CAG probing Sasan coal diversion issue - Quoted in the Mint

The government’s auditor is studying a decision of the government to allow the diversion of surplus coal by Reliance Power​ Ltd from the captive coal mines associated with the Sasan ultra-mega power project to another project of the company.

“The report is at a draft stage and comments have been asked from the power ministry. We will have an exit conference with the stakeholders to review the audit findings. Expect the audit report to be ready early next year,” said a senior official at the Comptroller and Auditor General of India (CAG) who is aware of the development, but didn’t want to be identified.

An official at the power ministry confirmed that it had received queries from the auditor.

“CAG has sent us an audit query and observation on Sasan. They (CAG) have raised a lot of questions. The main issue is about allowing the diversion of coal. We will be formulating our responses shortly,” said a top power ministry official who, too, did not want to be identified.

The auditor’s review of the decision of the ministerial group could further affect the credibility of the government—already at a low following a series of controversies regarding government contracts and policies.

In response to an email seeking comments that was sent on Friday, Daljeet Singh, group vice-president (corporate communication) at the Reliance Group, sought time till “Tuesday afternoon” citing the “sensitive” nature of the matter. The group hadn’t responded to the queries till late Tuesday evening.

The decision to allow Reliance to use surplus coal meant for Sasan for another of its projects was taken in August 2008 by an empowered group of ministers (eGoM) comprising then finance minister P. Chidambaram​, law and justice minister H.R. Bhardwaj, science minister Kapil Sibal, deputy chairman of the Planning Commission Montek Singh Ahluwalia and power minister Sushil Kumar Shinde​. Decisions taken by such ministerial groups do not need to be ratified by the cabinet.

The scope of the audit is to review whether this is in keeping with the contract Reliance signed when it bid for and won the rights for the Sasan power project from the government. “The contract agreement seems to have been violated by diversion of coal,” said the CAG official.

Original norms for projects such as Sasan (the so-called ultra-mega power projects) said that coal meant for them couldn’t be used by their developers for their other projects. Apart from developing the 4,000 megawatts (MW) power plant at Sasan in Madhya Pradesh, Reliance Power is also developing the 4,000MW plant at Chitrangi, also in the state. The firm has agreed to sell power generated at Sasan at Rs. 1.19 a unit, while it plans to sell the power generated at Chitrangi at Rs. 2.45 a unit.
The power ministry had nothing to do with this, said a second power ministry official.

“It was an eGoM’s decision, hence a policy matter. This ministry did not take the decision. This is the bottom line of our response. Also, the matter is being contested in the Supreme Court,” added this person who, too, did not want to be identified.

Tata Power​ Co. Ltd, one of the losing bidders for the Sasan project, challenged the decision and has appealed to the Supreme Court after the Delhi high court upheld the government’s decision. The company’s argument, in several statements issued at the time, was that the ministerial group’s decision, coming as it did after the conclusion of the bidding process, “disturbed the fairness, transparency and the level-playing field”. During the proceedings in the Delhi court, a government counsel told the court that Tata Power did not disclose that Sasan Power Ltd (the firm set up for the project) had sent a letter to all bidders in November 2006 stating that “incremental” coal from the three coal blocks for the project could be transferred or sold with “the sanction of the Union government”.

“The matter is sub judice and we would not like to comment. The Supreme Court has admitted the case and the matter will be heard expeditiously in February 2012,” said a spokesperson for Tata Power in an email.

To be sure, after deciding to allow the use of surplus coal meant for the Sasan project for another project of the developer, the ministerial group sought to make this the new norm applicable to all ultra-mega power projects and all developers of these. It asked the coal ministry to issue necessary instructions to the effect, but this is yet to happen.

Initially, the Sasan project was awarded to a consortium headed by Lanco Infratech Ltd. However, this group was subsequently disqualified for violating bidding norms and the project awarded to Reliance Power in August 2007, on the condition that it matched Lanco’s bid.

Reliance Power has been the most successful company in terms of contracts to develop ultra-mega power projects. Of the four awarded till date, it has been the successful bidder for coal pithead projects at Sasan, and Tilaiya in Jharkhand, and the imported coal-based project at Krishnapatnam in Andhra Pradesh. The imported coal-based project at Mundra in Gujarat was won by Tata Power.

An expert said that while the matter would likely be decided by the Supreme Court, it does make sense for information regarding the use of coal to be made available to all bidders before they make their bids.

“On the one hand, it makes sense to allow usage of surplus coal from such coal blocks in view of the burgeoning gap between demand and supply for domestic coal, and on the other, such terms of allocation need to be made prudently prior to financial bid submission so that information symmetry is maintained and competition is on a neutral ground,” said Dipesh Dipu, director of consulting, energy and resources, and mining at Deloitte Touche Tohmatsu India Pvt. Ltd.

The government wants to set up 16 ultra-mega power projects to meet the needs of one of the world’s fastest growing major economies. India has a power generation capacity of 180,000MW and expects to add another 62,374MW by 2012.

Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May 2010 front-page story in Mint that it disputed. HT Media is contesting the case.

Hancocked And Loaded - Quoted in the Business World

After months of intense speculation, Hyderabad-based GVK Group has closed the deal with Australia’s Hancock Coal. The company has confirmed the acquisition of the coal and infrastructure projects of Hancock — owned by Australia’s richest woman Gina Rinehart — for $1.26 billion on 16 September. The news has effectively ended the debate over which Indian major would win this race. But new concerns are emerging over GVK’s ability to pay.
The deal is being financed by $1 billion in debt and $260 million through equity. But before the celebrations begin, take a breather. The company, it appears, may be hard-pressed to cough up the sum which is evident in the phased method of payment — $500 million payable now; $200 million a year from closing the deal, and $560 million upon financial closure (expected to be in 2012). In today’s tight credit market, a highly leveraged balance sheet — most other infrastructure firms are in similar shape — is never a good thing.
The cash-strapped GVK Group already has several projects across many verticals, with a number of them still in the investment phase. How will the firm prioritise? “We will cross the bridge when we come to it,” says Isaac George, CFO and director of GVK Power and Infrastructure.

However, analysts at Religare Capital Markets question the 49 per cent guarantee by GVK Power given the fact that it has only 10 per cent equity stake in the projects.
“There have been no complaints from our investors and I don’t see the need for anyone to indulge in speculation,” says George. GVK Power has the option of increasing its stake in the acquisition to 49 per cent (though this is subject to approval from Australia’s Foreign Investment Review Board).
On top of the money it needs to put together to meet the first payment, GVK Power will need to invest a further $10 billion for the first phase of the project’s development (developing the mines, building the railway lines and the port infrastructure). Without naming any, George says there are a number of strategic investors with interests in coal mining that are keen to pitch in.
“The investment will be funded by maintaining a 70:30 debt-equity ratio,” he adds. “Some Australian and European banks have shown an interest.” Tapping Indian banks is also a possibility, but George acknowledges that they might not like to take non-recourse finance risks in another country.
With this acquisition, GVK Group now has access to one of the largest integrated coal projects in the world with possible reserves of 7.9 billion tonnes of coal. At full production levels, the three projects are together expected to supply about 84 million tonnes per annum for exports. This is also the only project in the Galilee Basin to have a rail declaration and a port allocation.
But here is a nagging question: most acquisitions of coal mines overseas by others such as the Tatas, the Jindals and the Adanis have been for captive use. Most of the coal from the project would be supplied to major utility companies in Asia, which is not infrastructure development.
“Acquiring coal assets makes good business sense, but how they structure the financing and the parent company implications remain to be seen,” says Dipesh Dipu, director of energy and resources consulting, Deloitte Touche Tohmatsu India.
Coal is on the verge of becoming another asset class like gold with many planning investments in coal mines in various parts of the world. The GVK Group may just be the latest big investor in what is now a lucrative commodity.
Hopefully, this ‘black gold’ mine will not give GVK a financial black eye.
(This story was published in Businessworld Issue Dated 03-10-2011)

GVK in talks with Kideco for stake sale - Quoted in the Mint

The GVK group, which recently closed a deal to acquire coal mines and associated infrastructure from Georgina Hope Rinehart’s Hancock Group for $1.26 billion (Rs. 6,035 crore today) and is now in the process of raising funds for this, is in talks with PT Kideco Jaya Agung for divesting part of its stake in the coal mines.


Last week, the group announced its acquisition, from Hancock, of a 79% stake in Tad’s corner and Paul’s corner, and a complete acquisition of Kevin’s corner mines located in the Galilee basin in Queensland.

The group, through its subsidiaries, also acquired the rail and port project connecting the coal mines that involves the construction of a 495km rail line and a 60 million tonnes per annum (mtpa) port at Abbot Point. At full production, the mines will extract 84 mtpa of coal.

Two persons familiar with the development, who did not want to be identified, independently confirmed that GVK was in talks with Kideco.

“Along with acquiring minority stakes, Kideco is asking for an MDO (mine development operatorship),” said one of them.

GVK chairman G.V. Krishna Reddy said: “A lot of people are in touch with us, and we will finalize the names in some time.”

GVK will need the financial support and technical expertise of partners to develop the mines, and the rail and port projects, with the overall investment required in the first phase pegged at $10 billion.

“There are three projects—the mines, the port and the railways. We will keep the majority stake and divest minority stakes in them,” Reddy added.

The Press Trust of India reported on Tuesday that GVK was looking to raise around $1 billion to fund the deal by selling a part of its stake in its Singapore-based subsidiary, GVK Coal Developers.

A GVK spokesperson and Kideco didn’t respond to emails seeking comment.

GVK’s payout to Hancock Group is to be made in phases. While a payment of $500 million will be made immediately, another $200 million will be paid a year later and the remaining $560 million willbe paid on the financial closure of the project, sometime in 2012.

In a statement issued last week, GVK said: “The financing documents for funding the acquisition are being executed with the banks and the transaction is expected to close and assets transferred in about two weeks.”

According to information available on Kideco’s website, it is the third largest coal company in Indonesia in terms of output and is owned by South Korea’s Samtan Co. Ltd (49%), Indonesia’s Indika Group (46%) and PT Muji Inti Utama (5%).
GVK’s acquisition of Hancock’s mines is key to its plans to expand the current power generation capacity of 901 megawatts (MW) to 10,000MW by 2013.
Analysts say large-sized projects with equity participation in the components of the value chain diversify risk and reduce capital outlay.
“The coal mining project must be looked at from (a) holistic end-to-end supply chain perspective. Due to the complexities involved in greenfield coal mine development, it may be a good idea to involve specialists for mining, beneficiation, logistics and even marketing, and share risks and rewards through ownership,” said Dipesh Dipu, director (consulting, energy and resources, and mining) at Deloitte Touche Tohmatsu India Pvt. Ltd.

NTPC wants out of coal consortium - Quoted in the Mint

International Coal Ventures Pvt. Ltd (ICVL), a company promoted by five state-owned firms two years ago to buy coal mines overseas but which hasn’t managed to close a single purchase, seems headed for a split with NTPC Ltd, one of the partners, wanting out.

“We are not keen on ICVL. Our interests are not aligned. Our requirements are different. We are not willing to invest in a coal mine today and use the coal six years later,” said a top NTPC executive, who did not want to be identified.

Steel Authority of India Ltd and Coal India Ltd​ own 28% each in ICVL. NTPC, Rashtriya Ispat Nigam Ltd and NMDC Ltd own 14% each.

According to NTPC executives, while the power producer needs thermal coal to fuel its power projects back home, ICVL’s stakeholders are more interested in metallurgical coal reserves to feed their steel mills.

And “the thermal coal that is being offered to us does not meet our technical requirements. We have been told informally that if we don’t want to stay, we should exit”, said a second senior NTPC executive, who spoke on condition of anonymity.

ICVL remains unfazed by NTPC’s declaration.

“Let them study their options. They should come to a conclusion,” said a top ICVL executive, who did not want to be identified.

“The steel ministry had conducted a review meeting last month where every issue was discussed... They never said that they want to get out,” added this person.

To be sure, NTPC can’t just walk out. “We simply can’t leave; it has to be a cabinet decision,” said the first NTPC executive.

ICVL’s performance hasn’t impressed most people.

“The objective of seeking mineral resources abroad through sovereign funds has been propagated successfully by the Chinese through well-coordinated arms of the government. In comparison, the Indian attempts look modest,” said Dipesh Dipu, director of consulting, energy and resources, and mining at Deloitte Touche Tohmatsu India Pvt. Ltd.

ICVL has an initial equity capital of Rs. 3,500 crore and authorized capital of Rs. 10,000 crore.
India faces a shortage of both metallurgical and thermal coal. In 2009-10, 23 million tonnes (mt) of the 40 mt of metallurgical coal used was imported, and the demand is set to increase to 90 mt by 2020.
NTPC, which generates 8 megawatts (MW) of every 10MW it produces by burning coal, is looking to increase installed capacity from 34,854MW now to 75,000MW by 2017 and 128,000MW by 2032.
It needs 160 mt of coal in fiscal 2012, of which around 16 mt has to be imported. The utility has already placed orders for importing 12 mt of coal.

NTPC’s desire to exit the venture isn’t the first time differences between the steel and coal groups have come out in the open.

Last year, then steel minister Virbhadra Singh had said that NTPC and Coal India could exit the consortium if they wished to. The latest development comes at a time when ICVL is evaluating six potential purchases valued at a minimum of $1.2 billion (around Rs. 5,785 crore).

Will the proposed 26 percent profit sharing clause in the mining bill speed up the production or scare away investors? - My point of view published on Infraline

A draft law has been approved by a ministerial panel headed by Finance Minister Pranab Mukherjee which, if passed by the Cabinet, will make it mandatory for the coal producers to share 26 percent of their profits with the population affected by the project. The proposed law has raised objections from the mining industry, fearing that it would result in heavy taxation, which, in turn, would diminish the investments in the sector. However, there are many who are in favour of it, including the largest coal producer, Coal India Ltd.


The mining industry is unique in some sense because of the magnitude of the environmental and social problems associated with this industry. A number of specific characteristics of the mining industry contribute to these problems. Choices of locations are not flexible, so often mining takes place in ecologically and socially sensitive areas. Particularly in those cases, the damage tends to be irreversible. Another characteristic of the mining companies is that they tend to be seen as an economically strategic sector. These two parameters tend to imply a conflict and a risk in terms of corporate accountability. That said, the mining industry has been moving from being a voluntary and marginal contributor to the society—it is part of becoming a partner in social development and making a significant impact on the standard of life for the project affected people. The Mines and Minerals (Development & Regulation) Bill that stipulates that coal mining companies will have to share 26 percent of their net profit for the purpose of the social balancing act. While there cannot be two opinions about compensating the project affected people, the stipulation of 26 percent share of profit does appear steep.


It may have an impact on investment in coal mining sector. And investments in mining ventures should not be viewed in isolation. Any impact on the investment in such a mining venture must consider the micro-economic impact of the venture. It would be stating the obvious that minerals produced from mining ventures are typically consumed in manufacturing sector and the chain of value additions end with the ultimate consumer. In case of a coal mine, the investment in mine is likely to be coupled with investment in power generation, steel or cement. If we take the example of coal mining and power generation, for every Rupee invested in coal mine, typically, five-fold investment goes into power generation plant. This can be enlarged, if the project needs infrastructure investments as well. Similar is the multiplier effect on generation of employment and these projects also help create local business opportunities and employment in these ancillaries. The local business development occurs through the investment in a coal mine and addition of power project in the portfolio, which enhances levels of economic activities and improvement in purchasing power of people in the region.

There is a difference between tax and social contribution, but the mandatory nature of the social contribution can make it appear similar to tax. Currently, coal mining in India attracts following taxes and contributions: Corporate income tax – 33 percent; Royalty – depends on the coal quality/grade; Dead rents – lease rents for land; Corporate social responsibility commitments (percent on revenues) – largely voluntary; Education cess – two percent surcharge; Environment levies – for coal, it is Rupees 50 per tonne of raw coal mined; and Indirect taxes – on consumables. If the 26 percent mandatory profit share is implemented, the taxes and mandatory contributions will account for more than half of the cost of coal production. While costs per se may not be a concern as much as the capacity to pass these costs on to the final consumer, which is where, the industry concerns may lay.

It is observed that raising the level of taxation brings the cash flows forward to the present from its mineral sector, which otherwise is due over time. Reason for this being the observation that tax hike always raises government revenues over the first few years from its promulgation. This is likely to discourage exploration and mine development in the longer run, and so reduces tax revenues on a life cycle basis.

The provision for profit share is likely to have limited success in addressing long-term issues that confront the industry and its investment environment, as hence, the same project affected people. Considering the macro-economic parameters, in long run, the industry and the government, as also the other stakeholders, including project affected people are likely to witness lower realization from a higher imposed contribution required from the mining projects. The provision, as it stands, is likely to erode the attractiveness of coal mining operations and may even act as a deterrent to investments into the marginally profitable coal blocks. It may help that the proposed profit taxes should be dropped in favour of enhanced but fair compensation to project affected people. Fair compensation for the project affected people should be based on earning capacity from that land keeping in view the market conditions for requirement of land. It may be suggested that in addition to compensation for land, the displaced should get annuity for life of the lease period at a rate agreed by the mining company, project affected people and the government.

In overseas coal hunt, ICVL evaluates 6 targets - Quoted in the Mint

State-run International Coal Ventures Pvt. Ltd (ICVL) is evaluating six opportunities valued at a minimum $1.2 billion for acquiring stakes in coal mining projects owned by companies such as Australia’s Aquila Resources Ltd and Stanmore Coal Ltd, and Alpha Natural Resources Inc. of the US.

The other options include acquiring a 24% stake in Singapore-based MEC Coal, a 59% stake in Minas de Revuboè owned by Australia’s Talbot Group in Mozambique, and a coal mine project in South Africa.
To be sure, while private Indian firms have been successful in securing coal resources from foreign companies, ICVL, which has gone up against Chinese coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd, has been unable to secure even a single property.

ICVL was set up by five state-owned firms—NTPC Ltd, Steel Authority of India Ltd (SAIL), Coal India Ltd​, Rashtriya Ispat Nigam Ltd and NMDC Ltd—to secure overseas coal assets two years ago.
“The opportunities are being evaluated and the due diligence is on. Each of the six opportunities is valued between $200 million and $600 million,” said a senior ICVL executive, who did not want to be identified.
“We are also interested in Washpool Coal Pty Ltd’s coal project, which is a subsidiary of Aquila Resources. Most of these projects, except MEC Coal’s project in Indonesia, are of coking coal. The Mozambique bid is expected to be submitted shortly,” he added.

While C.S. Verma, SAIL chairman and head of ICVL, declined to name the specific opportunities, he confirmed that ICVL is carrying out due diligence on four-five assets. “I am bound by non-disclosure agreements agreements,” Verma said.

Questions emailed to Aquila Resources, Stanmore Coal, Alpha Natural Resources, and Ajay Kumar Mathur, executive director and chief operating officer of ICVL, remained unanswered at the time of going to press.

Mint had reported on ICVL’s plans to bid for stakes in the Revuboè coal mining project in Mozambique and in MEC Coal on 6 June and 8 July, respectively.

Analysts say bids by Indian miners tend to be relatively uncompetitive.
“Pricing and price sensitivity of the final outputs in India may present a constraint on how much Indian companies are willing to put on the table. In case of metallurgical coal assets, where the market in India is aligned globally, the Indian companies may compete well with global majors,” Dipesh Dipu, director of consulting, energy and resources, and mining, at Deloitte Touche Tohmatsu India Pvt. Ltd.

India does not have substantial good-quality metallurgical coal reserves. Demand for the fuel in 2009-10 was 40 million tonnes (mt), of which 23 mt was imported. Demand is expected to rise to nearly 90 mt by 2020. There has been a growing demand for metallurgical coal due to the growth expected in the steel sector. Australia, emerging as a major source of India’s mineral imports, is the largest exporter of metallurgical coal in the world.

Verma defended ICVL’s track record and said, “ICVL had bid for around 8-10 assets last year and we will be bidding for more properties this year. Acquiring coal mines in such a competitive environment is not an easy task.”

According to Dipu, a prerequisite for winning a bid for global assets is an understanding of geotechnical features and supply chain issues on one hand and the economics of coal usage on the other—which go to determine valuation.

Also, typically issues of operational and enterprise risks get discounted at the bidding stage, and this makes operationalizing the acquired asset a tough proposition subsequently, he added.

India has a known coal gross resource base of 264,000 mt, the fourth largest in the world, of which proven reserves are around 101,000 mt. Demand is around 600 million tonnes per annum (mtpa) and is set to touch 2,340 mtpa by 2030.

Indonesia's Proposed Coal Export Ban May Have Impact on the Indian Power Sector - My interview on CoalSpot

COALspot.com - This is a special interview about Indonesian proposed coal export ban by 2014, with Mr. Dipesh Dipu, Director of Deloitte Touche Tohmatsu, India.


The Indonesian government is currently in the process of drafting a new regulation that could ban the export of low-grade coal by January 12, 2014. This is likely to apply to coal below 5700 kcal/kg on air dried basis in value.

As of now Indonesia is producing around 150 million tons of coal with calorific value below 5700 GAD (according to chairman of Indonesian coal mining association). However by 2014, there are possibilities the total production of below 5700 GAD coal may reach more than 200 million per annum.

Will Indonesian coal export ban impact on the Indian fuel requirements?

The earlier grade of coal that was being considered for proposed ban has GCV of 5100 kcal/kg of less (adb), which can be comparable to 3800-4200 kcal/kg (arb) domestic coal available in India. This grade of coal has found favor in India primarily due to likely price advantage but economics of power generation based on such grade of imported coal may be a suspect. This considering that such grades of coal from Indonesia typically have high moisture content, which makes transportation cost per unit of energy generated higher. The quantum of the low grade of coal (<5100 kcal/kg adb) procured from Indonesia is likely to remain relatively low.

However, if the new definition of low grade coal is applied (<5700 kcal/kg adb), it may be reasonable to believe that such a ban may have impact on the Indian power sector as volumes in this grade of coal are expected to rise in the proportion of coal exports to India. Several of the acquisitions made by Indian power generation companies in Indonesia have been in coal blocks that will produce coal of this grade, and a blanket ban on the exports can jeopardize power plant development in India.

On the other hand, the domestic Indonesian market may not be prepared to consume all the coal mined of this grade in view of the power generation capacity addition plans in Indonesia. In such a case, the coal mine development is likely to be deferred. The Indonesian law makers may need to reconsider domestic market demand, investment climate in coal sector and impact of the legislation on the export revenues.


What is the alternative source for Indian power industry if the proposed coal export ban come into effect by 2014?

Indian power generation companies have been forced to look out for coal assets abroad due to the investment and regulatory environment within the country. India boasts of more than 110 billion tonnes of coal reserves, which largely fall within a 300 meters of depth. If the regulatory and investment environment is amended to allow greater participation of private sector Indian dependence on imports will be reduced.

However, for imports, India will continue to look at Indonesia, South Africa, Australia and newer destinations like Mozambique and Columbia. But these sources also have constraints, domestic demands in South Africa is likely to restrict quantum jump in exports out of South Africa. Indonesia has also proposed domestic market obligations. Mozambique may have infrastructure constraints for large volumes of coal being transported from Tete province to ports of Maputo, Ncala or Beira. Australian coal is of high quality but may have higher costs of mining and transport.

What would be the additional cost if Indian consumers switch their sourcing origin from Indonesia?

Indonesia has competitive advantage due to its geographical closeness. However, on a per tonne basis, assuming comparable quality, costs of transport may make marginal difference when compared with South Africa and Mozambique.

When compared to Australian coal, due to the high quality, cost of energy may well be comparable even though shipping costs are higher. Between Indonesian coal (5500 kcal/kg adb priced at USD 90 per tonne) and Australian coal (6500 kcal/kg adb priced at USD 120 per tonne), indicative variable cost difference of power generation may be about Indian Rupees 0.20 to 0.30 per kWh (electricity unit) in favor of Indonesian coal.

Will it affect Indian economy growth or this coal export ban is ignorable as India can easily identify alternative sources of fuel?

The magnitude of growth in power generation in India will necessarily mean that coal will remain the mainstay. Natural gas has had issues of availability. Nuclear plant development is facing socio-political challenge in view of the risks of technology failure. Development of hydel power has also faced issues of land acquisition, rehabilitation & resettlement apart from the technical issues of hydro-geological features. Renewable sources such as solar and wind generation are still projected to constitute a small portion of India power generation mix. Identifying an alternative source that can match coal in its accessibility, availability and affordability in the context of scale of capacity addition required in India is a challenge.

What is the Indian government's role on this issue, whether government has to come out with the solution such as easing Indian mining and environment law, open up mining for foreigners, G2G arrangement, etc…?

There is a need to look at domestic sources with pro-active and constructive approach and make all necessary legal and statutory amendments that make the resources available and mineable. Easing the regulations may not be one of such measures but making those regulations work in sync with each other in a time bound and predictable manner must certainly be.

There is certainly a case for opening the domestic coal sector for private participation, including independent miners, and for foreign participation so that newer technology and enhanced scale of operations are implemented in India. The regulation also needs to permit risk capital to come in for prospecting and exploration.
For imports the G2G relations can be leveraged to secure coal assets. India has good relationship with Indonesia and has also signed a tax treaty with Mozambique in 2010 which will facilitate investments. Government may also engage with these countries to ease exports to India and extend fiscal support to coal mining companies investing in mining and associated infrastructure development.
About Dipesh Dipu

Dipesh Dipu works as Director with Deloitte Touche Tohmatsu India Pvt. Ltd in the Energy and Resources consulting practice of the firm and anchors the Firm’s initiative in the mining and metals sectors.
He is a mining engineering graduate from Indian School of Mines and is a Chartered Financial Analyst (CFA). He has also done executive program in business management from Indian Institute of Management Calcutta. Dipesh has recently been awarded the Abheraj Baldota Gold Medal for the Young Mining Engineer of the Year 2007 by the Mining Engineers’ Association of India in recognition of his contributions in the improvement of mining industry in India.

Coal exchange in works to put end to grey market - Quoted in the Financial Chronicle

The government proposes to set up a coal exchange for buying and selling of coal with option for both spot as well as futures transactions. This will enable government to monitor and streamline coal transactions apart from right price discovery for ‘black gold’ and put an end to grey market for coal.

All end-users of coal and captive mine operators may have to be registered on the platform. In India, coal is primary source of energy accounting to 52.4 per cent of demand. Rest 41.6 per cent is sourced from oil and natural gas. According to planning commission projections made in integrated energy policy, 2006, coal is estimated to meet more than 50 per cent of primary comme­rcial energy need by 2032.

Finance ministry has accepted recommendation of Committee on Allocation of Natural Resources (CANR) chaired by former finance secretary Ashok Chawla. A committee of secretaries headed by cabinet secretary Ajit Kumar Seth will vet this proposal before CIL is asked to set up a trading platform.

“The platform can register all end-users such that sales to any registered user through the platform would automatically satisfy end-use requirement. In particular, all genuine users seeking linkage can register on the platform,” said the panel.

About 75-77 per cent of coal is consumed by power sector. Steel, cement, fertilisers, bricks manufacturing, textile and chemical industry consume the rest.
“It is estimated that by end of the eleventh plan, coal demand in India will be about 713 million tonnes, while availability would be about 630 million tonnes. Gap of 83 million tonnes will be met through imports,” said DK Aggarwal, CMD of Mumbai-based SMC Investments and Advisors.
According to panel’s recommendations, imported coal could be offered through the coal transaction platform. Further, all miners — captive or standalone — can transact coal through the new exchange. Further, e-auctions of coal done presently would also be linked to the new platform.
“In terms of imports, it may not be a feasible mechanism. Coal imports are need-based. Making it man­datory for a particular platform to be used may not be practical,” said Dipesh Dipu, director at consultancy firm Deloitte Touche Tohmatsu India.
“No company would be willing to sell raw coal from its captive mine. The company would produce less coal or may preserve it for future,” said Bhavesh Cha­uhan, analyst at Mumbai-based Angel Broking.
According to Crisil Research, there are about 250 firms that have been allocated coal mines. “Negligible amount of excess coal is available. Also, if there is any excess coal it has to be sold to Coal India subsidiaries at notified prices,” said Crisil.
Meanwhile, steel ministry has pointed that traders and agents should not be allowed to participate in these e-auctions or trading on coal exchange to prevent making profits.

UMPP coal usage rules may be revised - Quoted in the Mint

The government may amend the rules governing bids for ultra mega power projects (UMPPs), where the usage of excess coal from captive mines meant for these large-sized plants may have to be clearly specified upfront.


This is being done to usher in transparency and, hence, avoid any potential controversy.

The move to amend the standard bid documents (SBD) for future UMPPs comes in the backdrop of a legal challenge by Tata Power​ Co. Ltd. It has appealed to the Supreme Court against a decision by a so-called empowered group of ministers (eGoM) in 2008, to allow the winning bidder, Reliance Power​ Ltd, to use excess coal from captive mines allotted to it for the 4,000 megawatts (MW) Sasan power project for another project it has. Earlier, the Delhi high court had upheld the government’s decision.


“This issue has been raised. Whenever coal reserves are worked out, they are estimated quantities. To assume that there will be a matching quantity is wrong. If it is more, then what is to be done with the coal? It can be used for other projects that have been awarded through the competitive bidding route. There have been discussions. In such a situation some decision should be taken,” said an official associated with the UMPP award process, who did not want to be identified. “Such a condition may be incorporated in the SBD in the next set of projects, which will be awarded after the ones in Chhattisgarh and Orissa,” the same official added.

“We are looking at it,” said a senior power ministry official, who also requested anonymity due to the sensitive nature of the issue.

To be sure, the eGoM had in November 2010, after the decision allowing usage of excess coal from the captive mines at the Sasan UMPP for another project, moved to make this the rule. Accordingly, it asked the coal ministry to issue necessary instructions after getting it legally vetted; however, this is yet to happen.

The UMPP programme has had its share of problems, weighed by ecological concerns and local resistance. Developers, procurers of power—the states —and bankers met on 19 July to discuss changes that need to be made in the SBD. Such a move will also generate greater developer interest in future UMPPs and also bring tariffs down.

“Any such move which enables availability of additional coal resources would certainly help the sector. It is only important that such conditions should be transparently known to every participating developer. Therefore, making resources available will definitely be a welcome move. Once the terms and conditions are transparent and it’s a fair play, the developers would consider such availability to generate extra power and sell at market rates, which is not part of bid quantity and, hence, developers may be in a position to reduce tariff for the bid quantity of power,” said a Tata Power spokesperson.

“Based on the eGoM decision, ministry of coal has granted its approval for utilizing the incremental coal from the captive coal mines allocated for Sasan in the other project of the company, with certain stipulations,” said a Reliance Power spokesperson.

Reliance Power has been the most successful company in terms of UMPPs. Of the four UMPPs awarded till date, it has been the successful bidder for coal pithead projects at Sasan and Tilaiya in Jharkhand, and the imported coal-based project at Krishnapatnam in Andhra Pradesh. The imported coal-based project at Mundra in Gujarat was won by Tata Power.

Expert opinion over the move was mixed.
“For a competitively bid coal mine or integrated coal mine and power project, it appears prudent to allow optimal utilization of coal, particularly in light of the growing gap in demand and supply of coal, as it will allow unlocking of value of scarce resources and may lead to further aggressive tariff bids,” said Dipesh Dipu, director of consulting, energy and resources, and mining at Deloitte Touche Tohmatsu India Pvt. Ltd.
However, Anish De, chief executive at Mercados EMI Asia, an energy consulting firm, argued: “It is a fairly difficult decision to take because it could result in inadequate supplies to the power projects in the latter part of their operating life. Since the reserves are not precisely known at the time of award of project, any decision in this regard will be based on imperfect information, which could later backfire.”
The government wants to set up 16 UMPPs to meet the needs of the world’s second fastest-growing major economy after China. India has a power generation capacity of 180,000MW and expects to add 62,374MW by 2012.
Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May front-page story in Mint that it disputed. HT Media is contesting the case.