Govt eyes unusual buyback to offset divestment failure - Quoted in the DNA Money

A lacklustre primary market is forcing the government to ask cash-rich public sector undertakings (PSU) to buy back their shares from it.
Talk is, Coal India, which has over Rs55,000 crore cash in reserves, is likely to be the first.
“There is a cabinet note sent to us on the issue, and we will react to it after talking to the Coal India management,” said Alok Perti, secretary, ministry of coal, on Monday.
But this cannot be a pure buyback as the rules go, but may end up being something like a ‘buyback placement — an unusual divestment’, said sources.
Jayant Thakur, a Mumbai-based chartered accountant and securities regulation expert, said current rules don’t allow such a process.
“Under current regulations it is not possible for a buyback to take place with a single entity. They would have to create a a special scheme which would need court approval,” he said.
There have been cases where the court has allowed for buybacks which are structured differently, he pointed out.
Fo example, Sterlite Industries received court approval for such a buyback in 2002 where it attempted to purchase 50% stake from shareholders and investors were deemed to have accepted the offer if they did not object.
The Securities and Exchange Board of India (Sebi) moved court for a stay on this and eventually the company withdrew the offer.
Rules will make any execution tricky, agrees Dipesh Dipu, director-consulting, mining, Deloitte Touche Tohmatsu India.
“So it may take a little longer. Under current rules, Coal India will have to announce a buyback for other shareholders as well. That would be very tricky,” he said.
Such a move would also be against the grain of current regulations, said Pavan Kumar Vijay, managing director at Corporate Professionals, a financial consultancy firm in Mumbai.
“Sebi does not allow promoters to participate in a buyback offer. They would have to change the regulations or get them relaxed for this to happen,” he said.
According to the Bombay Stock Exchange website, currently, the government holds 90% in Coal India and foreign institutional investors (FIIs) 6.32%, while domestic institutions and others hold 1.57% and 2.11%, respectively.
The department of disinvestment has prepared a list of about more than 12 companies, including Coal India, Steel Authority of India Ltd, NMDC, Oil India, MMTC, NTPC and Oil and Natural Gas Corporation, which may be asked to buy back government’s stake.
The move is to help the government meet its Rs40,000 crore divestment target for the current fiscal. Of this, it has garnered just `1,145 crore — by selling 5% stake in Power Finance Corporation.
“The government cannot raise so much now. It cannot ask PSUs to announce a buyback in the next 4 months, but yes some of them would be able to do it, and it would help government raise a substantial amount,” said an analyst, with an international brokerage firm.
The decline in the rupee has not helped the government’s cause to raise funds from the primary markets.
FIIs, which were net buyers of equities by Rs136,000 crore in 2010 are affected negatively by the depreciating currency.
In April, the rupee was at Rs44.4 per dollar and now it has depreciated to Rs52 per dollar levels.
FIIs have been net sellers by Rs3,026.30 crore in 2011, according to Sebi data.

Meanwhile The Coal India management has indicated that its cash reserves would be higher at the end of the fiscal than it is at present, according to a Bloomberg report.
“The ministry has asked us about our cash position and we have told them that we only have Rs15,000 crore of cash to spare,” Coal India chairman Nirmal Chandra Jha told Bloomberg on Monday.
“We expect to have cash reserves of Rs60,000 crore by the end of this fiscal.”

NTPC gets approval to exit ICVL consortium - Quoted in the Mint

The power ministry has approved NTPC Ltd’s proposed exit from International Coal Ventures Pvt. Ltd (ICVL), in a move that could hurt India’s efforts to acquire overseas coal assets.


ICVL was promoted by five state-owned firms two years ago to buy coal mines overseas. While Steel Authority of India Ltd (SAIL) and Coal India Ltd own 28% each of ICVL, NTPC, Rashtriya Ispat Nigam Ltd and NMDC Ltd own 14% each. The 14% share of India’s largest power generation utility in the consortium, which hasn’t managed to close a single purchase, is expected be split proportionately among the remaining partners.

The exit will end the acrimony among the partners that surfaced last year when then steel minister Virbhadra Singh had said that NTPC and Coal India could exit the consortium if they wished to.

ICVL was floated on the coal ministry’s initiative and has an initial equity capital of Rs. 3,500 crore and authorized capital of Rs. 10,000 crore.
An NTPC spokesperson confirmed that the exit is taking place and that the details will be worked out after “requisite due diligence”.
Coal India continues to be part of the consortium.
A top power ministry official, who spoke on the condition of anonymity, said earlier that it had informed the steel ministry “that NTPC would like to opt out”.
Mint reported on 21 September that ICVL seemed headed for a split with NTPC wanting to exit. NTPC subsequently made a presentation to its parent ministry elaborating on the reasons for this.
According to NTPC, while the power producer needs thermal coal to fuel its power projects back home, ICVL’s other stakeholders are largely interested in metallurgical coal reserves to feed their steel mills. And the thermal coal offered to it does not meet the utility’s technical requirements.
“Our controlling ministry has given its assent to our proposal. We have already received a letter in this regard. Now, only the process part is left. Our share will be proportionately acquired by the remaining partners,” said a senior NTPC executive aware of the development who didn’t want to be identified.
The exit could actually work to the benefit of NTPC, said an expert.
“For NTPC, the development may mean a focused approach in the pursuit of coal resources,” said Dipesh Dipu, director, consulting (mining), at Deloitte Touche Tohmatsu India Pvt. Ltd. “Chasing opportunities on its own and simultaneously being part of a consortium may have led to strategic ambiguity.”
Still, the breakup will pose a challenge to “the efforts of the government to create a sovereign fund like arrangement and create a unified acquisition resource pool in the form of ICVL,” he said.
NTPC’s decision comes at a time when the country is facing its worst coal shortage. India faces a shortage of both metallurgical and thermal coal.
A top ICVL executive who didn’t want to be identified said the company “had received a copy of the (power ministry’s) letter”. This person said the company would discuss what needs to be done with the power utility’s stake. While private Indian firms have been successful in securing coal resources overseas, government-owned entities such as ICVL and NTPC have not been able to do so. The split in ICVL only highlights the challenges involved, Dipu said.
“While government-owned firms have been in the race too it seems the compliance requirement (for) procedures and lack of tolerance to risk-taking has caused them to be slow. Alignment of individual corporate objectives may have been yet another reason for the same,” he added.
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 million tonnes (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 and placed a tender on Monday to import another 4 mt.

Analyzing flight of talent from Government-owned Mining Companies in India - My Article in the Mining India magazine

Recently one of the newspapers carried an article regarding large scale exodus of management trainees from Coal India Limited (CIL). These were mostly the students picked on campuses of premier engineering and management institutes of the country who had joined CIL only a couple of years ago, largely during the global financial crisis years. During the time when most campuses witnessed sharp fall in number of usual companies visiting for recruitments, public sector enterprises like CIL saw an opportunity and made offers that attracted graduating students in scores. There is no denying that some of those students who chose to take these offers from government owned firms like CIL may have been looking for merely a job, and not remain un-placed after hard work to earn their degrees and diplomas. That they landed in these jobs, for whatever may have been the circumstances, would not the likes of CIL, the world’s largest coal mining company, desired to keep them for good. This trend of talent fleeing in short span is particularly true for mining companies, and it has been accentuated much in the last decade when career options widened for engineers, more particularly mining engineers.


If there is a study done for the mining engineers’ recruitment by NMDC Limited at Indian School of Mines campus for the last 10 years, the trend would become visible and almost shape up like a law. Executive trainees join NMDC and tend to leave in substantially large proportion within one or two years, several to information technology companies, some to pursue higher studies and a few of even other mining companies.

Reasons for talent flight

Some of the key reasons stated in various news reports and analyses of talent flight from mining companies in India are the following:

1) Salaries – it has been stated that for comparable skills and experiences, government owned mining companies do not provide comparable salaries. This may be particularly true when management graduates of premier institutes such as Indian Institutes of Management are considered. One or two years into their career, management graduates from IIMs in private sector tend to get higher salaries. Even for mining graduates from institutes like Indian School of Mines, private sector miners offer better salaries.



2) Over-management – Employees often complain about too many layers of management in mines of government owner miners. In a shift, there are junior managers, assistant managers, deputy managers, managers and senior managers to oversee operations. Such layers at workplaces do not foster employee empowerment, employee enablement, and broader spans of control by managers.



3) Favoritism – Each employee needs to be treated equally. Employees want fair treatment for policies, behavioral guidelines, time off, valued assignments, opportunities for development, frequent communication, and any other work related decisions. When there are several layers of management for small pieces of work, perception of favoritism is difficult to avoid.



4) Channelizing innovation and creativity – the new ideas from the management and engineering graduates are typically throttled and there is a great thrust on maintaining status quo in government owned mining companies, some of which may be technically justifiable but even for those the communication is not made appropriately. The positive energy that fresh graduates bring to the table is seldom tapped constructively, which leads to frustration and slowly the levels rise to an extent that employees tend to contemplate quitting.

These problems may be common for government owned companies in even other industries, but these are compounded in their manifestation in mining companies due to the work locations – which in most cases are remote which entails sacrifices on family fronts and also has lack of amenities that even smaller towns provide these days. Essentially, a group of youngsters located at mine sites that are graduates of premier engineering and management institutes begin to complain and their collective negative vibes make their individual enthusiasm wane faster, which eventually leads to exodus the moment an alternative opportunity presents itself.

Motivation

Analysis of motivational factors for fresh graduates in government owned mining companies on the well-known Maslow’s framework will help assess better. The framework of needs is presented as:

1) Biological and physiological needs such as those of food, shelter, water, clothing and others are met in the work places, although when compared with those in the cities, these will fall short of the standards expected by fresh graduates. Government owned mining companies do provide accommodation and sometimes canteen facilities for fresh graduates that join the ranks, but in some cases due to poorer maintenance and lax control on quality, the standards deteriorate. For example, in Donimalai iron ore mining project of NMDC where the executive trainee hostel is located by the main road that iron ore loaded trucks ply on, the rooms tend to have dust laden walls and floors and bed-sheets need to be washed everyday just for them to be fit to rest on. Even for food, the fresh graduates (typically bachelors and spinsters) find few options to their liking.




2) Safety needs are well met by the government owned mining companies through provision of security staff and maintaining law and order in mining townships. However, when it comes of coal mining projects in Naxal-infested areas, there have been raising concerns about safety. These tend to keep the families of graduates concerned which impact the motivation levels of the graduates too.



3) Belongingness and love needs are met to some extent. In mining townships, due to smaller societies the population feels connected. Graduates, for example, joining from the mining engineering streams of Indian School of Mines, IT BHU and IIT Kharagpur find several of their alumni in the organization living in the mining townships, many of whom connect well with the youngsters and partially substitute the family needs. The bonding tends be strong and even after the exodus, the memories of those days spend in mining townships tend to keep them connected.



4) Esteem needs although as defined by the framework comes in a little later in career but has high in priority list for those graduating from the premier institutes, the students join in with enthusiasm to prove themselves in the industry. The scope and span of work on the ground, however, does not permit incubation, experimentation and investment of time and effort in new ideas, leaving the enthusiasm transform into exasperation. The line managers in most government-owned mining companies tend to be totally focused on meeting their shift production targets which leaves little scope of looking at scope of process or performance improvements.



5) Self-actualization needs concern realizing personal potential, self-fulfillment, seeking personal growth and peak experiences, which are a step ahead of esteem needs. Needless to say that the work environment in government-owned mining companies in general tend to have little scope for meeting this need for a graduate. Learning and development typically are at the core for realizing personal potential, the employees that come from premier engineering and management institutes tend to have strong appetite for learning and applying the learnt concepts, which is encouraged in their campuses. The realities of the ground where production processes have remained unchanged, unchallenged and unquestioned sees the velocity of learning ceases to excite and comes to halt quite quickly, leaving the employees hungry and unhappy with their growth prospects.

Communication

Eric Berne developed his theories of Transactional Analysis. According to this theory verbal communication that is at the center of human social relationships happens through the transaction stimulus, which is responded through the transaction response. Berne also said that each person is made up of three ego states – parent, adult and child – and communication transactions happen through these ego states. It has been observed that parent ego state is defined by authority, absorbed experiences, conditioning and attitudes through learning. Child ego state is defined by feelings and emotions through internal reactions to an external event. Adult ego state is defined from the ability to think and determine actions based on logic and analysis.

Communication between ego states determines the success of communication, including building long term perceptions. It has been observed that adult ego state to adult ego state communications are suited best for organizational purposes, which keeps the balance. However, for the fresh graduates from the engineering and management streams joining a government-owned mining company the communication transactions are distorted. While the managers and supervisors tend to have parent ego state that requires obedience from a child ego state graduate trainee, the graduate trainee tends to have adult ego state that requires similar adult ego state in the manager and supervisor and requires treatment as an equal. This distortion leads to perceptions about the management being authoritarian and graduates being unresponsive and rebellion. As this pattern of communication continues the perceptional gap widens and there tends to disillusionment for the graduates who tend to be encouraged and nurtured to take the adult ego state in their engineering and management education. Disillusionment typically builds the discontentment and graduates tend to look out for options outside the organization for a new opportunity that promises among other things a better adult-to-adult states communication.

Communication also tends to happen at a greater frequency between the immediate supervisor and manager and hence, the responsibility of talent retention or flight may be ascribed largely to the people taking these roles for fresh engineering and management graduates. According to a study, more people leave their bosses than their organization. This may be also due to the mode of transactions in communication, and in government owned mining companies, the mode of transaction does not seem to help the cause of talent retention.

Other factors

Majority of engineering and management graduates think that mining as a career option is unattractive because of lack of social life, unattractive working conditions at mine and poor infrastructure facilities at mine townships. Brand value of government owned mining companies also tend be a concern, more for management graduates than mining engineering graduates, who look for a growth options in their fields of speciation in long term. While on job there are vacuums in mentoring and counselling that these graduates encounter, which is necessary to guide them on focusing on the real job content and career growth prospects. Several times just the presence of someone to listen to the professional and personal difficulties faced in the mining projects can turn the decision of a graduate to stay longer, but most often than not the organizations fail to provide appropriate conduits. Management and leadership appears distant and unresponsive, and sometimes plain indifferent, when the challenges that the graduates face can be easily resolved.

Conclusion

It is, therefore, easy to conclude that there are reasons for the flight of talent from the government owned mining companies in particular. Some of these can be addressed by the companies by preparing to adopt new blue blood on the block and being responsive. There are others for which the government owned companies need to make additional efforts. It may be well if the long term focus of the government owned mining companies is set on improvement of working conditions at mine site, improvement of infrastructure facilities of mining towns, revising salary structure and linking it to performance, incorporating job rotation policies and enriching jobs, and brand building and awareness programs. The flight of talent can be arrested provided there are changes in the way the leadership of the companies approach the issue. If they continue to see themselves as helpless due to government ownership, there does not seem to a way out of the talent crisis in the medium to long term for them.

Coal importers face huge loss as stocks top 11 MT - Quoted in the Economic Times

More than 11 million tonnes of imported coal, enough to light up five cities as big as Delhi, are stacked at Indian ports for over four months as power producers refuse to buy costly coal despite acute fuel shortage.
The importers face huge loss as the depreciation of the rupee and the recent fall in international coal prices add to their woes. Industry insiders said coal stockpile at various ports reached record level as traders were initially not willing to sell the commodity at loss. Disinterest among power generating companies to blend imported coal that increases electricity tariff also led to the glut. Industry sources said traders under pressure from creditors wanted to sell quickly.
"About 11.57 million tonnes of coal is lying at the ports. The traders, mostly small and inexperienced ones, bought coal from Indonesia and South Africa at higher prices. But the traders are holding the stock as they would not even be able to recover the costs with the kind of purchase offers being received," a senior official in Bhatia International said.

Global coal prices have come down by $5 a tonne in the past few months due to slowdown in various economies.

Rupee fell to a two-and-half-year low of 50.42 against dollar on Friday on the back of weak industrial production data and a sliding stock market.

Deloitte director consulting (mining) Dipesh Dipu said traders would be in lurch as dollar has become expensive and rent and repayment charges add to the costs.

"The traders placed coal supply orders a few months back when the rupee was trading at about 43-44 to a dollar. When the coal landed at the ports, rupee had started to fall and was about 48 to a dollar. Today, they are receiving enquiries at about 7% less than the prevailing price," a senior official in Adani Enterprises said.

The coal at ports could meet about 70% of the imported coal requirement of the country's largest power producer NTPC that has 35,000-mw generating capacity. NTPC targets to import about 16 million tonnes of coal this fiscal.

A senior NTPC official said the company was blending 10-15% of imported coal at most of its stations, but there were no buyers for expensive power generated by burning imported coal.

Jindal Power's RS Sharma said this could be a good opportunity for power companies to procure imported coal at low prices, but there was no demand for costly electricity. He said blending 10% of the imported fuel rises electricity tariff by 35-40 paise. Cash strapped distribution utilities were resorting to load shedding rather than purchasing electricity.

A senior power ministry official said even if companies get imported coal at low cost, most private power producers did not have enough domestic coal to blend. Indian power plants can accommodate only up to 15% of imported coal that has to be blended with domestic coal.

India likely to raise coal tax issue with Australia, Indonesia - Quoted in the Mint

India may raise with Australia and Indonesia the issue of policy changes that has made coal imports expensive for Indian companies that own mines in the two countries.

Rising demand at home prompted Indian and Chinese companies to invest in the coal sector in Australia and Indonesia, causing prices of thermal and metallurgical coal to rise and leading governments there to seek a greater share of revenue.


While Indonesia has implemented price benchmarking to capture higher royalty and income taxes, which are pegged to the price of coal, Australia has imposed a Minerals Resource Rent Tax (MRRT)—a tax on profits generated from the exploitation of non-renewable resources, levied on 30% of so-called super profits accruing from the mining of iron ore and coal in Australia.



These interventions will affect the financial viability of imported coal-based power projects such as Tata Power​ Ltd’s Mundra project and Reliance Power Ltd’s Krishnapatnam project—both of 4,000MW each—because their fuel costs are set to overshoot expectations.


Both these firms have acquired coal mines in Indonesia to fuel their projects. While work has stopped on the Krishnapatnam project, Tata Power has been lobbying the Union power ministry in pursuit of a higher tariff. It will also increase the cost of coal procurements for Indian power and steel companies.


“We shall try to initiate talks with Australia and Indonesia,” coal minister Sriprakash Jaiswal said. “The Indian government will most certainly take up this issue,” he said. “We have also raised it and will request MEA (ministry of external affairs) also to take it up. But we need to know with some authority that this has been done for sure. We need an authentic letter and then we will tell the MEA that due to this there will be a big impact on coal imports so kindly look into it and ask for some relaxation so that imports are not impacted.”


India is dependant on coal for power generation. Of the country’s installed power generation capacity of 182,345MW, 54.7% is coal-based; much of the targeted addition of 100,000 MW during the 12th Plan (2012-17) is also coal-based. It takes around 5,000 tonnes of coal to generate 1MW of power every day for a year.


Questions emailed to an MEA spokesperson on Wednesday remained unanswered until press time.


While a RPower spokesperson declined comment, a Tata Power spokesperson did not respond to emailed queries on Wednesday till press time.


India is confronting its worst coal shortage. Power firms consume 78% of the total domestic production of coal. The size of the market for imported coal that goes into power generation in India is around 50 mt a year, and is expected to double by 2012 as more thermal power projects come up.


“Resource nationalism is on the rise,” said Dipesh Dipu, director of consulting, energy and resources, and mining, at Deloitte Touche Tohmatsu India Pvt. Ltd.


“It seems unlikely that the trend will be reversed since local project-affected population in host countries demand more and more and there is always a sense that foreign countries are benefiting from the natural resources of host countries that never seem to get enough,” he added. “Government-to-government relationships in the pursuit of favourable treatment to Indian power generation or steel firms may have limited success.”

Indian coal firms on the green path - Quoted in the Financial Express

Coal companies in the country are going green. Come 12th Five Year Plan and most power companies in the country would have taken initial steps towards coal efficiency or super critical technology. Firms such as NTPC, Lanco and L&T are in the process of installing super critical equipment for their every project as the technology not only promises lesser carbon emission, but also lesser dependence on coal.



"All our power projects will have super critical boilers in the near future, which will reduce our coal requirement by over 4% and subsequently reduce CO2 emission. Though these technologies require higher capex, if we consider the savings after installing them, it is certainly profitable," says K Rajagopal, chief executive officer, Lanco Infratech.


Lanco generates around 3,500 mw at present, which is likely to go up to 9,300 mw in the next two years. The company has seven thermal plants, of which three units have super critical boilers. Super critical and ultra super critical technology refers to the main steam conditions. Super critical boilers operate at increasingly higher temperatures which reduces coal consumption, translating into lesser carbon emission. For Indian coal, super critical equipment makes more economic sense.


The government has also tried to encourage companies by promising incentives for adopting clean coal technologies. The coal ministry has already announced that companies with super and ultra super technologies would be given preference in allocation of coal blocks. "As a result of this, we have seen that most power firms have either already gone for super critical technology or are in the process of adopting it," says a coal ministry official.

Another technology called integrated gasification combined cycle (IGCC) has also grabbed a lot of attention of power companies. Under this technology, the coal is turned into synthesis gas, which further reduces carbon emission. Power firms like NTPC are already trying this technology on a pilot project basis.


However, for Indian firms, IGCC remains a distant dream. The biggest disadvantage of IGCC is that it is not suitable for Indian coal. "IGCC is effective only for pet coke and high quality of coal with ash content of 5-10%, which are hardly available in India," says an NTPC official.


NTPC has installed super critical equipment in its Sipat plant in Chhattisgarh and is in the process of doing so in another 11 projects. "The biggest advantage is reduction in CO2 emission, which would be around 5% less per mw in the new plant," adds the official.

Industry experts say while the super critical technology may not hike the power tariff, as the increased capital cost is offset largely by improved thermal efficiencies, the IGCC could lead to higher tariff as it is capital intensive. "IGCC may be capital intensive and hence capacity charges tend to be higher. Underground coal gasification and power generation from such gas produced is still to be commercially proven in India," says Dipesh Dipu, director, consulting, energy and resources & mining, Deloitte Touche Tohmatsu India.

Coal shortage to persist, firms bracing for imports - Quoted in the Financial Chronicle

There’s more to supply-demand mismatch than rains and prolonged labour strikes


India is third largest hard coal producer after China and the US and is fourth in the pecking order of top 10 coal importers after Japan, China and South Korea. But such rankings do not give the government any leeway in tackling coal shortage in the country.
Recently, the power industry faced a massive coal shortage leading to shutdown of thermal plants and long hours of power cuts. Many power stations were left with stock for just four to five days, ringing the alarm bells in the corridors of power.
Steel and cement companies are forced to import expensive coal. Monsoon rains and labour strikes have only accentuated the supply-demand mismatch.
“The scenario will change in the next few years,” said Union coal minister Sriprakash Jaiswal. “The government had taken steps to speed up mining and there was no coal shortage in any power plant over the past 15 days,” he told Financial Chronicle on Friday.
At present, coal production in India is virtually stagnant and at times there has been decline in output. But industries that use coal as fuel have been growing at six to nine per cent. For instance, the power sector has been growing at seven per cent, while the steel industry showed a growth of around nine per cent in 2010-11.
Coal production dropped 17.8 per cent in September compared with 1.8 per cent fall in the same month last year. On the contrary, steel production grew 6.6 per cent in September.
Industry is not optimistic about meeting coal shortage in the near future. Coal shortage will continue for another five to six years, said L Madhusudan Rao, chairman of Lanco Infratech.
“The government has taken steps and whatever action it takes over the next 12 months, the results will show over the next five years,” he said.
The Lanco group runs three power plants on coal — two units of 600mw each at Udupi, two units of 300mw each at Amarkantak and two units of 600mw each at Anpara in Uttar Pradesh.
The Udupi power station is based on imported coal and any increase in input cost is passed on to the consumer.
The Anpara station requires five million tonnes of coal every year and as per PPA, any increase in coal price is passed on to customers. But the rising cost cannot be passed on to customers in case of the Amarkantak plant, which requires three million tonnes of coal every year.
India’s largest thermal power producer National Thermal Power Corporation (NTPC) used 126.64 million tonnes of domestic coal and 10.56 million tonnes imported coal in the last financial year.
“National Thermal Power Corporation has been blending 10-15 per cent of imported coal at most of its stations and the availability of imported coal has never been a constraint at any of the stations. For technical and commercial reasons, National Thermal Power Corporation is only able to blend this much quantity of coal as any further increase can lead to breakdown of machines and hike power tariff for consumers,” said a senior NTPC official, who did not wish to be named.
Prices of coking coal have increased as much as 40 per cent globally over past few months. “A sharp increase in input cost (coking coal prices) is one of the main reasons for less profit in the second quarter,” SAIL chairman CS Verma said.
SAIL imports nearly 75 per cent of coking coal required for its plants. The remaining domestic coal also become expensive because of trade parity price, Verma explained.
“One of the key reasons for the coal shortage is because of the way resource allocation has been done in the country,” said Dipesh Dipu, director of energy and resources at Deloitte Touche Tohmatsu.
In the past decade, nearly 208 captive mines were allocated to companies in several sectors. But, only 14 to 15 of these mines are operating, Dipu pointed out.
Kameswara Rao, executive director and leader energy utilities and mining, PwC India, said, “The policy for coal allocation is unclear.”
“No coal block has been issued in last two years to private sector, and modalities for competitive bidding are yet to be finalised,” said Rao.
“Moreover, the primary producers such as Coal India and SCCL need to enhance exploration and capital investment in new mines. Also, the local development issues that have been holding up land acquisition need to be positively dealt with by coal companies and local governments making investments to improve communities and develop connecting infrastructure,” Rao added.
India’s total coal resources are estimated to be nearly 286 billion tonnes, but the proved resources are close to 114 billion tonnes. Of this proved resources, 70-80 per cent can be mined, according to global consultant PwC.

In 2010-11, India produced 532 million tonnes of coal, out of which Coal India mined 430 million tonnes.

For 2011-12, India is targeting a coal production of 554 million tonnes. Out of this, Coal India targets to source 452 million tonnes. Coal India chairman NC Jha was not reachable for comments.