company, contributing close to 30% of the total power generation of the country during 2006-07.
The Union government holds 89.5% of NTPC’s shares. NTPC alone has an annual coal requirement of 100 mt of coal and is the biggest customer of Coal India.

(http://www.livemint.com/2007/09/12001247/PMO-turns-down-price-hike-requ.html)

New policy on coal next week - Quoted in the Mint

New Delhi: India’s new coal distribution policy, which will significantly overhaul guidelines for allocating precious coal resources to various sectors, could be approved within a week. “The proposals for the policy have been sent to the Prime Minister, who is also the minister for coal. The policy could be given the nod as early as next week,” said a senior coal ministry official who did not wish to be identified.
If the proposed policy gets the nod, the guiding principle for categorization of sectors as “core” and “non-core” will be altered. The current system of e-bidding for non-core producers is also set to go.
“It is proposed that only power and fertilizer sectors will be considered as core sectors for the purpose of awarding coal linkages. Given the increased demand for coal linkages, the idea is to give linkages to only those sectors that have to sell their products in a controlled price regime. Non-core sectors will be able to purchase coal through an e-auction. The online auction will be transparent as there will be a single reserve price of coal for all competing sectors,” said another senior coal ministry official who also did not wish to be identified.
Currently, the “core” sectors comprise power, fertilizers, steel, railways, defence and cement. However, only the power and fertilizers sectors operate in a market where prices are controlled by the government rather than being determined by demand and supply.
According to the existing practice, the government allocates coal linkages to the core sectors while the non-core sectors procure the commodity by open purchase through an e-bidding process.
For 2006-07, the government provided linkages for 110.5 million tonnes (mt) out of an anticipated coal supply of 432mt. More than 80% of these linkages were given to power utilities.
Since the coal linkages are given at prices notified by the government, experts believe the proposed move will help in containing prices in both power and fertilizer sectors while increasing the production costs for the other sectors.
“For power generation, the coal prices will be regulated and it is expected to be a direct pass-through to the consumer,” predicts Dipesh Dipu of audit firm PricewaterhouseCoopers (PwC).
“However, it may mean a squeeze in the margins of producers of steel, bauxite and cement, since the input cost of coal for them will be opened and is likely to be pegged on import-parity basis, with due consideration to quality. For Coal India Ltd (CIL), the loss of freedom to set prices for regulated businesses may be well compensated through market- driven pricing for unregulated consumers,” he said.
E-auction of coal, a mode by which non-core sectors procured the commodity in the past, was discontinued in December after the Supreme Court raised questions on the transparency of such auctions as there were different reserve prices for different sectors.
“At present, the non-core sectors are allocated coal on first-come-first-served basis. This process is called e-bidding, where the price of coal was fixed and only the quantity is decided,” said a senior official of CIL who did not wish to be identified. However, in the new avatar of e-auction there will only be a single reserve price for all bidders.
Analysts favour the return of e-auction, but caution about the manner in which the reserve price is calculated.
“The provision for e-auction may be useful for price discovery in the unregulated business. The floor price fixation and their adjustments on the quality parameters must, however, be worked out on scientific methodology, such as GCV (gross calorific value), ash content and moisture content,” said PwC’s Dipu.

(http://www.livemint.com/2007/08/23004648/New-policy-on-coal-next-week.html?d=1)

Govt plays favourites in coal mining deals - Quoted in the Mint

New Delhi: A Mint investigation shows what appear to be significant irregularities in the Union government’s October award to 31 companies of mining rights for 15 coal blocks with reserves worth around Rs5.37 trillion.
It turns out that nine of the 31 companies were awarded rights despite being rejected in earlier stages of the bidding process for not meeting the government’s prescribed criteria. And it emerges that the government overruled a recommendation to restrict the number of companies awarded rights at 28.
Meanwhile, six of the companies that were shortlisted because they did meet all the prescribed criteria were dropped.
The nine companies that were initially rejected but later benefited from the government’s decision are: GVK (Govindwal Sahib) Ltd, Green Infrastructure Pvt. Ltd, Gagan Sponge Iron Pvt. Ltd, Visa Power Ltd, Tata Power Co. Ltd, SKS Ispat Power Ltd, Prakash Industries Ltd, Vandana Vidyut Energy Ltd and Bharat Aluminium Co. Ltd.
The issue raises significant questions about procedures that the government ignored, more so since the ministry of coal, which awarded the rights, is headed by Prime Minister Manmohan Singh. The shortlist, recommending which companies be allotted mining rights, was prepared by the ministry of power.
The 15 blocks were reserved for the power sector for captive plants, which means coal from them would have fuelled thermal power plants being set up by companies for their own use.
“The final list of allottees has many companies (that) were rejected at various levels of short listing,” complains an executive at one of the six companies, who didn’t want to be identified for fear of future reprisals.
“As a result, many eligible companies, with much better levels of preparedness, have lost out.”
Prime Minister Singh’s media adviser Sanjay Baru declined to comment on the issue and directed questions to the secretary, ministry of coal, H.C. Gupta, who admitted that some of the companies had not figured in the shortlist.
“It is true that there are some companies which did not figure in the shortlist,” he said. “But, the shortlist is more like a recommendation. The screening committee gets recommendations from the state governments, both where mining will be done and where the end project will be set up, which are equally important. Moreover, (the) ministry of power, implicitly, agrees with the final decision as it was also part of the screening committee.”
Gupta heads the screening committee that takes the final decision on the allotment before it is sent for the Prime Minister’s approval.
Apart from the ministry of coal, the screening committee includes officials from the ministry of power, state governments where the blocks are located, state-owned coal firm Coal India Ltd, Central Mine Planning and Design Institute Ltd , ministry of environment and forests, and the Indian Railways.
Gupta declined to answer more questions on the allotment. Nor did he respond to a detailed questionnaire faxed to his office.
Sushilkumar Shinde, the Union power minister and Anil Razdan, secretary in the ministry of power, also declined to comment on the variations between the shortlist provided by their ministry and the final allotments made by the ministry of coal.
“I have nothing to say,” said Razdan. “Please talk to the coal secretary since he is the one who has decided (on this).” Razdan did not respond to a detailed questionnaire faxed to his office.
The process
The allocation process was set in motion between 20 June and 23 June, when 187 companies applied for the 15 coal blocks with geological reserves of 3.6 billion tonnes of coal that can support power generation of 16,000MW a year.
According to Dipesh Dipu, a manager at audit and consulting firm PricewaterhouseCoopers, the reserves translate into 2.25 billion tonnes of mineable resources, or 70-75 million tonnes of coal, a year. Industry estimates put the current pit-head price (a technical term that means “at the mine site”) for Indian coal at around $59 (Rs2,407.20) per tonne; spot prices could be still higher.
According to Dipu, companies are interested in acquiring coal mines because most believe that their cost of production of the fuel could be up to 40% less than Coal India’s production costs. Of India’s 135,000MW of power generation capacity, coal-based power projects account for 89,309MW.
Although there were 187 bidders, there were 745 applications because most companies applied for more than one block for the power projects they were developing, and some wanted to use the same block for multiple power projects.
The coal ministry said that the annual award of coal blocks to government companies as well as captive power units operated by the power sector started in 1993. Between 1993 and 2002, rights on a total of 19 blocks were allocated. Between 2002 and 2004, rights on an additional 25 blocks were allocated. And since the United Progressive Alliance (UPA) took charge at the Centre in 2004, rights on around 165 blocks have been allotted.
According to the ministry of coal, between 1993 and 6 November 2007, coal blocks for the power sector were awarded to 62 companies including some state-owned ones.
An official at the coal ministry said the shortlist provided by the power ministry was unusual because there was no precedent for this. The shortlist was created for the ministry by the apex planning body in the power sector, the Central Electricity Authority (CEA). “The coal ministry did not ask for it (a shortlist). The power ministry did it on its own,” added the coal ministry official, who did not wish to be identified.

CEA pruned the number of applicants from 187 to 44 in two stages. In the “pre-qualification” stage, CEA evaluated companies on the basis of net worth of the company (the sum of equity and reserves) and the capacity of the proposed power project. It rejected all applications that involved power projects witha capacity of 500MW and less. As a result, only 115 companies out of the initial 187 qualified for the next round of scrutiny.
Three companies that were among those eventually allotted mining rights, Vandana Vidyut Energy, GVK (Govindwal Sahib) and SKS Ispat Power, were among those rejected by CEA.
During the second stage of scrutiny called “short listing”, CEA evaluated 115 applicants on their readiness for the project. It ranked them on the basis of the status of their land acquisition efforts for the projects concerned and the allocation of water by the state where the project was located. It also left out applications from state- and Union government-owned companies because they are entitled to coal mining rights under a separate quota.
The number of eligible companies at this stage came down to 44. Gagan Sponge Iron and Prakash Industries did not figure in this list, although both would eventually end up with mining rights.
CEA sent its list to the ministry of power along with a suggested order of preference. It also advised that the government run a check on the information provided by the companies again.
On 30 July, the ministry of power forwarded the list to the coal ministry suggesting that all the information be verified. The ministry of coal, in turn, asked the respective state governments to conduct an exhaustive due diligence of the 44 companies. This resulted in 16 companies being dropped from the list. The companies dropped included Visa Power, Tata Power, Green Infrastructure and Bharat Aluminium, all of which would also be eventually awarded rights.
How 28 became 31
In its meeting on 13 September, the screening committee recommended a list of 31 companies to Prime Minister Singh.
Not only did the committee allot blocks to more companies than those recommended, it also included nine companies that had been rejected at different stages of scrutiny.
The six companies that were dropped to make way for these were: Rashmi Cement Ltd, Bhushan Energy Ltd, TRN Energy Pvt. Ltd, Mahavir Global Coal Ltd, Vedanta Alumina Ltd, and Maithon Power Ltd (a joint venture between Tata Power and Damodar Valley Corp.).
TRN Energy and Mahavir Global could not be reached despite several attempts. Vedanta Alumina is part of the Vedanta Group of which Bharat Aluminium, one of the nine companies allotted mining rights despite being rejected at a prior stage in the bidding process, is a part. Tata Power is another such beneficiary. Executives at the other companies did not wish to comment.
A CEA official, who did not wish to be identified and was closely associated with the shortlisting exercise, alleges that the final selection by the screening committee had ignored merit.

“The shortlist was based on merit and eligibility of the different companies,” the official said. “The data used in the process was furnished by the companies to the ministry of coal. But, sadly, this is how the government functions. The ministries of coal and power have their own agenda. If the concerned state governments say they will support a particular company or project, then our shortlist can be superseded.”
An official at the ministry of coal confirmed that the ministries of coal and power had differed on the awarding of the rights. “...it would be wrong to base your decision on the premise that the CEA shortlist is the only way to decide. If you base it on it, then I can’t say anything,” added the official, who did not wish to be identified.
Elaborating on the guidelines adopted for the screening committee, the coal ministry official said: “It included the status of the project, which is the most important concern, a match between the project’s requirement and the resources available at a block.” He added that the decision also factored in the views of the power ministry and the concerned state government.
The nine in question
According to CEA, the short-listing process it conducted was based on the same criteria. Of the nine companies, only Bharat Aluminium had acquired the land for the project at the time of CEA’s shortlisting exercise.
Seven of the nine companies—GVK (Govindwal Sahib), Visa Power, Tata Power, SKS Ispat Power, Prakash Industries, Vandana Vidyut Energy and Bharat Aluminium—did not respond to emailed queries from Mint. No email address could be obtained for Gagan Sponge Iron and Green Infrastructure. A physical verification, too, drew a blank. In the case of Gagan Sponge Iron, security guards on location denied the existence of any such company.
The said location housed Jindal Intellicom Centre, an OP Jindal Group company. In an email reply, an executive at Jindal Intellicom said: “Gagan Sponge Iron Pvt. Ltd is not a name I am familiar with. As an answer to your question, Intellicom Contact Centers is not associated with a company by that name.”
In the case of Green Infrastructure (GIPL), the address did not house the company. Mint was directed to the office of Athena Consultancy, inthe same building in Delhi’s posh Sujan Singh Park area. Athena Consultancy claims to be a consultant to GIPL.
An official at Athena Consultancy introduced Mint to one Ashok Bohra, identifying him as the vice-president of GIPL. However, Bohra declined to comment and clarified that he was only a deputy manager at GIPL. Bohra asked Mint to contact T.V. Krishna and identified him as the managing director of GIPL. However, Krishna, when contacted, denied that he was the managing director of GIPL and claimed he was only a director on the board of Athena Chhattisgarh Power Pvt. Ltd (ACPPL), the company that would actually make use of the coal block allocated to GIPL. According to him, GIPL was only the holding company.
It is unclear whether CEA or the ministries of power and coal are aware of this complex arrangement. Rights awarded to the companies in this case are for captive power generation and cannot be sold or transferred to others.
“A holding company can get the coal mined by another company if the holding company has at least 26% stake in the mining company. However, the power generation must be for the same project for which the coal was granted,” said Dipu of consultant PricewaterhouseCoopers.
Krishna confirmed that there was no Web or email address for GIPL or ACPPL and explained this by saying “GIPL is only the holding company...and ACPPL is only a special purpose vehicle.” A special purpose vehicle is a company set up for a specific purpose or project.
Krishna also said the land acquisition for the project was not yet complete but denied any knowledge of the shortlisting process.
“Land acquisition is an ongoing activity. We were asked for some information for verification purposes by the concerned state governments but we are unaware of any short-list,” said Krishna.
PricewaterhouseCooper’s Dipu said: “It is true that the recommendations of the screening committee are entirely subjective. However, the fact that there are many parties involved in the decision-making, lends credibility to the otherwise subjective process. Although, it cannot be denied that a big enough player can influence all the decision makers.”
Abani Roy, a Rajya Sabha member belonging to the Revolutionary Socialist Party, a constituent of the four-party Left Front that supports the government, says he had written to Prime Minister Singh in September urging him to ensure that only “deserving companies” were allotted coal blocks.
“There is no response except that the letter has been received. And, there is no follow-up either,” Roy added.

(http://www.livemint.com/2008/03/18002620/Govt-plays-favourites-in-coal.html)

NTPC offers power for coal to Mozambique - Quoted in the Mint

India’s largest power generation company, NTPC Ltd, plans to set up power projects in Mozambique and, in return, acquire rights to mine coal in the country, in an effort to ensure a steady source of the fuel to power its plants.
The overseas coal block acquisition is similar to the model NTPC has adopted in Nigeria and Yemen, where the company is setting up power plants and, in return, getting gas blocks.
“We have had preliminary discussions in this regard with the Mozambique government. We hope to use our expertise in setting up power projects as leverage for securing coal blocks there,” said a senior NTPC executive, who did not wish to be identified.
Coal is critical for NTPC, as more than 80% of its installed power generation capacity of 27,404MW is coal-based. The company proposes to add another 15,180MW of coal-based power generation capacity by 2012, out of a total of 50,000MW that it plans to add in this period.
NTPC has an overall demand of 115 million tonnes per annum (mtpa) of coal, and imports 4mtpa of coal to meet its overall requirement. Its coal consumption is expected to surge to between 185mt and 200mt a year by 2017 on the back of expansion plans.
Imported coal typically has a higher calorific value, which reduces wastage and also improves the generation efficiency of power plants. Analysts estimate that one tonne of imported coal is equivalent to 1.56 tonnes of domestic coal. Tata Power Co. Ltd have already acquired stakes in coal blocks in Indonesia.
NTPC plans to arrange for its coal itself and not depend on fellow state-owned firm Coal India Ltd, its primary coal supplier as reported by Mint on 11 October. Delays in finalizing coal supplies have upset the company’s plans in the past.
According to Dipesh Dipu, a manager with audit and consulting firm PricewaterhouseCoopers, Mozambique may not be the best country to source coal from because it “has significant political risks”. “The coal resources in Mozambique have to be proved with investments in exploration and geotechnical investigations, which enhance the gestation period of the venture as well. However, the country has been invested in by global and Indian majors; and given NTPC’s financial and technical prowess and government’s blessings, the proposition may be worth investing,” Dipu said.
Even though 78% of India’s coal production is dedicated to power generation, projected supply of the fuel falls short of demand. The sector, excluding the planned ultra mega power projects, is expected to need 545mt of coal by 2012, compared with domestic coal supplies of around 482mt. The shortfall will have to be made up through imports.
India’s coal imports, currently estimated at 20mt, are expected to double in the next five years as more thermal power projects become operational.

(http://www.livemint.com/2008/03/08004740/NTPC-offers-power-for-coal-to.html)

Amid soaring coal prices, GVK joins overseas mine hunt - Quoted in the Mint

New Delhi/ Hyderabad: The Hyderabad-based infrastructure firm, GVK Power and Infrastructure Ltd (GVKPIL) has joined the hunt for coal mines in Indonesia for meeting the fuel requirements for its proposed merchant power projects to be set up on the country’s coastline.
Coal industry analysts believe that such a move, by GVK as well as other Indian companies, makes business sense in light of the high coal prices in both contract and spot markets. India is also competing with China, the world’s largest coal user and producer, for the critical fuel.
“Acquiring coal properties will ensure security of supply and cost synergies for the company and enhance profitability from merchandising power. The differential in mining costs and prices of coal traded in the international markets, which has widened substantially in the recent times, can help Indian power generation companies unlock value through coal mine acquisitions abroad,” said Dipesh Dipu, a manager with audit and consulting firm PricewaterhouseCoopers.
India’s coal imports, currently estimated at 20 million tonnes (mt), are expected to double in the next five years as more thermal power projects become operational. Prices of imported coal, including freight, average around $90 per tonne.
If successful, this marks the first overseas acquisition of the GVK group and may involve an investment of around Rs2,372crore.
“We are now planning to acquire coal mines overseas to meet the requirement of merchant power projects that we are planning to set up in the coastal regions of the country. We have already started scouting for coal mines in Indonesia. We are also looking at two or three other countries,” said G.V. Krishna Reddy, chairman of the company. He declined to elaborate.
Such a move brings the company in direct competition with NTPC Ltd, India’s largest power generation company, which, too, has plans to set up imported coal-based power projects on the coast.
Reddy said, “We are prepared for any size of investments, which depend on the coal reserves, its price and the capacity we plan for merchant power projects in India.”
To start with, the company plans to set up its first merchant power project in the coastal region of Tamil Nadu, close to the special economic zone (SEZ) it is developing with the Tamil Nadu Industrial Development Corporation (Tidco).
The company has already acquired around 400 acres for the proposed SEZ and expects to acquire the total requirement of 3,000 acres mostly by March.
“We are also looking at acquiring around 1,000 acres of land near the coastside, close to the SEZ for setting up merchant power projects. If we are successful in having sufficient coal supplies from our overseas coal mines, then we will go in for 1,000-2,000MW of power plant in the Tamil Nadu coast,” Reddy said.
Says Dipu: “Initial investment will depend upon the coal reserves for the mineral rights, as also on geological characteristics, mine life, mining technology and such parameters for mine development. Investment size for a 2,000MW capacity power project can range from $400-600 million at the prevailing market rates in Indonesia.”
GVK is keen on setting up more coal-fired merchant power projects in other coastal areas that run on imported coal. “We are currently in the process of identifying suitable locations in the coastal areas spread across the country,” Reddy said.
Imported coal typically has a higher calorific value, which reduces wastage and also improves the generation efficiency of power projects.
Analysts estimate that one tonne of imported coal is equivalent to 1.56 tonnes of domestic coal.
Many Indian companies have been rushing to acquire stakes in coal mines overseas after Tata Power Ltd paid $1.1 billion (Rs4,334 crore) for a 30% stake in two coal mining units and a trading company, belonging to Indonesia’s PT Bumi Resources Tbk.
Reliance Power Ltd is set to make a $1 billion investment in overseas coal blocks and is hopeful of finalizing a deal shortly in Indonesia. Other companies with similar plans include Coal India Ltd, Lanco Infratech Ltd and Madhucon Projects Ltd.
In the domestic market, GVKPIL already has a coalmine in Jharkhand which has estimated reserves of 55mt.
The company plans to use this mine, being developed at an estimated cost of around Rs200 crore, for its 540MW power project coming up in Punjab at an investment of Rs3,000 crore.
Even though 78% of India’s coal production is dedicated to power generation, projected supply of the fuel falls short of demand.
The sector, excluding the planned ultra mega power projects, is expected to need 545mt of coal by 2012, compared with domestic coal supplies of around 482mt. The shortfall will have to be made up through imports.

(http://www.livemint.com/Articles/2007/12/26231542/Amid-soaring-coal-prices-GVK.html)

Forest ministry rebuts coal claims; says shoddy reports delay approval - Quoted in the Mint

New Delhi: The ministry of environment and forests, or MoEF, has refuted the coal ministry’s recent criticism that several mining and power projects are delayed due to the long wait for forest clearances.
MoEF has said “shoddy” environmental impact assessment, or EIA, reports have resulted in the delays.
It also rejected the coal ministry’s proposal of a model EIA that could be valid for all coal projects.
“The coal ministry and most project developers treat these (EIA reports) as mere formality... No project has been kept pending during the past three-four years for want of forestry clearance,” MoEF told the coal ministry at a meeting held on 21 April.
Coal secretary H.C. Gupta, while admitting to Mint that there are inadequacies in the filing of EIA reports, said, “they (the inadequacies) are not universal.”
The EIA report for a coal project is prepared by state-owned Coal India Ltd’s unit Central Mine Planning and Design Institute Ltd, along with other subsidiaries of the parent company.
All coal project proposals are first submitted to the committee on coal mining projects, after which the terms of reference, or ToRs, of the study are given to the developer. Based on ToRs, an EIA study is the conducted. Following that, a public hearing is conducted by concerned state governments. After this, the EIA report, along with the minutes of the public hearing, is submitted to the MoEF by the state government. Based on these reports, MoEF awards final clearance.
A senior Coal India official, who did not want to be identified, said MoEF’s charges weren’t off the mark. “Even we are not prepared and geared up for coal mining in our blocks,” the official said.
Around 67% of India’s power production capacity is based on coal. The power sector currently needs around 390 million tonnes (mt) of coal every year. Although 78% of the coal produced in the country is used to generate power, projected supply falls well short of demand. The country currently imports around 40 mt of coal.
Growth in coal production has dropped from a high of 6.2% between April and December 2006 to 4.9% in the same period in 2007, according to India’s economic survey for 2007-08. The country has an installed power generation capacity of 143,000MW and plans to add 78,577MW by 2012. Of this, around 46,600MW is expected to come from coal-based projects.
“Environmental concerns in coal mining are likely to gain larger mind share. It may be good for the mining companies to give due consideration to environmental risk mitigations in view of sustainability of their businesses,” said Dipesh Dipu, principal consultant of mining at audit and consulting firm PricewaterhouseCoopers, or PwC.
According to the minutes of the April meeting, examined by Mint, the proposal for the format of a model EIA for all coal projects was struck down by MoEF, which said it is just not possible, considering the vast variety of projects.
“The MoEF feels every project has an unique environment plan. We had proposed standard ToRs in the April meeting to shorten the timeframe in awarding these clearances,” coal secretary Gupta said. “We have to respect their view as they are the custodians of environment and forests in the country.”
MoEF members in the joint committee declined to comment.
The meeting of coal and environment ministries are hosted by the 15-member expert appraisal committee on thermal projects for environmental clearances, which falls under MoEF and looks into EIA reports and the proposal to manage environmental effects.
Opposing the idea of standard ToRs, an appraisal committee statement said, “Just like every mining project needs its project feasibility report, each project also needs an environmental assessment and management plan...”
The committee also said most of the EIA reports submitted to MoEF are far from satisfactory. “For example, even fundamental issues such as maps of the study area, map of the core zone/buffer zone and site specific features including topography, modifications in the natural drainage, changes in land use, are not shown and the features explained properly, on the basis of which ToR is specified,” the committee said.
“The process of environment clearances and approvals need to be objective, transparent and predictable in assessment, which will help the mining companies to better prepare their cases and hence, be responsible for their own applications,” said PwC’s Dipu.
Another crucial issue, raised by MoEF committee in April, was that of applications for ToRs being submitted for the same project every few months for frequent upgrading of a mine’s capacity.
In an earlier meeting of the two ministries in February, it was decided that from then on, EIA reports would be prepared on the highest achievable production of the mine. However, no such application has been received until now, the MoEF committee said.
While an environmental activist said on condition of anonymity that an overburdened expert group poses a problem, Gupta said that “EIA studies can be outsourced and this is not a cause for concern.”

(http://www.livemint.com/Articles/2008/08/03230104/Forest-ministry-rebuts-coal-cl.html)

REL to invest $1 bn in coal blocks abroad - Quoted in the Mint

In a move to secure coal supplies for its 4,000MW imported coal-based ultra mega power project (UMPP) at Krishnapattnam in Andhra Pradesh, Reliance Power Ltd (RPL) is set to make a $1 billion (Rs3,960 crore) investment in overseas coal blocks.
The company is evaluating opportunities in Australia and South Africa, but a top company executive said Indonesia has emerged as the favourite destination.
“For the Krishnapattnam power project we have a coal requirement of 15 million tonnes per annum (mtpa). Assuming a project life cycle of 25 years, the total coal requirement will work out to be around 400mt. This will require an investment to the value of around $1 billion. We plan to finalize the deal shortly,” said Lalit Jalan, executive director, Reliance Energy Ltd (REL). He declined to provide further details.
RPL is promoted by the Reliance Anil Dhirubhai Ambani Group’s REL and has filed an application with stock market regulator Sebi to make an initial public offering of shares. Some analysts estimate the size of this issue at around Rs12,000 crore.
If RPL’s acquisition of coal blocks comes through, it will be the second such deal after Tata Power recently paid $1.1 billion for a 30% stake in two coal mining units and a trading company, belonging to Indonesia’s PT Bumi Resources. Tata Power will use coal from these mines at its imported coal based UMPP at Mundra in Gujarat.
According to Dipesh Dipu, a manager with audit and consulting firm PricewaterhouseCoopers, the acquisition of coal properties “makes business sense in light of the high coal prices in both contract and spot markets. Coal mining costs are expected to rise too, due to demand pressures on equipment and human resources in particular, but it will still have value for the investors who choose to mine rather than purchase at prevailing market rates.”
RPL has been the most successful company in terms of UMPPs. It has already been awarded the project at Sasan, Madhya Pradesh, and has emerged the winning bidder for the Krishnapattnam project in Andhra Pradesh although the project has not been formally awarded to it. The company emerged as the winning bidder for the project ahead of Larsen & Toubro Ltd and Sterlite Industries Ltd by quoting a tariff of Rs2.33 per unit.
India’s largest power generation company NTPC Ltd also planned to bid for the imported coal-based 4,000MW UMPP at Krishnapattnam in Andhra Pradesh, but did not do so because it was unable to line up supplies of imported coal in time.
Indonesia has substantial coal reserves and has emerged a popular destination for Indian firms looking for coal. Other companies shopping for coal in the island nation include NTPC and Lanco Infratech.
Prices of imported coal, including freight, average around $90 per tonne. Given this, it is critical for a company to secure coal supplies as any fluctuation in international coal prices could impact input costs. The Krishnapattnam project is expected to require an investment of around Rs16,000 crore.
The government has planned to facilitate setting up 10 UMPPs across the country.
Of the 10, those in Mundra (Gujarat), Girye (Maharashtra), Tadri (Karnataka), Krishnapattnam (Andhra Pradesh), Cheyyur and Marakkanam (Tamil Nadu) are coastal projects that will rely on imported coal. They will be totally dependent on imported coal and will require up to 90 million tonnes of coal each year starting 2012. The other four, in Sasan (Madhya Pradesh), Akaltara (Chhattisgarh), Tilaiya (Jharkhand) and Jharsuguda (Orissa) are coal pit-head projects, located near mines.
“The demand for power generation in the magnitude envisaged by the Integrated Energy Policy will necessitate dependence on imported coal, particularly so in light of the status of coal mining project implementation from both CIL (Coal India Ltd) and captive consumers. However, increasing price trends could potentially be a dampner, when the tariffs need to be within the affordable range,” Dipu added.

(http://www.livemint.com/2007/11/26212622/REL-to-invest-1-bn-incoal-bl.html?atype=tp)

Govt to push clean-coal power projects for cut in emissions - Quoted in the Mint

Worried about the rising levels of carbon dioxide emissions from power projects, the government has asked state-owned companies such as Bharat Heavy Electricals Ltd (Bhel) and NTPC Ltd to set up expensive, but less-polluting power plants.
These so-called integrated gasification combined cycle (IGCC) plants convert coal into a cleaner burning fuel, which is then burned in a gas turbine combined cycle system to generate electricity.
While it costs Rs4 crore per MW to build a conventional power plant, it takes twice that for an IGCC plant.
“The country’s first IGCC project of 125MW will be set up by Bhel and Andhra Pradesh Power Generation Corp. Ltd at Vijayawada. Another IGCC project will also be set up by Bhel in association with NTPC at Auriya in Uttar Pradesh having a capacity of around 300MW,” said Jairam Ramesh, minister of state for power and commerce.
These projects are part of the government’s efforts to burn coal cleanly. The government wants to focus on the power sector because it accounts for half of India’s carbon dioxide emissions. Almost 70% of the power generated in the country is from coal. And 78% of the coal used in the country goes to power plants.
The concept of IGCC plants isn’t new, but the costs involved make this technology unpopular. There are currently only two IGCC plants operational in the US.
While India’s carbon dioxide emissions are low on a per capita basis, they are quite high in absolute terms. The country is ranked fourth among top contributors to global carbon dioxide emissions in a list compiled by the Netherlands Environmental Assessment Agency. According to this agency, India accounts for 9% of global carbon dioxide emissions.
Even Washington-based policy research agency Center for Global Development recently identified NTPC as the third largest polluter among the world’s power generating companies.
K. Ravi Kumar, chairman and managing director, Bhel, said: “We are building the gasifier (which converts coal to gas) for the two projects and expect that the projects will be completed within a time span of 48 months.”
A senior NTPC executive, who did not wish to be identified, said that the IGCC project would improve power generation efficiencies apart from lowering emissions.
India burned 485 million tonnes per annum of coal in 2007-08. Demand for the commodity in the country is expected to touch 1 billion tonnes by 2018.
“There are two reasons why gasification may seem appropriate in Indian conditions. India’s huge coal resource base makes coal a natural choice to fuel energy. There also is growing awareness of the environmental damage that emissions from burning coal causes,” said Dipesh Dipu, a manager with accounting firm PricewaterhouseCoopers.
Dipu added that the high ash content of Indian coal resulted in more emissions.
India, with a current power generation capacity of 143,000MW expects to add an additional 78,577MW by 2012, of which around 46,600MW will come from coal-based projects.
As part of its drive for lowering emissions from power projects, the government has also asked the Council of Scientific and Industrial Research, the Indian Institute of Technology, Bombay and NTPC to work together to find ways to use bacteria for clean-coal technology as reported by Mint on 25 June.

(http://www.livemint.com/2008/07/03222658/Govt-to-push-cleancoal-power.html)

Coal India admits to supply shortage, says NTPC responsible too - Quoted in the Mint

New Delhi: State-owned Coal India Ltd, or CIL, the country’s largest coal miner, has denied sole responsibility for fuel shortages at plants run by NTPC Ltd, the biggest power generator, blaming it instead mainly on the latter’s inability to meet import targets.
However, CIL conceded that law and order problems at one of its units—Central Coalfields Ltd, or CCL—had affected supply to some NTPC plants in north India. Such problems include illegal mining and coal theft.
NTPC’s projects dependent on CCL are located in Badarpur (Haryana), Tanda, Unchahar and Rihand (all three in Uttar Pradesh), with a total power generation capacity of 4,195MW.
The power producer is facing an acute shortage of coal at its projects across the country. It has a total coal requirement of 125 million tonnes (mt) per annum and plans to meet demand by importing 8mt in the current fiscal year.
“...I have to admit that persistent law and order problems at CCL had adversely affected dispatch to some of the North India-bound NTPC power plants,” CIL’s chief Partha S. Bhattacharya wrote in a letter to R.S. Sharma, NTPC’s chairman and managing director, that was viewed by Mint.
While CCL registered coal production of 7.132mt, in the first quarter of 2008-09, it has a production target of 49mt for the current financial year. Its customers include state electricity boards, or SEBs, of Uttar Pradesh, Punjab, Haryana and Bihar, Damodar Valley Corporation, or DVC, and Tenughat Vidyut Nigam Ltd.
“Law and order problems are real....They have also resulted in loss of production, damage to properties and fatalities on one hand, and running of a parallel industry on the other, which have led to higher costs of production and unaccounted depletion of resources,” said Dipesh Dipu, principal mining consultant with audit and consulting firm PricewaterhouseCoopers.
NTPC has a total capacity of 29,894MW of which 23,895MW is coal-based.
“There are shortages. It is not a very comfortable position. CIL has been facing problems this year,” a senior NTPC executive, who didn’t wish to be named, said.
For his part, Bhattacharya said the primary reasons for the current shortage are NTPC’s inability to import coal in line with its targets and failure to build additional stock.
“We have met the target laid down by the Planning Commission. On the law and order front, we have to constantly liaison with the state administration to get help from the law-enforcement agencies,” Bhattacharya told Mint.
CIL said it had been able to meet total coal requirements of the domestic power sector in general and NTPC in particular in 2007-08.
It also said 98% of the target for coal supplies to NTPC was met for the April-July period this year.
CIL, in its letter, argued that while NTPC was expected to import 5.630mt of coal during 2007-08, the actual import had been 2.75mt, less than 50% of the target.
Even during the current year, NTPC imported only 30% of the targeted 0.750mt of coal till 18 July.
“We have already placed orders to import 8mt and import is not a very big issue. We are trying to build our stock,” the executive from NTPC countered.

(http://www.livemint.com/2008/08/06231422/2008/09/09225158/Coal-India-admits-to-supply-sh.html?d=2)

Atlas Copco looks at Indian infrastructure equipment business - Quoted in the Mint

Swedish equipment manufacturer Atlas Copco is considering investment opportunities in the Indian infrastructure business, especially in mining and hydropower, in an attempt to cash in on the boom in these sectors in an economy that is expanding at over 9% a year.
“We see tremendous opportunity in both the construction and the mining sector in India with the ongoing development in iron ore, coal, hydropower projects ... This gives the Atlas Copco group a good opportunity to participate as a serious ...equipment provider,” said Jo Cronstedt, corporate business controller at Atlas Copco (India) Ltd.
In the year to March, Atlas Copco (India) earned revenues of Rs7,400 crore. India plans to add 16,501MW of hydropower generation capacity, one-fifth of the total generation capacity it plans to create, in the five years to 2012.
“Important hydroelectric power generation plants are being built and planned in the north-eastern part of the country where Atlas Copco has developed a large range of equipment for underground tunnelling work,” Cronstedt said.
Hydroelectric power plants are more complex than thermal power plants and need specialized equipment and designs. Atlas Copco is also in talks with thermal power project developers for supply of equipment for coal mining.
“We are in close contact with all major producers and contractors in the power sector. As to naming our customers, we do not wish to expose any of them and consider that this is classified and propriety information,” Cronstedt added.
Some of the company’s existing clients in India include Sinagreni Collieries Co. Ltd, Tata Steel Ltd, Steel Authority of India Ltd, Vedanta Resources Plc., NTPC Ltd, National Hydroelectric Power Corp. Ltd, Hindustan Construction Co. Ltd and National Highways Authority of India.
According to Dipesh Dipu, a manager with consulting firm PricewaterhouseCoopers, the mining business will grow on the back of rising demand for coal, bauxite and iron ore. The government recently allocated 15 coal blocks with reserves of around 3.6 billion tonnes capable of generating 18,000MW of power. Dipu added that continued growth in mining would depend on the ability of “equipment manufacturers” to “meet demand”.
He said issues related to the “availability of equipment” were already beginning to hurt the sector.

(http://www.livemint.com/2007/11/19232710/Atlas-Copco-looks-at-Indian-in.html)

Coal India to import 4mt coal; govt denies shortage - Quoted in the Mint

New Delhi: Even as Santosh Bagrodia, minister of state for coal, denied any coal shortage in the country, state-owned Coal India Ltd , or CIL, the country’s largest coal mining firm, said it plans to import 4 million tonnes (mt) of coal this year, the first such trade by the public sector unit. “We are looking to import 4mt this year. We are yet to firm up the source of this import,” CIL chairman Partha Bhattacharyya said.
That number could increase, said another official.
“Going forward, the volume of coal imports by CIL may even increase depending upon the demand of the consumers in the country,” said a senior coal ministry official who did not wish to be named.
India has 256 billion tonnes of coal reserves, of which around 455mt per annum is mined. The country currently imports around 40mt of coal. Demand for the fuel is expected to reach about 2 billion tonnes a year by 2031-32 with the maximum demand coming from the power sector.
CIL currently mines 380mt of coal and plans to increase this to 405mt by 2009-10. It also plans to acquire mines in Indonesia, Mozambique and Australia, Bhattacharyya said.
Several companies allotted coal mines have not commenced production—in some cases—because their coal mines haven’t received requisite environmental clearances. India has an installed power generation capacity of 143,000 MW and around 67% of this is based on coal. A significant portion of this capacity is idle because promised supplies of coal are not being delivered by CIL.
For instance, India’s largest power producer, state-run NTPC Ltd, is facing acute shortage of coal at its 1,000MW Simhadri project in coastal Andhra Pradesh which has enough supplies of coal to generate power only for the next four days, as reported by Mint on 29 August.
Bagrodia, however, denied that there is any shortage of coal.
“We had 47 mt as stock on 1 April. The stocks today are at 31 mt. We are offering 15 mt per month. The talks of shortage are to do with the mental makeup we have.”
“Bridging gaps through sporadic imports may not be the optimal solution for the long term. A planned approach to develop capacities within India and also to acquire assets abroad may help, since the options of imports are increasingly getting expensive and difficult,” said Dipesh Dipu, principal consultant, mining with audit firm PricewaterhouseCoopers.

(http://www.livemint.com/2008/08/25144547/2008/09/05223418/Coal-India-to-import-4mt-coal.html?d=2)

Railways to plan for future with vision statement 2025 - Quoted in the Mint

The railways is also taking up capacity expansion projects to double cement loading to 200mt a year by 2012. India’s cement production is estimated to rise from 170mt to 280mt by 2012.
To meet its revised target, the rail budget proposed a new Bhanupali-Bilaspur-Beri line in Himachal Pradesh, where there could be a demand for cement loading. Besides, the railways has proposed to double the Daund-Gulbarga section and electrify the Pune-Guntakal line to meet the demand of cement manufacturers in the Wadi region.
Power focus
To address the demand of the power sector for efficient and cost-effective coal supplies, Prasad announced that most of the new dedicated routes for coal movement will operate wagons with 25% more carrying capacity.
This is being achieved by operating wagons with a 25 tonne axle load, as opposed to the existing 20 tonne axle load.
Axle load is the maximum permissible weight on each pair of wheels in a wagon for any given section of track.
The railways has projected that it will move 338.35mt of coal this fiscal. In 2008-09, it projects that coal freight traffic will be 355mt—of this, around 252.65mt, or 71%, will be destined for power projects.
“Coal has relatively lower density which makes wagon loading to optimum levels difficult. This axle load increase will help the industry to ferry greater tonnage of coal,” said Dipesh Dipu, a manager with accounting firm PricewaterhouseCoopers.
India has a power generation capacity of 140,000MW and plans to add 78,577MW by 2012. The power sector has a coal requirement of around 350mt per annum at present.
“Of the new capacity except for 1,500MW, the entire coal linkage has been tied up. In order to transport this coal, the railways will have to increase their efficiency so that the power projects are adequately stocked with coal,” said a senior power ministry official, who asked not to be named.
“Increasing the axle load will help in reducing the transportation costs with the carrying capacity of the wagons increasing. However, the railways will have to increase the wagon availability for the power projects... Higher turnaround time...is also a concern,” said Y. Harish Chandra Prasad, chairman, Malaxmi Infra Ventures (India) Pvt. Ltd.
Prasad also announced the strengthening of the rail route infrastructure for coal supplies to power projects. For this, the government plans to spend Rs75,000 crore by 2016 to increase rail links by 20,000km to transport coal and iron ore.
In order to meet the demands of the power projects based in north India, the railways will also double the rail links on the Alwar-Rewari and Mughalsarai-Lucknow route.
The railways is also increasing the rail links on the Urkura-Bhatapara route and Bilaspur-Annupur route for higher and smoother traffic between the coal mining areas of Orissa’s Talcher and Ib Valley and Chhattisgarh’s Korba.

(http://www.livemint.com/2008/02/26235902/Railways-to-plan-for-future-wi.html?pg=1)

68,000MW projects face a blackout - Quoted in the Mint

New Delhi: Electricity projects capable of generating a combined 68,000MW, almost half the country’s installed capacity, have been put at risk because of the government’s failure to assure coal supplies to the so-called independent power producers, or IPPs, developing them.
Bankers will not approve loans for the projects in the absence of assured coal supplies, delaying the financial closure that is needed for the developers to order equipment and begin work on the projects.
Even intervention by the Prime Minister’s Office has failed to break the logjam. This is because the power-short country does not have sufficient coal reserves to meet galloping demand.
Although India has an installed power generation capacity of 143,000MW, the actual generation is only around 100,000MW. Around 67% of this installed capacity is based on coal. A significant portion of this thermal power capacity has been affected by non-delivery of promised coal supplies.
“Various meetings have already taken place between power and coal ministers, the Prime Minister’s Office and the Planning Commission,” said a government official on condition of anonymity. “What has emerged from these meetings is that there is no coal and, hence, no linkages can be provided to these IPPs.”
These IPPs are not classified as utilities such as state-owned NTPC Ltd or NHPC Ltd.
Most of IPPs that are unable to secure coal supplies are located in Chhattisgarh, Orissa, Andhra Pradesh and Madhya Pradesh, and they had applied in the past year for the so-called coal linkages that would give them an assured supply of the fuel.
“This is a major crisis. While the IPPs that had earlier applied for coal have been given linkages, the new applicants— over the past one year—cannot be entertained,” the same government official said.
Currently, IPPs in the country have a power generation capacity of around 20,000MW based on fuel sources such as coal, gas and water.
“All IPPs are going to be in a limbo. Coal linkage is the heart of a project,” said a Hyderabad-based IPP developer, who didn’t wish to be named because he is still awaiting part of the coal linkages he had been promised. So far, the developer has incurred a cost of Rs100 crore, which will be forfeited if the company is not able to achieve financial closure.
Coal shortage is a major cause of worry because it may lower power generation and, thereby, growth in the domestic economy, which grew by 9.6% last fiscal year and is expected to expand by around 8% this fiscal.
To generate 1MW of power, around 5,000 tonnes of coal per annum is required.
India has 256 billion tonnes of coal reserves, of which around 455 million tonnes per annum, or mtpa, is mined. The country currently imports around 40mt of coal. To make matters worse, of 187 captive coal blocks allocated to the private sector having gross reserves of 41 billion tonnes for mining, only 20 have started production.
“However, the majority of these blocks, amounting to around 100, have only been allocated in the past two-three years. The 20 blocks that have started production are producing around 30mtpa,” a senior coal ministry official said, asking that he not be named.
Santosh Bagrodia, minister of state for coal, said: “Taking away the blocks from these private sector developers is not the solution. We should evolve ways and means to increase coal production.”
Domestic coal demand is expected to touch around 2 billion tonnes a year by 2031-32, about five times the current rate of extraction with the maximum demand coming from the power sector.
State-owned Coal India Ltd, or CIL, the country’s largest coal mining company, has a coal output of 380mt and plans to increase it to 405mt by 2009-10.
Some coal suppliers are reneging on their commitments because they have not commenced production—in some cases because their coal mines haven’t received environmental clearances.
“The reasons for slow progress in coal linkages are concerns regarding supply capacity enhancement as well as transportation network constraints,” said Dipesh Dipu, principal consultant, mining, with audit and consulting firm PricewaterhouseCoopers.
“Also, part of the demand as well from the not-so-serious players appears emanating from an immediate follow-up transaction opportunity at a premium, in which case it may become difficult to assess the real demand for coal,” he said.

(http://www.livemint.com/2008/08/25234629/2008/09/10005421/68000MW-projects-face-a-black.html?d=2)

Coal India eyes tie-ups with private players for foreign buys - Quoted in the Mint

New Delhi: Coal India Ltd, or CIL, the country’s largest coal mining firm, is looking to partner with private sector companies such as Reliance Power Ltd (RPL), part of the Reliance-Anil Dhirubhai Ambani Group, to acquire coal blocks overseas. The partnership could be effected through CIL’s 100% subsidiary Coal Videsh Ltd.
“CIL will partner with coal companies in the private sector for acquiring coal blocks overseas,” H.C. Gupta, Union coal secretary, said in a recent interview, while declining to elaborate.
An official in the coal ministry familiar with the development, who did not wish to be identified, said that the company had decided to take this route in an effort to speed up its decision making. The fact that it is state-owned prevented it from taking quick decisions and this put it at a disadvantage in finalizing deals, this official added.
CIL is keen to acquire equity in overseas coal blocks to bridge the gap between demand and supply of the fuel in the domestic market, even as coal production in the country continues to decelerate. This will also protect the company against volatility in international prices of coal.
“We are trying to find out the right partners and are in talks with private sector companies such as RPL. Since China has depleted its supplies and is not exporting any coal, we are now looking at the coal blocks in Mozambique, Bangladesh, Indonesia, South Africa and Australia,” said a CIL executive who did not wish to be identified.
A Reliance-Anil Dhirubhai Ambani Group spokesperson declined comment.
After securing stakes in coal blocks in Indonesia with estimated reserves of 2 billion tonnes, RPL is looking for more coal blocks in Indonesia, Mozambique, South Africa and Australia, as reported by Mint on 23 April.
Coal industry analysts say such a joint venture will help both CIL and the private sector companies.
“It may be a symbiotic partnership, with CIL bringing its immense expertise in coal sector to the table and the private players bringing in their foreign investment acumen,” said Dipesh Dipu, a manager with accounting firm PricewaterhouseCoopers.
“While there are public sector investment vehicles created for the purpose, CIL may find the private players quicker and more agile for the jobs of target hunt and follow-up acquisitions. For the private player, CIL’s technical assessment of reserves, geo-mining specifications, technology implementation and project management expertise could be useful in stages of acquisition and development of mines,” he added.
CIL already has a memorandum of understanding with NTPC Ltd, Steel Authority of India Ltd, Rashtriya Ispat Nigam Ltd and National Mineral Development Corp. Ltd for the formation of a special purpose vehicle (or company) for acquiring coal mines abroad.
India has 256 billion tonnes of coal reserves, of which around 455 million tonnes per annum (mtpa) is mined. The country currently imports around 40mt of coal. Demand is expected to reach about 2 billion tonnes a year by 2031-32, about five times the current rate of extraction with the maximum demand coming from the power sector.
Currently, 78% of the country’s coal production is dedicated to power generation, and the sector is expected to need 545mt of coal by 2012, not counting the needs of new ultra-mega power projects, or UMPPs, each with a capacity of 4,000MW.
Domestic coal supplies are projected to provide only around 482mt, leaving a shortfall of about 63mt. Experts see India having to import nearly 115mt of coal when all the coastal UMPPs come online. The ultra mega power plants located on the coast will generate power from imported coal. Others are located next to coal mines and will generate power from local supplies.
India has an installed power generation capacity of 141,080MW and around 67% of this is based on coal. A significant portion of this thermal power capacity is idle because promised supplies of coal are not being delivered by CIL.

(http://www.livemint.com/2008/05/05235753/Coal-India-eyes-tieups-with-p.html?d=1)

NTPC looks at overseas mines to meet demand - Quoted in the Mint

Faced with uncertain domestic supplies, NTPC Ltd, the country’s largest power generation firm is fast-tracking plans to acquire overseas coal blocks with a mining capacity of around 20 million tonnes per annum (mtpa).
“While, around 5mtpa is targeted for our existing power projects, the balance is for the imported coal based UMPPs (ultra mega power projects) that we plan to bid for,” said a company executive who did not wish to be identified.
The company is trying to accelerate acquiring overseas coal blocks as procedural and infrastructure delays have upset its plans to achieve fuel security through its captive coal blocks and reduce dependence on Coal India Ltd (CIL), the primary coal supplier as reported by Mint on 11 October.
NTPC had plans to bid for the imported coal-based 4,000MW UMPPs at Krishnapattnam in Andhra Pradesh, but did not finally do so as it was unable to tie-up the imported coal supplies in time.
Larsen & Toubro Ltd, Reliance Power Ltd and Sterlite Industries Ltd were the three final bidders for the project to be awarded by 30 November.
NTPC is now considering bidding for the remaining imported coal-based projects proposed at Cheyyur and Marakkanam in Tamil Nadu. “We could not bid as imported coal prices are very volatile. Without having a price tie-up it would have been suicidal,” the executive added.
“NTPC with its financial strength and bargaining power as a large consumer may have competitive edge over other players seeking to acquire coal properties abroad. But, in light of large number of players, from India and China in particular, looking for such acquisitions, NTPC may have to act swiftly. However, coal mining costs are reasonably lower and it makes strategic sense to acquire coal mining properties abroad from both supply security and economic perspectives,” says Dipesh Dipu, a manager with accounting firm PricewaterhouseCoopers.
Prices of imported coal, including freight, average around $90 (Rs3,555) per tonne. Coal is critical for NTPC, as more than 80% of its installed capacity of 27,404MW is coal-based. With about 67% of the total power generation currently based on coal, the power sector is the largest consumer, absorbing nearly 78% of India’s total coal production.
NTPC has a total coal requirement of 100mtpa, out of which around 4mtpa is imported. The rest of the requirements are met through the coal supplies by CIL.
“We are exploring opportunities to acquire coal mines abroad and are looking for partners with proven expertise to acquire and develop coal mines,” NTPC chairman and managing director T. Sankaralingam had announced at the firm’s annual general meeting in September.
NTPC already has an memorandum of understanding with Steel Authority of India Ltd, CIL, Rashtriya Ispat Nigam Ltd and National Mineral Development Corp. Ltd for the formation of a special purpose vehicle for acquiring coal mines abroad.
Coal demand in India is expected to grow rapidly as the country seeks to add 78,000MW of generating capacity in the next five years. India currently has a generating capacity if 130,000MW, but needs more power to fuel an economy that grew by 9.4% last year and is expected to expand by more than 8% this year. NTPC expects to account for 22,596MW or a little under one-third of the incremental capacity.

(http://www.livemint.com/2007/10/25235024/NTPC-looks-at-overseas-mines-t.html)

Hyderabad's PSU mining cos face attrition woes - Quoted on CNBC TV report

The mining industry may have rejoiced when it was opened up to the private sector and foreign investment, but the joy seems to have been short-lived. The public sector mining companies are fighting a fierce battle against attrition.

The good old days are over as far as PSU mining companies are concerned. The government's move to allot mining blocks to the private sector, especially in coal, iron ore and oil, has made life difficult. That's because with a sudden spurt in demand for engineers, and a limited talent pool, these companies are coming face-to-face with a new problem - attrition. Private mining companies are luring employees from PSUs with fat pay packages and better growth opportunities. So State-owned companies are being forced to offer bigger pay packages and better living conditions to employees.
Rana Som, CMD, NMDC said,” The problem is there. India is growing very fast and world is growing too. People are getting opportunities else where but we are also training people and the remuneration in public sector is also going up. But old days will not come back, where people joined and stayed with the organization essentially till their later part of life."

PSU mining companies are tight-lipped about exact attrition levels, but sources say it's as high as 25%. The pressure is not coming from just private Indian companies, multinationals like BHP Billiton, Rio Tinto and Vale are offering over 300% hikes in pay.

For instance, a senior level engineer in a PSU draws close to Rs 6 lakhs per annum. But can net Rs 20-25 lakh from the private sector.

Dipesh Dipu, Prinicipal Consultant - Mining, PwC said, “The mining industry is profitable of late. The part of the profitability can go into salary payments and compensation. When you look at overall government sector, there is a limit on how much they can improve on it."

Not just the senior level, finding entry level talent is also a challenge. There are 12 major feeder institutions, with a capacity of 800 seats. But hardly 60% of these seats get filled every year. But the demand for mine engineers is 10 times the existing capacity.

Experts say it's also getting tougher to attract talent into mining, as youngsters perceive it to be strenuous and lacking in glamour, with the field of operation located in remote, inhospitable regions. And that's a scenario that's not helping PSU mining companies much.

(The video can be accessed at http://news.moneycontrol.com/india/news/business/hyderabads-psu-mining-cos-face-attrition-woes/10/06/356003)

Policy promises new era - Article published by High Grade magazine

APPROVAL by India’s Group of Ministers (GoM) of a new competitive bidding process for mineral and coal blocks maintains restrictions on bidding eligibility, particularly for coal, keeping the market skewed towards captive consumers of resources. However, the regime change signals a paradigm shift in the mining industry.

Reflecting Indian Government concern about the lack of foreign investment in exploration and mining in the country, the GoM-supported policy changes which will now go to the national cabinet for final approval also put forward a new state royalty system designed to win the support of regional governments.

Minister of State for Mines T. Subbarami Reddy has said the new mining policy aims to increase mineral exploration levels five-fold on available land.

Existing state mineral royalty rates are relatively low and are seen by regional governments as inadequate in the face of predicted increases in resource investment and possibly greater foreign mine ownership. New rates are expected to be higher, though states will only have rights to change royalties for minor minerals and the Central Government will retain its control over rate setting for other minerals.

But the biggest proposed changes are related to longstanding processes used to allocate land for mineral and coal exploration and development, with the first-come-first-served system for minerals, and point-scale-based system for coal, to be ditched in favour of a simpler and seemingly more transparent process of lump-sum bidding and payment.

Lump-sum payment quotes by bidders will be used for the first time to determine coal and mineral block allocations. States are said to be supportive of a new system they believe will confer to them a larger share of economic benefits from mining.

Existing allocation methods come with built-in subjectivities.

Notwithstanding the transparency issues for bidders, these methods are not seen to promote efficient resource use, optimum conservation, nor equitable earnings distribution to government.
The point-scale system becomes ineffective when the number of applications is large. The 750 applications for 18 coal blocks identified for the power sector in the current round of allocation is a case in the point, with parameters chosen for development of scale resembling qualifying criteria and making it almost impossible to decide allocations objectively. In a rationed system there will be over-applications as there is a chance to profit from gains. But while the 750 applications probably over-estimated demand, the number of applications also indicated the level of confidence companies have in their own efficiencies and expected margins from coal mining.

From a national resource management perspective, competitive bidding promotes greater mine efficiency and thus improves the value of scarce resources. The bidder investing large up-front money has an incentive to optimise productivity and returns by deploying modern technology, as against those who have the comfort of paying when production starts. Low rates of dead rent have also been one of the reasons why many of India’s coal and mineral tenement title holders have not begun project implementation.

Challenges

For bidders to be able to quote a true market price, regulatory provisions must be clear.
There should be no price controls, for example, while royalty rates shouldn’t vary wildly as this will, in the case of coal, make resources uncompetitive against other fuels. In this area the “lex specialis” provisions of the Government of Indonesia may be a guide where the tax rates and royalty rates are fixed for the coal mining company at the time of coal contracts of work and remain unchanged until the contract expires.

Another important matter is dealing with political risks.
Rehabilitation and resettlement (R&R) issues are contentious and the winner of a block may face unreasonable pressure from opposition political parties and from motivated NGOs. This risk will force companies to bid conservatively.

For an effective and successful competitive bidding process, a public leveraged model for public-private partnership may be suitable. The government may provide support for land acquisition and several clearances and approvals, and get the expenses reimbursed by the winning bidder. At the very least the government must provide resources companies with assurances that the “rule of law” will be applied and that it would to the extent possible safeguard them against unreasonable pressures.

In the tariff-based competitive bidding regime for bulk power supply, the bidders are expected to bid for coal blocks with sights fixed on the final output price.

The prime determinant of coal block prices will be the levelled variable tariffs for power produced. The competitive bidding for coal blocks may thus reduce the arbitrage in coal production and power generation, where power supplies are also made through competitive bidding. In such cases, the prime motivation for coal mining may shift from margins to fuel supply security.

In the regulated power business with cost-plus regime, the coal component of the total tariff is usually a pass through. In such cases, the competitive bidding process for coal mining may increase tariffs. But the existence of market mechanisms and the regulatory mechanism of merit order dispatch may ensure that tariffs do not rise uncontrollably.

From the point of view of end users of coal, which in many cases would be integrated power generation, steel manufacturing, cement manufacturing and other specified consumers, the input costs are likely to witness a rise, but that may not have an adverse impact if the coal costs are passed through. However, there is a limit to which costs can be passed through. Cement companies will now, for example, be subjected to competition from imports from Pakistan and Bangladesh. Substitution is a clear threat. As coal customs duty is only 5%, the lowest for any energy source, pricing of coal companies will always have an upper ceiling.

While a system in which bidders make up-front payments builds in an incentive mechanism for faster development of projects, implementation of a competitive bidding regime also opens up the possibility of steel, cement and such other non-utility users able to pay a premium for coal diverting the supply of coal “meant” for utilities. This is something that could be balanced over time, or it could be resolved by maintaining the current the practice of classifying coal blocks for end use, with power utilities only able to bid for certain coal blocks and the same for cement producers and other users.

There are of course other challenges in the implementation of the new process.
Uncertainty around, and inaccuracies in geological data, has caused improper assessment of extractable reserves. Bidders will have to bear the geo-technical risks in the bidding process, since there may not be recourse to initial payments made to the government should the reserves be any different from initial assessment.

While bidders are likely to be provided with the geological reports, they will have to conduct their own assessments. Geo-technical risks will be higher for blocks which are “regionally explored”.

As has been noted previously, Coal India Ltd coal blocks put into the allocation process are only those “de-reserved” for others to pursue. CIL has been allowed to keep coal blocks it plans to develop by 2026.

The GoM policy submission has been welcomed primarily because of the credibility it brings to the process of allocation through transparency.

(Article can be read from www.highgrade.net)