States will be told to offer coal blocks for competitive bidding - Quoted in the Mint

New Delhi: India’s Central Electricity Authority has asked for a meeting of all states on 19 January to urge them to utilize alloted coal blocks by offering them for competitive bidding for power generation.
The country’s top power sector planning agency is worried that a failure to move quickly could jeopardize several proposed coal-based power projects.
“We are making this plan for the 12th Plan period (2012-17) as the coal ministry has made it pretty clear that it will not give any fresh linkages,” said a senior official at the authority, who didn’t want to be named. “We do not want the resources to be wasted.”
Captive coal blocks for power generation are given out by the coal ministry.
States with a large number of captive coal blocks include Andhra Pradesh, Orissa and Chhattisgarh.
The states, together with private sector companies, have been allocated captive coal blocks with at least 6 billion tonnes, or bt, of reserves, which have a potential to generate 100,000MW of electricity.
India has an installed power generation capacity of 145,000MW and plans to add 78,577MW by 2012. Of this, around 46,600MW is expected to come from coal-fired plants.
The coal ministry has rationed out access to coal blocks, implying that some power plants planning to start operations by 2012 will not have assured supplies and might have to import coal.
To make matters worse, of 187 captive coal blocks allocated to private firms for mining that have estimated reserves of 41bt, only 20 have started production.
The coal ministry has threatened to cancel exploration licenses for those who have failed to execute promised plans.
The government would not be able to meet a projected demand for about 730 million tonnes, or mt, of coal a year by 2012, unless 100mt of the fuel is imported.
“Competitive bidding for coal block allocation for captive mining may lead to transparency and objectivity in the process, and may also have built-in commercial incentive for quicker project implementation,” said Dipesh Dipu, principal consultant, mining, with audit and consulting firm PricewaterhouseCoopers Inc..
“However, the evaluation criteria of lump sum payment or profit-sharing may need to be prudently examined as these may have escalating impact on the cost of mining,” he said. “A balanced approach alone may see improvement in the investment environment in coal mining.”
The so-called coal linkage means a coal-fired power plant is assured supply, which requires approval from a committee headed by the coal ministry.
Scarce resources and increasing applicants prompted the government to introduce a system of awarding letters of assurance.
These letters are converted to linkages after a project completes financial closure, which occurs when the promoters make legally binding commitments to mobilize funds.
To generate 1MW of power, around 5,000 tonnes of coal is required every year. India has 256bt of coal reserves, of which around 455mt is mined every year.
The country currently imports around 40mt of coal.
Domestic coal demand is expected to touch around 2bt a year by 2031-32, about five times the current rate of extraction, with the maximum demand coming from the power sector.

NTPC says it will start captive coal mining by end of 2009 - Quoted in the Mint

New Delhi: India’s biggest power generator, NTPC Ltd, expects to start production from the captive coal mine block allotted to it at Pakhri Barwadih in Jharkhand by the year-end as it tries to achieve fuel security and reduce dependence on Coal India Ltd, or CIL, the company’s primary coal supplier.
“We will start coal production by the end of 2009 from Pakhri Barwadih block... I agree that the production is much delayed... There were land acquisition problems,” said a senior NTPC executive who did not want to be identified.
Coal is critical for NTPC as more than 80% of its installed capacity of 29,894MW is coal-based. However, a majority of its coal-based projects don’t have 15 days’ coal stock as mandated.
The company plans to add 22,430MW of capacity by 2012 and has an overall demand of 125 million tonnes per annum, or mtpa, of coal. Recently, it floated a global tender for 8mtpa of which only 5-6mtpa will be used this year. The rest of its coal requirements are to be met through supplies by CIL.
NTPC expects coal from captive blocks to cost only one-fifth of what it pays CIL for current supplies.
However, the company is yet to select the operator for the Pakhri Barwadih block, which has gross coal reserves of 1,350 million tonnes, or mt, for which firms such as Australia’s Thiess Pty Ltd are vying.
Defending the time frame set for captive coal mining, another NTPC executive said: “Once the operator is appointed, which will be done shortly, mining can immediately start with major requirement being earth-moving equipment.”
NTPC had earlier planned to start coal mining from the Jharkhand block by the end of 2007. Mint had reported on 11 October 2007 about procedural and infrastructure delays that upset its plans.
NTPC believes 70% of the gross reserves of this block can be commercially extracted.
While the company is expected to pay an operator fee of about Rs800 per tonne, coal from the block may be used to bridge the shortage at the company’s plants at Talcher in Orissa, Farakka in West Bengal and Kahalgaon in Bihar.
“The success of coal mining project implementation in India appears largely dependent on the success of contract mining business model as many of the companies with allocated captive coal blocks do not have expertise and capacities for coal mining,” said Dipesh Dipu, principal consultant, mining, with audit and consulting firm PricewaterhouseCoopers. “The contract mining business model on engineering, procurement, construction, operations and maintenance, or Epcom, basis is still evolving and may have regulatory, commercial and contractual risks from both mine-owner’s and contractor’s perspectives.”
This is not the only captive coal mining plan of the company that has faced delays. Even the Orissa government delayed water linkage to NTPC’s captive coal mining project at Talaipalli fearing protests from farmers as reported by Mint on 22 April. And its overseas plans of acquiring a coal mine with a capacity of around 20mtpa is yet to bear fruit.
NTPC’s efforts to mine coal from captive blocks is to ensure a stable fuel source for its power plants. This would have also cushioned it against any sudden spikes in the price of coal.
The power company has been allocated eight captive coal blocks by the government. The other blocks given to the company are Kerandari (228mt), Chatti Bariatu (243mt), Chattrasal (150mt), Dulanga (260mt), Talaipalli (965mt), Brahmini (1,900mt) and Chichro Patsimal (356mt). NTPC plans to invest about Rs10,000 crore to produce 50mt of coal annually by 2013.
With around 67% of India’s total power generation currently based on coal, the power sector is the major consumer of the fossil fuel in the country, absorbing nearly 78% of the total domestic production. Coal demand in India is expected to grow rapidly as the country seeks to add 78,000MW of generating capacity in the next three years.

India fears lower crude prices could hurt coal-to-liquid plans - Quoted in the Mint

New Delhi: India is worried that the financial slowdown will result in lower crude oil prices and affect its ambitious coal-to-liquid, or CTL, energy security programme.
CTL involves the conversion of coal into liquid fuels such as diesel and petrol, a process that is economically viable only when crude prices are high.
“The inter-ministerial group is looking into the whole issue. Informally, the issue of the project getting affected due to the financial downturn and the private sector not having enough money to invest has cropped up,” said a person familiar with the development, who didn’t want to be named.
‘The criticality of an alternative source of...fuel from relatively abundant coal reserves in India still remains.’The government plans to award the Bankhui, Sakhigopal B and Alaknanda coal blocks in Talcher district of Orissa that can support production of 3.5 million tonnes of oil and petroleum products. The total cost of the project is estimated at $8 billion (Rs38,960 crore).
Private sector firms such as Tata Sons-Sasol, Jindal Steel and Power Ltd, Reliance Industries Ltd, Reliance-Anil Dhirubhai Ambani Group, Essar Oil Ltd and Adani Group have previously expressed interest in the project.
Some of the companies are still confident of the project’s economic viability.
“We have to take a long-term view for this project. This time can be utilized for doing a lot of spade work. Oil prices will not remain at the same level and will go up. This kind of project takes three-four years, and the time now is the right time to negotiate better rates and delivery schedules from the equipment vendor,” said a senior Jindal Steel executive, who asked not to be identified.
There was a resurgence of interest in proven but expensive technologies such as CTL when crude prices touched $140 a barrel. Since then, however, the global economy has slowed and crude prices have plunged. Crude oil was trading at $50.28 per barrel at the New York Mercantile Exchange on Tuesday at the time of filing of this story.
India sees energy security as key to sustaining economic growth. The country imports 78% of its fuel needs and its integrated energy policy sees CTL technology as an option. Coal already accounts for at least 50% of India’s commercial energy consumption.
Rohit Nagaraj, an analyst at Angel Broking Ltd, had earlier said the “threshold (price of crude) for production from CTL blocks is around $80 per barrel. If the crude oil prices remain above this level, then CTL is economically feasible”.
“The financial downturn, coupled with fall in crude prices, may have an adverse impact on the economics of coal-to-liquids conversion project, which may necessitate reassessment of feasibility by the project developers. However, the criticality of an alternative source of transportation fuel from relatively abundant coal reserves in India still remains unchanged,” said Dipesh Dipu, principal consultant, mining, with audit and consulting firm PricewaterhouseCoopers.
India has 256 billion tonnes of coal reserves, of which around 455 million tonnes per annum is mined.
“This may be the time for all the stakeholders to converge on policy issues, including fiscal measures, coal block allocation, marketing and distribution rights, profit share and price participation from the CTL projects,” added Dipu.