Large utilities to get priority on coal supplies - Quoted in the Mint

India will give so-called supercritical power projects a higher priority in getting scarce coal supplies, putting smaller utilities at a disadvantage, as the government seeks to meet burgeoning demand in the world’s fastest growing economy after China.

“We do not want small players,” Union power secretary H.S. Brahma told Mint. “We are only looking at large players who have plans to set up large capacities as it will help in increasing the power generation capacity of the country.”

The coal linkage policy for the proposed 12th Plan period (2012-17) will give supercritical projects, which generate 660MW and more, a 20% weightage. The higher capacity helps generate increased plant efficiencies and economies of scale, besides being environment-friendly.
The preference is aimed at helping the country launch a supercritical power programme along the lines of similar efforts in the US, Japan, Germany, South Korea and Russia. The policy will also help the large power projects of companies such as Anil Ambani-owned Reliance Power Ltd, Tata Power Co. Ltd, Adani Power Ltd, CLP Power India Pvt. Ltd, Lanco Infratech Ltd, Indiabulls Power Ltd and Jindal Power Ltd.

The Central Electricity Authority (CEA), India’s apex power sector planning body, endorsed the ministry’s view.

“Of around 74,000MW coal-based capacity proposed during the 12th Plan, close to 60% of projects plan to use supercritical technology,” said a senior official who didn’t want to be identified as he’s not authorized to speak to the media. “The balance (around 30,000MW), which plan to use subcritical technology, will get affected as there is a very limited possibility of them getting coal linkages.”

India has a power generation capacity of 152,360MW, of which 52.8%, or 80,395.88MW, is coal based. The country plans to add a total of 100,000MW capacity during the 12th Plan. The preference for coal linkages will be assigned according to a points system, with a maximum of 100. Projects using supercritical technology will get 20 points. Of the remaining 80 points, as much as 50 will be based on the status of land acquisition, 20 for projects located at pit heads and the balance for generation plants using sea water instead of fresh water.

India doesn’t have sufficient coal reserves to meet the galloping demand for power. To generate 1MW of power, around 5,000 tonnes of coal per annum is required. The country has 256 billion tonnes of coal reserves, of which around 455 million tonnes per annum (mtpa) is mined.
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.
“There is hardly any coal available,” Brahma said. “This weightage will help in establishing supercritical technology in the country.”

An energy sector expert called for market-oriented solutions.

“Coal produced as well as reserves in the blocks are being rationed and they result in such inconsistencies. This dichotomy is stark as India also boasts of a large resource base,” said Dipesh Dipu, principal consultant (mining) with audit and consulting firm PricewaterhouseCoopers. “A market-oriented approach that checks excessive pricing and rent-seeking behaviour may provide a good framework for coal mining in India.”
Some large developers welcomed the move by the government as part of efforts to curb environmental damage.

“We in CLP look at the sub versus supercritical debate purely from the point of view of the threat of climate change from CO2 emissions rather than a large versus small developer angle,” said Rajiv Mishra, managing director of CLP Power. “We will not build subcritical coal-fired power plants, and believe no one else should. We should move towards supercritical and, in due course, ultra-supercritical (USC) technology, to reduce the carbon intensity of generation.”
Questions emailed to Reliance Anil Dhirubhai Ambani Group, Tata Power, Lanco Infratech, Indiabulls Power and Jindal Power had not been answered at the time of filing this story. An Adani Power spokesperson did not respond to phone calls or to a message left on his cellphone.
CLP’s Mishra said the effect on power producers not in the supercritical category would be minimal.

“I think there are an extremely small number of 250-300MW coal-fired projects being built in any case, and the difference in the capital cost between 500MW subcritical and 660MW supercritical units is not that much,” the CLP managing director said.

NTPC’s mining plan held up over approvals - Quoted in the Mint

State-run power generation firm NTPC Ltd’s plans to secure fuel supplies have hit a roadblock, with the utility’s efforts in securing clearances from India’s ministry of environment and forests (MoEF) for its captive coal blocks getting delayed.

India’s largest utility was allotted eight coal blocks by the government to give it a stable source of coal that would cushion NTPC against supply and pricing disruptions. The delay assumes greater significance in view of the recent coal price hike by Coal India Ltd, the utility’s primary coal supplier, by around 10%.

“None of NTPC’s captive coal blocks have received MoEF clearance. This will impact their efforts of securing coal supplies,” said a senior official of Central Electricity Authority, or CEA, India’s apex power sector planning body. He did not want to be named.

The blocks given to the company are Pakri Barwadih (1,600 million tonnes, or mt), Kerandari (229 mt), Chatti Bariatu (243 mt), Chhati Bariatu South (354 mt), Dulanga (260 mt), Talaipalli (965 mt), Brahmini (1,900 mt) and Chichro Patsimal (356 mt).

A senior NTPC executive, who did not want to be identified, said the utility had received environment clearance for the Pakri Barwadih block in Jharkhand and forest clearance for the block was shortly due.

While NTPC maintains that it is confident of starting coal production from its captive blocks shortly, the utility’s captive coal mine plans have been delayed. Pakri Barwadih and Chhati Bariatu South blocks were allocated in 2004 and 2007, respectively, with the rest of the blocks being allocated in 2006.

“We expect to get the forest clearance for the Pakri Barwadih block in Jharkhand shortly, after which we will start mining. The clearances for the remaining seven blocks are in process,” the executive said.

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 infrastructural delays that upset its plans, after which the company had set an end-December 2009 target.

Jairam Ramesh, minister of state for environment and forests, did not respond to phone calls or to a message left on his cellphone.

Fuel supplies are critical for NTPC as most of its coal-based projects don’t have sufficient stocks. At least 80% of its installed capacity of 30,644MW is coal-based. NTPC used 125 million tonnes per annum (mtpa) of domestic coal and 6.41 mtpa of imported coal in 2008-09. However, a majority of its coal-based projects don’t have 15 days’ coal stock as mandated.

“Longer gestation periods for mine development can result in cost overruns and investment risks, which may choke fund flows into coal mining as well as power generation,” said Dipesh Dipu, principal consultant, mining, with audit and consulting firm PricewaterhouseCoopers.

“Creation of a combined and empowered coordination committee with representations from all stakeholders for awarded coal blocks may lead to quicker development of mines. Also, the sooner the flawed captive coal mining policy is amended, the better it will be for the health of the economy as companies with no expertise and prior experience find managing the mining projects challenging,” he added.

NTPC plans to add 22,430MW of capacity by 2012. Of this, 15,180MW will be through coal-based power generation, 4,550MW through gas-based generation and the balance from hydropower. The utility has been trying to secure coal and gas supplies from overseas but has been unsuccessful till now.

NTPC direct coal tender by Jan-Feb - Qoted in the Mint

India’s largest power generation utility NTPC Ltd will for the first time float an international tender for direct procurement of coal, cutting out state-owned trading firms such as MMTC India Ltd and State Trading Corp. of India Ltd (STC), the usual conduits for such imports.
This will help NTPC buy coal at competitive rates, avoid paying commission and thus lower generation costs.

“We will float the tender by January or February. By directly procuring coal from producers, pricing will improve as we will be able to get coal at competitive rates,” said R.S. Sharma, chairman and managing director of NTPC. “We will follow the Japanese and Korean models where there will be long-term contracts. There will be price guarantee for two-three years linked to certain indices. We are finalizing the terms and conditions for the tender along with the quantity required.”

Fuel supplies are criticalfor NTPC as most of its coal-based projects don’t have sufficient stocks. At least 80% of its installed capacity of 30,644MW is coal-based. NTPC used 125 million tonnesper annum (mtpa) of domestic coal and 6.41 mtpa of imported coal in 2008-09.
Mint reported on NTPC’s plans of directly importing coal on 5 August.

Power secretary H.S. Brahma backed the utility’s move. “We expect coal imports to increase from 28 million tonnes (mt) for the power sector this year to 53 mt next year,” Brahma said. “Of the 28 mt to be imported for the power sector in the country during the current financial year, NTPC alone will account for 12.5 mt.” NTPC’s move, which could affect revenue from coal imports at the trading firms, arises from a controversy over MMTC’s execution of an order to import a record 12.5 mt of coal valued at Rs6,000 crore for NTPC.

While the move would lower costs, holding a stake in coal mines is the most effective tool for keeping fuel prices in check, said Dipesh Dipu, principal consultant, mining, at audit and consulting firm PricewaterhouseCoopers. “Disintermediation is likely to reduce trading expenses and may be cost effective in case of bulk procurements", he added.

CIL may buy mine, plans on Nov listing - Quoted in the Mint

The country’s largest coal mining firm, Coal India Ltd (CIL), is in talks with a West Australian private sector mining firm for acquiring a coal block with in-place reserves of 150 million tonnes (mt).

The state-owned company is also preparing for a November listing and plans to file the draft red herring prospectus by August next year for a 15% divestment.

“This is the timeline for the listing of our IPO (initial public offer),” said Partha S. Bhattacharyya, chairman of CIL.

The mine the company wants to acquire, which is partly explored, is located north of Perth and the process will involve acquisition of the coal firm with the promoters keeping a stake.
“We have engaged technical consultants to do due diligence. We have to take a view on it,” said Bhattacharyya. Going by recent coal deals, if the reserves are not proven, the valuation of a mine is around 10-20 cents per tonne. For proven resources, it is 50-60 cents per tonne. Operational mines come with a much higher price tag of around $2-3 per tonne.

CIL is targeting a production of 435 mt this year, against 403.73 mt in 2008-09, having posted a profit of Rs300 crore on a turnover of Rs46,000 crore last year. CIL had a consolidated cash balance of Rs29,665 crore at the end of the fiscal 2009 and is looking at coal mining opportunities in countries such as Mozambique, Bangladesh, Indonesia, South Africa and Australia.

Analysts say coal mining in Australia is advantageous as it compares with other traditional coal-rich geographies such as Indonesia and South Africa.

“Australia may be a good destination for coal mining asset acquisition due to better quality of coal. The relative disadvantage for its distance in comparison with Indonesian coal is sufficiently set off by the stable political and regulatory framework for the mining sector in Australia,” said Dipesh Dipu, principal consultant (mining) with audit and consulting firm PricewaterhouseCoopers. “With rapidly rising exports out of Indonesia, the quality of coal may suffer. The recent changes in the mining laws that require domestic market obligations also are likely to make Indonesia-focused strategies uncertain. Similar risks exist with South African coal as well. Hence, Australian ventures may be the way to go. However, Australian coal with partial ownership may not help obtain a preferential price due to stricter minority interest safeguard rules of the country,” he said.

India has 256 billion tonnes (bt) of coal reserves, of which around 455 million tonnes per annum (mtpa) is mined. It imports around 40 mt of coal. Demand is expected to reach around 2 bt a year by 2031-32, around five times the current rate of extraction, with most of it coming from the power sector.

Regarding the listing, the state-owned miner wants its employees and people who have had to give up land for its mines to become shareholders. “Whoever is going to give me land, I should give them an option for getting shares. We have sought legal opinion for the same (because) as of now there is no precedent for any such thing. Unless, we do this, the share issue wouldn’t take place,” Bhattacharyya added.

Naxals put the squeeze on transport of Jharkhand coal - Quoted in the Mint

India’s Maoist insurgency, which Prime Minister Manmohan Singh has called the country’s greatest internal security threat, is putting the squeeze on economic activity by strangling the transport of coal.

Naxalite groups have choked movement of the commodity from the mines of state-run Coal India Ltd (CIL) India’s largest producer of the fuel. CIL confirmed that it can’t transport coal from its Central Coal Fields (CCL) located in Jharkhand and admitted similar problems but on a smaller scale at Mahanadi Coal Fields in Orissa, Western Coal Fields in Madhya Pradesh and Maharashtra and South Eastern Coal Fields in Chhattisgarh. “I can produce the coal and keep it there but cannot move it. The whole CCL area is Naxal affected,” said Partha S. Bhattacharyya, chairman of CIL. “We are aiming at increasing our stocks” as despatches have come to a halt, he said.

India, which faces an acute shortage of coal, has 256 billion tonnes of coal reserves, of which around 455 million tonnes per annum (mtpa) is mined. The country currently imports around 40 mt of coal to try and bridge the demand-supply gap. Demand is expected to reach around 2 billion tonnes a year by 2031-32, around five times the current rate of extraction, with most of it coming from the power sector. The country expects imports to rise from 59 mtpa of coal now to around 100 mtpa by 2012, to plug the gap.

Shiv Basant, chief secretary of Jharkhand, rejected Bhattacharyya’s contention about coal transport. “This is absolutely baseless. It is the responsibility of CIL’s subsidiary to bring any problem to our notice. There have been no such complaints by CCL,” he said. “There is no disruption in the movement of coal. There are proposals on the anvil to facilitate movement. There is a plan to construct a parallel road to the CCL section of the railway track to patrol it better.”

CIL says the number of trains carrying coal has dropped precipitously.
“We are transporting around 2-3 coal rakes in a day as compared to around 30 rakes,” said the CIL chairman. “This at a time when north Indian power projects are starved for coal. There were 36 bandhs called by the Naxals in this year alone.” While the Union home ministry did not respond to questions emailed by Mint on 14 October, C. Balakrishnan, coal secretary, confirmed the government’s concern. “An action plan is being considered by the government,” he said.
While CIL is targeting a production of 435 million tonnes (mt) this year, against 403.73 mt in 2008-09, the offtake from CCL has dropped to 33.84 mt in 2008-09 from a high of 38.68 mt in 2006-07. It was 32.04 mt in 2007-08 and 24 mt in the April-October period.

Illegal activities in the mining areas, which have long been rife with criminal activity by organized gangs, include the theft of coal and explosives and illicit extraction of the fuel. Apart from coal mines being located in isolated and tribal areas, the socio-economic situation combined with exploitation of labour has created a fertile ground for Naxal activities, which have disrupted supplies.

“Had it not been for the Maoist problem, the offtake could have been more,” said a CCL spokesperson. The Prime Minister has said that left-wing extremists are targeting all aspects of economic activity. “It is not unusual in a conflict area for economic activity to be affected. Various projects...have not taken off because of the Maoist problem,” said Sudeep Chakravarti, who writes on issues related to conflict in South Asia and is a Mint columnist. The Naxal-affected states include Jharkhand, Chhattisgarh, Andhra Pradesh, Madhya Pradesh, Bihar, Orissa and West Bengal and Maharashtra.

“Law and order issues are manifestations of sustainability risks in mining, when the communities around the mining projects do not seem to share the benefits from the economic activities but have to bear with adverse effects of the same, including displacements, pollution and change in lifestyles,” said Dipesh Dipu, principal consultant (mining) with audit and consulting firm PricewaterhouseCoopers. “The Indian mining sector, including private sector participants, is not known to be the best in this regard, and often times the efforts made in the respect of corporate social responsibilities are more in letter than in spirit.” There is no option but to engage in dialogue with the people of the area and making an attempt to better their lot, he said.

“There are some who have made sincere efforts but have been found lacking in communication with the stakeholders. The solution of the issue, which is likely to become more and more significant in light of the anticipated growth in the coal mining sector, is to partner with communities, address all their concerns, communicate to them the benefits, and be transparent to the core,” he said.