Coal Min to address investors at Singapore, Hong Kong - Quoted in the Hindu Business Line

New Delhi, July 23: The Coal Minister, Mr Sriprakash Jaiswal, and the Coal India Chairman, Mr S. Narsing Rao, would address investors in Singapore and Hong Kong between August 1 and 4 in an effort to attract investment and companies to India's coal sector.

“There are many opportunities in the coal sector such as setting up of washeries and contract mining which would be highlighted. We want to bring more expertise and the latest technology to India,” said an official.

Industry watchers feel contract mining is one of the ways to involve foreign companies. Mid-sized companies may be interested in Mine Developer and Operator (MDO) contracts. However, global mining giants such as Rio Tinto and BHP Billiton do not engage in such jobs, they say.

Currently, foreign investment in the coal sector is negligible. "This is because we have a captive policy regime. Only if a foreign investor joins a power project that has been given a captive mine, can it get involved. Such a scenario is rare,” said Mr Dipesh Dipu, Director in Consulting at Deloitte Touche Tohmatsu India.

Coal India would engage private companies for contract mining at a fixed per tonne cost, Mr Narsing Rao said in a recent interview. “We need to get more aggressive on outsourcing. In the next three months, we should be able to finalise the roadmap. We will identify the reserves and assess the annual output. We will determine the extraction percentage,” Mr Rao had said.

He added that on a pre-determined price for every tonne, Coal India would offer the contract for 10 or 15 years, based on market advantage. The life of the equipment would be matched with the life of the contract.

Mr Jaiswal would be joined by the former Secretary and Advisor to Coal Ministry, Mr Alok Perti, and Joint Secretary, Mr A K Bhalla, at the road shows organised by IDFC.

Power sector's dark days - Quoted in the Business Standard

The unprecedented shortage of coal has created a crisis-like situation for the power sector with plants of 30,000 Mw capacity lying idle. Also, the number of power units that failed to meet their targeted plant load factor (PLF) jumped sharply from 10 in January to 25 last month. Insufficient coal stocks at power stations to tide over the crisis has only added to the problem.

The plants that are unable to run at full capacity include state-owned and largest power generator NTPC which has a 26,000 Mw generation capacity. NTPC plants that failed to live up to their planned PLF in June include Badarpur, Farakka, Kahalgaon, Rihand, Talcher and Simhadri, according to Central Electricity Authority data.

In the state sector, plants owned by generating utilities of Haryana, Uttar Pradesh, Gujarat, Punjab and Kerala are running at low PLF.

While, power plants in India rarely operate at 100 per cent PLF, the current capacity utilisation by many has gone below average levels. The Badarpur plant’s PLF in June came down to 62 per cent against 85 per cent planned for. Similarly, Farakka’s PLF came down to 74 against 82 per cent planned. Also, Haryana Power Generation Corp (HPGCL) recorded low PLF of 54 per cent against 66 per cent planned. PLF of Uttar Pradesh Rajya Vidyut Utpadan Nigam (UPRVUNL) dipped to 47 per cent from 53 per cent planned in June.

The stranded capacity includes 6,000 Mw plants of NTPC Ltd. Reliance Power Ltd’s 1,200 Mw Rosa plant and Gurgaon-based Lanco’s 1,200 Mw Anpara C plant are also among those that are lying idle, according to a presentation on the developing crisis sent to Prime Minister Manmohan Singh by industry body Assocam.

What is worrisome is coal availability with 30 of the 89 power stations being critical, meaning they are left with stocks sufficient to maintain operations for less than seven days. Another 15 of the plants fall in the supercritical category with stocks sufficient for less than four days. These include Koradi power station in Maharashtra, Tata Rao station in Andhra, Kahalgaon in Bihar and Bakreshwar in West Bengal. This is despite the coal ministry’s claim that all the issues impacting availability at power plants, including production and logistics, have been taken care of.
The private industry says the impending crisis could be avoided if concerted efforts are made. “If domestic coal availability is falling short, coal has to be imported. It only requires the coordinated efforts of the three ministries – power, coal and petroleum and natural gas,” said Ashok Khurana, director general of Association of Power Producers. He said the projects lying idle include 9,000 Mw of gas-based capacity.

Experts believe the issues of clearances and land acquisition impacting coal availability need urgent attention to check the impending crisis.

“At the moment, there is complete confusion on land acquisition, especially regarding compensation. Also, the entire process of environmental clearances has to be made time-bound and objective if production from mining projects is to be improved,” said Dipesh Dipu, director, Energy and Resources at Deloitte Touche Tohmatsu India.

Coal Play - Quoted in the LOG India magazine

The share of imported coal in the total coal consumption has risen to about ten percent in 2009-10 from seven percent in 2002-03. Despite India’s vast coal reserves, passive regulatory policies and debilitated coal logistics have failed to meet domestic demands.

India walks on burning coal. This is no metaphor. For practically, every other Indian industry uses the energy of coal to produce power, steel, bricks, cement etc.

India is globally the fifth largest coal producer in the world. It accounts for 53 percent of the total commercial energy consumed in the country which is high compared to the world average of 30 percent. Nearly all the major sector ranging from power, coal to liquid / coal to gas, cement manufacturing, steel manufacturing use coal, but power accounts for 73 percent of the total coal usage.

CIL Monopoly

Coal mines in India were nationalized in 1972-73 in order to meet the long term coal requirement of the country, in the wake of industrial unrest, lack of investment in mine development, violation of mine safety norms, non-provision of safe mining conditions for miners and other such related issues.
Today till date, 80 percent of coal mines in India are owned by Coal India Ltd (CIL) and ten percent by Singareni Collieries Company Ltd (SCCL). Thus, over 90 percent of coal is controlled by government-owned collieries. Through a series of amendments, the government relaxed a few norms and private companies were permitted to mine coal from specified captive areas solely for their end-use projects; they cannot sell the surplus.

A Business Standard supplementary carried a report that affirms that the present 28 operational captive mines in India contribute about 35 million tons (Mt) of the total 530 Mt of coal produced in the country. Under the guidelines set by the Act, the coal block allocation for captive consumption is limited to few specific sectors like power, steel, cement, sponge iron. Other sectors like fertilizers, brick manufacturing enter into Fuel Supply Agreement (FSA) with state government notified agency and buy coal at a pre-defined market price.

CIL operates 17 coal washeries in India, out of which 12 are coking coal washeries with a capacity of 22.18 million tons per year (MTY) and 5 are non-coking coal washeries with a capacity of 17.22 MTY. Washeries are used from to remove excessive impurities from coal, where it reduces ash content washing off excess ash, thereby making it safer to be transported.

Agonizing Freight

It is easier to channelize power than to transport coal. The energy spent by trucks in transporting one ton of coal is more than energy produced by that quantity. “If the power plants are located closer to the ports, or the mines or any point of loading-unloading, it is cheaper and more efficient for the power plants,” says Arvind Ambo, Vice President, Head- Sales and Marketing, Credence Logistics. Credence Logistics is one of the leading third party logistics player in India that provide specialized solutions in the bulk segment.

Indian supply of coal is infringed with misappropriation and pilferage. Customers often report grade slippage as the quality of the coal at loading and unloading doesn’t match. “Often, major portion of coal transported by local transporters are unloaded along the way and replaced with kaali mitti (black sand),” says Mr Ambo.

Coal is weighed and transported in bulk. So the crucial problem in transporting bulk commodities in India is that there is very little inspection along the way to ensure that the quality of coal is not being compromised. “Currently there are no penalty obligations and recourse available to consumers for short supply. New Fuel Supply Agreement (FSA) provides for penalty but the levels of penalty are very low to have any impact on miscreants,” sighs Mr. Pushkaraj Sethiya, Manager- Energy (Coal and Mining), PricewaterhouseCoopers (PwC).

Apart from the ‘road mafia’ playing havoc, “high diesel prices and a number of taxes along the way add to the costs of road transport,” adds Mr. Mukul Dev, Asst Manager, Coal and Logistics, Mercator. Mercator owns coal mines in Indonesia and Mozambique and offers complete logistics solutions to all its clients, from load port to point of usage.

Budding young professional players in the market often cite unavailability of rakes and poor turnaround time as a major obstacle in transporting coal by Indian railways. A 2012 PwC report titled ‘Emerging Opportunities and Challenges in the coal sector’ states that in 2009-10, about 420MT of coal was loaded onto rail wagons, which is expected to cross 700MT in the next decade. The trunk routes i.e. main routes of the railways are overloaded as they carry 50 percent of the traffic.
Heavy congestion in rail network has been observed many times in the coal producing states which lead to delays. “Delays in development of proposed railways’ capacity add to freight woes,” elucidates Mr. Sethiya. “Passenger and freight traffic running on the same line restricts the speed of freight trains to 25 km/h which is very low compared to international standards (65 km/h or less as per the Norway/Sweden Freight Model).”

There are no specific storage arrangements made available for coal when in transit. Coal due to its inflammable nature is kept damp when transported by trucks, rail racks, and covered when stored at ports so that it does not catch fire when exposed to hot temperature or absorb too much moisture during rains. “The only external factors we are careful about is excessive moisture or high temperature as either can degrade the calorific value of the coal which will inadvertently, affect the price value,” adds Mr. Ambo.

Grading The Coal

Energy content of Indian coal is expressed in Useful Heat Basis (UHV). In the context of UHV, Indian coal (non-coking) is classified by grades (A-G). “UHV is an expression derived from ash and moisture contents for non-coking coals as per the Government of India notification. Both moisture and ash shall be determined after equilibrating at 60 percent relative humidity and 40°C temperature as per relevant clauses of the Indian Standard Specification No. IS:1350-1959,” explains Dipesh Dipu, Director – Consulting, Mining, Deloitte Touche Tohmatsu India Pvt. Ltd.

India largely produces non-coking coal, which is primarily used in power companies. Grade A to C is considered to be of superior quality and is used in industries like fertilizers, sponge iron and cement industries. Grade D to G is easily available across all coalfields and is considered to be of inferior quality. It is used in the power sector.

The power sector is one of the main consumers of non-coking coal and nearly two-third of the electricity generation in the country is coal-based. Coking coal which can again be classified as prime, medium and semi is mainly used for metallurgical purposes and in steel factories.

Looking Overseas

CIL has, time and again, failed to meet the demands of various sectors in India. Many customers have complained of delay in delivery or unavailability of consignment on time. “The Letter of Assurance (LoA) commitments of CIL are more than the production which has resulted in shortage of supply,” asserts Mr. Sethiya, PwC.

The difference in the demand-supply output has widened in the past few years. The Coal Controller report estimates a gap of 161 MT in the demand and supply in the year 2011-12, which incidentally explains why the private players have shifted their focus towards mines abroad. (See Chart)
Recent media reports suggest that import of coking coal from Australia may increase. A research report by Markus Hyvonen and Sean Langcake indicate that India, despite being the fourth largest steel producer in the world is a modest consumer of steel when compared to the relative size of the economy. India has sufficient reserves of iron ore but has to import large amount of coking coal from Australia, Indonesia.

The Press Trust of India reported that the Indian government is trying to move away from its dependency on the highly priced Australian coking coal, by aiming to acquire a mine in Mongolia. Mongolia has a rich coal reserve but being a land-locked country, the Indian government is planning to set up its first steel plant closer to the mine and export from there on.

India has enough mine reserves in the country to meet the requirements of all sectors for another 200 years. But despite its large reserves of coal, India has been unable to meet domestic demands. Most of it is imported from Indonesia, Australia and South Africa.

An official report prepared by the Indonesian government claim that 76 percent of Indonesian coal produced last year was purchased by India alone. The coals from Indonesia are high in calorific value (HCF), which means they have mid- to high- moisture and low ash content, which make them superior in quality when compared to the Indian coals.

The non-coking coals are imported from Kalimantan mines inIndonesia. The coking coal depends on the ash content whereas the semi coking coal depends on both the moisture and ash content. The high grade semi coking coal (grade I) is one that has an ash and moisture content not exceeding 19 percent, whereas grade II semi coking coal has an ash and moisture content between 19 percent and 24 percent.

Logistics Costs Inflate Price

Costs of mining in India are high due to lack of upgraded underground mining equipment for extracting coal. The private sectors spend a major chunk of their expenses in acquiring captive mines, whereas additional expenditure on modern machinery used for coal extraction, make costs of coal mining inexorably high. For state-owned CIL, costs are inflated by low productivity, obsolete equipment and overstaffing. CIL has to follow staffing norms that require it to employ one person for every two acres of land.

“Price rises have been sporadic but the trend has been that on a year-on-year basis, prices are seen to rise by six percent to seven percent. However, it may be of interest to note that prices of Indian coal are typically discounted by 40-50 percent from the international prices on energy content basis,” adds Mr Dipu. “The steep process in the international market is majorly due to high import demand from countries like China and India.”

But the main factors continue to remain steep logistics costs and unskilled, unorganized workforce. For short distance haulage of goods, merry-go-round (MGR), conveyor belt or trucks are useful, but to ship long distance, coastal shipping or railway is the best means. “Coal, as per Railways, comes under the 130-150 freight class. The additional surcharge, development taxes, port terminal charges and siding loading and unloading charges are added to the base freight rate,” explains Mr. Dev. “In coastal shipping of goods, the terminal loading and unloading charges are added to base freight charges.”

Mr. Ambo vouches for coastal shipping as a boon for bulk commodities. “Shipping ‘x’ amount of coal from Mumbai to Haldia port(Kolkata) via coastal route will take ten days at the rate of Rs. 2600 per ton, whereas transporting it by road will take seven-eight days at the rate of approx Rs. 3400 per ton. The difference in the number of days is counterbalanced by the fact the entire shipment will have reached the customer as opposed to small deliveries in different trucks.”

The potential of coastal freight movement is not fully exploited at the moment. “Coastal movement is only favorable for those plants closer to the ports. For movement in the interiors of the country, road or railways is preferred,” notes Mr. Dev.

Disparities in regulatory policies also impede movement of coal within the country. The Metals and Minerals Practice (Team), Frost & Sullivan – South Asia, Middle East and North Africa report that the coal movement to power plants is governed by Fuel Supply Agreement (FSA) but no such agreement exists for imported coal. Also, the Railways, generally the first choice as a mode for inland transport of dry bulk, is still to work out a clear-cut freight movement policy with respect to private ports, many of which are handling large quantities of imported coal.

Online Bidding

Coal distribution through e-auction was introduced with a view to provide access to coal for such consumers who are not able to source coal through the available institutional mechanism.
The scheme was discontinued temporarily but resumed under a new modified scheme of e-auction which was introduced in November, 2007 under the guidelines set by New Coal Distribution Policy.
Amidst speculations of favoritism in allocation of coal blocks to private companies and fluctuating coal prices, e-auction acts a suitable platform to allow transparency between the sellers and the consumer. There is no ‘floor price’ in e-auction. However, coal companies may be allowed to fix an undisclosed reserve price not below the notified price.

E-auction provides a suitable framework to provide stable coal prices and ensure steady profits for private developers. Ten percent of annual production of CIL is marked for e-auction. Metal Scrap Trading Corporation (MSTC), mjunction (a 50:50 venture by SAIL and Tata Steel) and CoalJunction (West Bengal Mineral and Trading Corporation) are some of the service providers in India that conduct the e-auction of coal.

The Green Impact

Excessive land mining is depleting resources at a high rate. The Ministry of Coal is constantly at conflict with the Ministry of Environment and Forests (MoEF), because the former cannot allocate land for mining unless the MoEF gives them a green signal.

“The adverse impact of mining activities on environment cover impact on biodiversity, contamination of surface and ground water, contamination of soil, subsidence, air pollution etc. Thus, it is very much necessary to take appropriate safeguards or recourse measures to minimize these impacts,” clarifies Mr. Sethiya.

MoEF has laid down some stringent norms and is responsible for implementation and administration of various environment and forest related legislations. Environmental Clearances and Forest Clearances must be secured from MoEF prior to setting up any industry. MoEF approval is mandatory for diversion of forest land to other uses also.

For implementation of any mining project, a mining company is required to conduct Environmental Impact Assessment (EIA) study and prepare Environmental Management Plan (EMP) and get the Terms of Reference (ToR) approved prior to project implementation.

MoEF govern and implement various environment related legislations and policies through various departments and Central Pollution Control Board (CPCB). Thus, a ‘no-go’ from the MoEF can stall any plans by Ministry of Coal to allocate land for mining. There have been instances where MoEF has identified and demarcated ‘inviolate areas’ to preserve the green forest cover and prevent coal resources from being exhausted.

The Madras High Court banned Chennai Port Trust from handling coal and iron ore in 2011 on the grounds that it pollutes the environment. While the local residents welcomed the ban, the Port suffered a decline in cargo handling by 8.35 percent. Since then, the Supreme Court has set up an expert committee to study whether the claims exacted by the High Court is indeed true. Meanwhile, the bulk handling has been shifted to Ennore Port.

Also, mining and logistics of coal have an impact not only on the environment but also on humans. The ash content has a harmful effect on human health if inhaled. “Further, as mentioned earlier MoEF does not allow coal with ash content of more than 34 percent to be used in any thermal plants located beyond 1000 km from the pithead, also any plant located in an urban area or, sensitive area irrespective of the distance from the pithead except any pithead power plant,” adds Mr. Sethiya.
Investments targeted at development of coastal freight movement, decongesting rail freight traffic will ensure greater connectivity. Keeping a check on road mafias will control grade slippages. Meanwhile, the slowing economy (abetted by weakening of rupee, steep fuel hikes) is likely to have an impact on the import of coal. Hence, the domestic production must be ramped up to meet the escalating demand of energy in all sectors in India.

Power Equation - Quoted in the Business World

It’s a double whammy for power plants which run on imported coal. While the spike in the prices of imported coal has made it commercially unviable for producers to keep their plants humming, the unavailability of domestic linkages is affecting their technical viability.

“Imported coal-based plants have had issues of affordability. Within technical limits, blending with domestic coal can help in both optimising performance and lowering costs of supplies. While imports are expensive, the supplies of domestic coal may help better utilisation of the plants. Although there are constraints in domestic coal supplies, the plants may be considered on a case-to-case basis, for which domestic coal blended with imported coal makes good economic sense,” says Dipesh Dipu, director- consulting, mining, Deloitte Touche Tohmatsu India.

The three power companies that have to grin and bear it are JSW Energy, Adani Power and Tata Power. These producers invested in imported coal-based plants to skirt the domestic fuel shortage logjam. What they failed to take into account was the sudden increase in the price of imported coal.
The current price of imported coal is somewhere around $4-4.2 per MMBTU (million metric British thermal units) as compared to $1.76 it costs to procure domestic coal.

Since the power purchase agreements signed by these producers do not allow for fuel cost as a pass through, they now find it difficult to keep the plants operational.

Seventy per cent of the coal for these plants is imported, but it is the residual 30 per cent which is the real spanner in the works. That’s because the coal linkages provided in January 2010 were withdrawn by the coal ministry in April last year. Ironically, the plants now feed only on costly imported coal which has brought down the plant load factor (PLF). The power ministry has requested the coal ministry to restore the linkages provided to these plants so that they can function at an optimum level. Apparently, the coal linkages were withdrawn without its consent, informs a senior official.

“We have requested the coal ministry to restore the linkages. It is not being done for any individual player but since all players are in distress, we have floated the request. All these producers have been badly affected by the unavailability of the domestic coal,” says the official.

The domestic fuel shortage has also forced plants based on domestic coal to import expensive imported coal. According to Central Electricity Authority data, the gap between domestic availability of coal and the requirement for 2011-12 was put around 54 million tonnes. While utilities were asked to import 35 million tonnes of coal to meet their unfulfilled requirement, plants designed on imported coal only required 20 million tonnes. The figures for 2011-12 show imported coal-based plants could import only 17.572 million tonnes of coal.

Many Shades Of Black And Grey - Quoted in the Business World

Coal India (CIL) is getting ready to play the Good Samaritan, albeit with a motive. It plans to spend Rs 7,500 crore over the next three years to help Indian Railways lay tracks and develop railway infrastructure in Jharkhand, Chhattisgarh and Orissa. That will enable it to move 60 million tonne of coal now stuck at pitheads due to lack of railway lines.

Coal India is cash rich: its consolidated net profits at end-March 2012 stood at Rs 14,788 crore, and its cash pile at Rs 58,202 crore. But will they succeed? In the past, the coal ministry had made a similar effort by offering financial help to the railways to lay tracks. But the plan ran into the roadblocks of land acquisition, environment and forest clearances. Sources say that Railway Board chairman Vinay Mittal and coal secretary S.K. Srivastava are touring states to clear the logjam; they were recently in Chhattisgarh to meet CM Raman Singh.

The coal ministry’s offer to fund wagon and rakes hasn’t received a positive response from the railways. They claim that production cannot go up without increasing evacuation, for which they need more rakes. Last year, they got 165 rakes per day. This year, the number is 185. The optimum figure, however, is 202.

Power plants are already facing a shortage of 55 million tonnes. Overall coal demand in 2016-17 is seen at 980 million tonnes, whereas production in the same period is estimated to be 615 million tonnes. In the first quarter of this year, coal production grew by 6.4 per cent and evacuation to power plants is up by 8.5 per cent. While it is an improvement, imports cannot be ruled out. CIL may need to import 18 million tonnes this year to meet 80 per cent of new FSAs (fuel supply agreements) and 90 per cent of old FSAs.

There is another vexed issue: how to fix coal prices. A PMO-appointed high-level panel has agreed to the concept of price pooling where the average price of imported and domestic coal will be taken to arrive at a common price. But this has been a sticky issue due to the complexities involved in calculating the price. It could also raise coal prices by Rs 150 per tonne and increase power tariffs by up to 20 paise per unit, says a senior Planning Commission official. The coal ministry, CIL as well as some states are opposed to it. CIL’s CMD Narsing Rao was quoted as saying: “We will not take a hit of even a rupee on account of that. If pooling has to be done as per the government pooling, it would be outside the balance sheet of the CIL.”

Price pooling may not be easy due to the lack of uniformity in the quality of Indian coal as well as the shortage across sectors and individual consumers, says Dipesh Dipu, director - consulting (mining) at Deloitte. “The pooling mechanism is likely to be very challenging.” He adds that there are not enough compelling reasons to import through CIL.
It would involve higher costs of procurement and reduced flexibility for utilities in imports.

But Ashok Khurana, director-general of the Association of Power Producers, believes that there is no option but to go for price pooling, and that CIL can fix the price after taking into account the import costs. Of course, the monopoly’s past unsuccessful attempts to change prices show otherwise. Khurana’s solution to the coal conundrum: “Liberalise the coal sector and take away CIL’s monopoly.”

(This story was published in Businessworld Issue Dated 30-07-2012).

Archean bids for Polish sulphur mine assets - Quoted in the Times of India

MUMBAI: Little-known Chennai-based business house Archean has fired a bid for sulphur mining company Siarkopol SA being privatized in Poland, a country with one of the largest sulphur deposits in the world. Archean is in the reckoning to buy a 85% stake in the mining company as Indian companies hunt for privatization and distress deals in Eurozone.

Diversified $1-billion Archean is one of the three shortlisted bidders for Siarkopol, with large sulphur deposits in the Grzybow region. This is perhaps the first Indian bid for a sulphur mine asset at a time when larger Indian conglomerates have hit headlines for coal mine and iron ore acquisitions globally. Siarkopol, which also operates a hotel, has sulphur mining capacity of more than 8 lakh tonnes annually.

Archean has existing interests in chemicals, shipping and construction, and also operates world's fourth largest phosphoric acid plant in Senegal, which it acquired four years ago. The proposed buyout of Siarkopol would help Archean expand its chemicals business, especially phosphoric acid. Archean could not be reached for immediate comments.

Poland is expected to announce the winner of the sulphur mining company in the next couple of weeks. Post the divestment, the government will transfer the remaining 15% stake free of charge to Siarkopol's employees, which stands at 739 people, according to a Polish Ministry of Treasury website.

Acquiring natural resource assets ensures long term supply security and helps in pricing play. There is sufficient value unlocking when the company extracts the commodity when compared to buying it from external sources, explained Dipesh Dipu, director, energy and mining at Deloitte India.
Mid-sized Indian companies have been in acquisition mode to expand in Europe troubled by the worst post War economic crisis.

On Wednesday, Vaccine maker Serum Institute of India, part of the Poonawalla Group, acquired Bilthoven Biologicals from the government of Netherlands for $40.3 million. Another southern conglomerate Murugappa Group company Tube Investments are among the local players chasing distressed acquisitions in continental Europe.

Fuel Shortage Brings Power Plants To A Halt - Quoted in the Business World

As the temperature continues to rise, so does the demand for energy in the country, adding to the woes of both consumers and utilities. Making matters worse for both is capacity shutdown: it was 36,903 MW as on 24 June, up from 34,387 MW on 24 May. What is alarming is that this shutdown constitutes more than 20 per cent of the total installed capacity monitored by the Central Electricity Authority (CEA). Out of a total capacity of 1,78,571 MW, 36,903 MW is listed under power outage. Of this, only 8,248 MW is listed as planned outage, while 26,300 MW is under forced outage on account of either equipment failure or fuel shortage. And the rest, 2,355 MW, is listed under ‘other reasons’.

The eastern region is the worst hit, with 32 per cent of its capacity shut down and most of it under forced outage. The western region has 20 per cent of its capacity lying unused owing to outages, while the southern, northern and north-eastern regions have outages of 18 per cent, 15 per cent and 12 per cent, respectively. States such as Haryana and Uttar Pradesh in the north; Maharashtra and Chhattisgarh in the west; Karnataka and Tamil Nadu in the south and Orissa, Bihar and Jharkhand in the east are among the worst off.

“Capacity under outage should not cross 10 per cent of the total installed capacity. The current outage is quite high. This is mainly due to fuel shortage, because of which many plants are operating at sub-optimal capacities or not operating at all,” says Ashok Khurana, director-general at Association of Power Producers.

The situation is expected to worsen, as the number of plants with critical stock levels (less than seven days of fuel) has gone up in the last few weeks. In May, as many as 27 thermal power stations (TPS) were listed as having critical stock levels and 13 stations as having super critical levels (less than four days); in June, their number rose to 31 and 18, respectively.

“Coal-based power generation has faced acute fuel shortages in the recent past. Estimates of capacities without fuel supplies is in the range of 20,000 MW. The demand-supply gap has been due to large capacity additions in the past three years; in the same period, coal production improved only marginally. Fuel supplies have become the most critical factor in capacity utilisation of power plants. They also constitute one of the most challenging hurdles to investments in new plants,” says Dipesh Dipu, director-consulting (mining), Deloitte Touche Tohmatsu India.

However, the current capacity shutdown cannot be blamed for long hours of load shedding, which happens largely due to the lack of proper planning by discoms as well as the poor state of their finances.

“In the last fortnight, there have been more sell bids — rather than purchase bids — at the power exchanges,” says Khurana. “This is because of the poor financial state of state power utilities, which prefer denying power to consumers and are loath to purchasing power.”The consumers end up suffering the most. “Due to load shedding, consumers are forced to buy power generated through diesel gensets that cost Rs 13-15 (per unit), while cheaper power at Rs 3-5 is available at the exchanges,” says Jayant Deo, MD and CEO, Indian Energy Exchange.

(This story was published in Businessworld Issue Dated 09-07-2012)

Coal-Starved Power Utilities to Get Freight Link Succor - Quoted in Bloomberg News

India is poised to start building an 880-billion rupee ($16 billion) rail network, its biggest since independence, as early as September to add capacity and cut the time to move cargo including coal.
State-owned Dedicated Freight Corridor Corp. of India Ltd. has bought about 75 percent of the 10,840 hectares (26,786 acres) of land needed for the 3,373-kilometer (2,096 miles) link and expects to acquire the rest by March, Anil Kumar Saxena, spokesman at the Ministry of Railways, said in an interview in New Delhi. The railways’ coal-carrying capacity will increase eightfold after the project is completed, he said.
The freight network linking the biggest coal producing region with generators in north India may cut costs for plants in a nation where half of the power capacity runs on the fuel. NTPC Ltd. (NTPC), Lanco (LANCI) Infratech Ltd. and rivals have not been able to run some of their plants at capacity because coal supply fell short. Transportation bottlenecks in Asia’s second-largest landmass have added to their woes, according to Dipesh Dipu, director at Deloitte Touche Tohmatsu Ltd. in India.
“The existing railway infrastructure is far from adequate and in many cases plants do not get coal despite stocks at the mine,” said R.S. Sharma, managing director of Jindal Power Ltd., which has a capacity to generate 1,000 megawatts of electricity. “As the power capacity increases, there will be need to haul more and more coal.”
The dedicated freight network will comprise two corridors, according to the company. One will run from Ludhiana, in northern Punjab state, to Dankuni on the eastern coast, while the other will link New Delhi with Mumbai on the western coast. The two will intersect at Dadri, near the capital.

‘Time Guarantees’

DFCC will build a 66 kilometer stretch between Son Nagar and Mughalsarai, both in eastern India, by December next year to demonstrate progress, Saxena said. Work on a 350-kilometer portion between Kanpur and Khurja, also in the east, will be awarded as early as September, he said.
The project involves laying 4,200 kilometers of new feeder lines, Saxena said. These feeder lines will include routes from coal mines to Son Nagar, in Bihar state, and Gomoh, in Jharkhand state, linking at least 15 major power plants along the corridor, he said.
The capacity of railways to carry coal will rise to 400 million tons a year from 50 million tons, Saxena said.
“Travel times will be cut by half,” said Saxena. “We can also enter into time guarantees for movement of coal to power houses, and introduce new efficient wagons, which can’t be done today because of limitations of existing lines.”
About 80 percent of India’s coal reserves are in the five eastern states of Bihar, Chhattisgarh, Jharkhand, Orissa and West Bengal, according the Ministry of Coal.

Power Deficit

NTPC, Asia’s biggest electricity producer by value, said last month that it has scaled back plans to add coal-fired capacity by 42 percent because of fuel shortage. Lanco has 4,988 megawatts of capacity under operation, according to its website and is adding plants in the area that will serviced by the rail network .
Prime Minister Manmohan Singh’s government aims to create 76 gigawatts of generation capacity in the next five years to bridge an 8.6 percent peak-demand shortfall in the quarter ended June and revive economic growth from the slowest pace in nine years. Removing fuel supply constraints will be important, according to Deloitte’s Dipu.
Last year, about 45 million tons of coal was held up in mines because of lack of transportation, Dipu said.
Many Indian mines are operating at one-third of capacity as the rail system can’t move more cargo, Alok Perti, former secretary at the coal ministry had said Jan. 31. State-controlled Coal India Ltd. (COAL), the world’s biggest producer, has been seeking construction of at least four railway links for as many as six years, which it has said will ease congestion and enable a 66 percent increase in output.

Faster Trains

The dedicated corridor, targeted to be completed by March 2017, will help almost quadruple freight train speeds to 70 kilometers an hour and carry 55 percent of the railways’ cargo traffic by revenue, according to the DFCC.
The rail project will be a game changer with potential to introduce predictability of cargo delivery, Kotak Institutional Equities Research said in a note to clients in May.
“It will imply a meaningful addition to railways’ capacity and to infrastructure overall,” Lokesh Garg, an analyst with Mumbai-based Kotak, said by phone on July 6.

PMO Intervention To Help End FSA Deadlock Soon - Quoted in the Business World

With the Prime Minister’s office intervening into the deadlock over the fuel supply agreements (FSAs) between Coal India and power producers, a resolution seems closer in sight.

On Wednesday, coal minister Sriprakash Jaiswal reportedly expressed the same sentiment. “I am hopeful that the issue will be resolved in 15 days and the remaining pacts will be signed,” Jaiswal told PTI. He also added that the ministry could soften their stand if the PMO asked and if it was in the interest of the nation.

The Prime Minister’s Office has called a meeting next week to resolve the issues related to fuel supply pact, with the Power Ministry not agreeing to the PMO directive that CIL assure power firms of providing 65 per cent of the total coal contracted.

The FSA issue was also discussed at a meeting called by the PMO last week. The meeting, chaired by Principal Secretary Pulok Chatterjee, was attended by Coal Secretary S K Srivastava, Power Secretary Uma Shankar and CIL Chairman and Managing Director S Narsing Rao, according to PTI.

"The Power Ministry is saying that banks are not accepting 65 per cent trigger level for penalty on CIL, as against the earlier directive of 80 per cent supply assurance".

If resolved, this would end the long stand-off where power producers like NTPC refused to sign FSAs on account of the lax norms set for itself by India’s coal monopoly. In March, after being served with a Presidential Directive, CIL had agreed to sign FSAs with 80 per cent trigger level (penalties set in for coal supplies below this amount) but with only 0.01 per cent as penalty level. Recently however, the PMO suggested 65 per cent as the initial trigger level with the usual 10 per cent penalty rate. There is also a possibility that Coal India may need to import coal — through state-owned agencies like STC and MMTC — to fulfil the FSAs. How to price this however, is still under debate.

“CIL may need to import if the consumers want them to. However, given that several state utilities and private companies have their own import processes in place, the quantum of imports through CIL may remain difficult to estimate,” says Dipesh Dipu, Director, Consulting, Mining at Deloitte Touche Tohmatsu India Pvt. Ltd.

The minister is currently in Kolkata and ministry sources say he may also take up the matter with Coal India, which is headquartered there. The company board is supposed to meet between 5th and 10th July to discuss the new FSA conditions suggested by the PMO. So far 27 of the 54 FSAs for 20,000 MW have been signed.

Asked about coal production, Jaiswal said there was a need to augment it in view of the requirements of power, steel and other industries. About Coal India, he was confident that "it will record a 7-8 per cent growth this year" stressing that it will achieve the production target for the fiscal.

The government has fixed a production target of 464 million tonnes (MT) for CIL, which accounts for over 80 per cent of the domestic output. Last fiscal, the PSU achieved an output of about 435 MT of coal as against a revised target of 447 MT.