MMTC, Adani in fray for NTPC coal tender - Quoted in the Mint

State-owned MMTC Ltd, Adani Enterprises Ltd and Knowledge Infrastructure Systems Pvt. Ltd (KISPL) are among the firms in the fray for supplying 7 million tonnes (mt) of imported coal estimated to be valued at around Rs.4,500 crore to NTPC Ltd.

The tender for the largest such package in the current fiscal year was called by NTPC, India’s largest coal consumer, which has a coal requirement of 166.7 mt in the year to March.

Of this, 150 mt is to be supplied by state-owned Coal India Ltd (CIL) and Singareni Collieries Co. Ltd; the balance 16.7 mt is to be sourced from overseas. NTPC has already ordered for 9.7 mt with the price bids opened for the balance 7 mt this month.

“This 7 mt is being sourced through four separate tenders for which the price bids have been opened. They are under evaluation,” said a senior NTPC executive requesting anonymity.

Another NTPC executive confirmed that MMTC, Adani Enterprises and KISPL were in the fray for supplying fuel to India’s largest power generation utility.

The utility has the capacity to generate 42,454 megawatts (MW) of electricity with 17 coal-fuelled projects. The demand for coal will increase with the utility setting a target of becoming a 128,000 MW power producer by 2032. Of this, 56% or 71,680MW will be coal-based.

“Notice Inviting Tender (NIT) for imported coal procurement was notified in newspapers and is currently under evaluation therefore the information sought can not be shared at this stage,” an NTPC spokesperson said in reply to emailed queries.

Queries emailed to the spokespersons of MMTC and Adani Enterprises on Wednesday remained unanswered as of press time on Monday.

“We are one of the participants in the recent NTPC tender for imported coal,” a KISPL spokesperson said in an emailed response. “We are awaiting formal announcement and award of contract by NTPC.”

Analysts said NTPC must improve procurement efficiency.

“The negotiated route with coal miners in select geographies such as Indonesia, South Africa and Australia may have greater procurement efficiency given that the volumes are large and the miners may favour long-term contracts in view of uncertainties ahead, but these need to be weighed against the established procedures and objectives of transparency,” said Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based resources-focused consultancy.

“In future, adopting a globally accepted standard contract of coal trade may also enhance procurement efficiency,” said Dipu.

NTPC, India’s largest power generation utility, has been allocated six captive coal blocks by the government and aims to mine 15 million tonnes per annum in three years. However, it has not been able to make them operational yet.

“India has a strong structural demand for coal, given the country’s reliance on thermal power. We expect the country’s thermal coal-based power capacity to increase from an estimated 123GW at the end of FY13 to ~150GW by FY16,” UBS Global Equity Research wrote in a 18 December report.

“Thereby, we expect the total coal demand to increase from~720 mt in FY13 to 920 mt in FY16. However, we expect the domestic coal supply to only cater to 76% of the FY16 coal demand, with rest of the requirement being filled up by imports,” it said.

NTPC’s orders comes at a time when demand for the fuel in the country is expected to grow from 649 mt per year now to 730 mt in 2016-17, and its failure in securing coal assets overseas.

Of India’s current capacity of 227,356.73MW, 58.6%, or 133,188.39MW, is fuelled by coal.

NTPC has an 18.29% share of India’s installed power generation capacity.

Stage set for a clean-up act in mining - Quoted in the Business Standard

KEY EXPECTATIONS FROM 2014

Coal regulator will be set up; it will decide the methodology for price fixation by Coal India Surplus coal policy for transparent utilisation of controversial captive output Competitive bidding for allocation of captive blocks to private companies Improved coal supply for power plants, as new FSAs have been signed for about 65,000 Mw of the 75,000 Mw of targeted capacity Higher production by Coal India, amid fresh clearances; however, rising discontent among trade unions over divestment may hit output Improved iron ore availability in Karnataka and Goa, with higher e-auction sales and partial resumption of mining operations allowed Illegal mining issues will continue to impact iron ore output and exports from Odisha

For a large part of the year, the mining sector continued to grapple with controversies related to allocation, production and pricing of minerals. However, the sector seems set for a clean-up in 2014, helping boost investor confidence and growth.


The shift to gross calorific value-based grading of coal aligned domestic prices with international benchmarks. Next year, the auctioning of more blocks and the finalisation of the surplus coal policy is likely to introduce transparency, while revisedfuel supply agreements (FSAs) will ensure assured coal supply for fuel-starved power plants. Two crucial legislative changes - one for setting up the Coal Regulatory Authority and the other for amending the Mines and Minerals (Regulation and Development) Act -, set to be passed in 2014, would further improve regulation.

In 2013, the coal ministry identified 54 blocks to be auctioned, and framed the blueprint of the process. Under the new regime, the ministry has already allocated 17 coal blocks, with about 8 billion tonnes of reserves to government companies, including 14 to the power sector alone. In the next round, blocks will be allocated to the private sector.

To auction blocks, the ministry has finalised a production-linked payment system based on revenue-share. Bids will be invited based on a production-linked multiple - the company quoting the highest multiple will be the preferred bidder. The method minimises the risk for the developer compared to the upfront payment method. The intrinsic value would be derived from the average selling price through the past five years, based on international free-on-board prices from the published indices of Platts or Argus, which assess energy prices.

On the production front, Coal India's output growth marked a revival. However, the company's financials took a beating, owing to lower realisations from e-auction sales. This was despite an average 11 per cent rise in low-grade coal prices announced in May 2013. Also, issues related to trade unions and workers resulted in a minor impact on output.

The unions continued to threaten strikes against the government's move to divest 10 per cent stake in the Coal India. Nevertheless, the company is hopeful production will rise five per cent to 475 million tonnes (mt) by the end of this financial year, even as want of green clearances continues to spoil plans to add capacities. "Work in a few mines with production capacity of around 20 mt is stuck due to delays in green clearances. We expected 20 mt to come from the Magadh and Amrapali opencast projects in North Karanpura coalfields this financial year. But forestry approvals have not been given to us," said Coal India Chairman Narsing Rao.

On the supply front, talks between Coal India and power companies concluded with an agreement on the terms of new FSAs. The company has already signed 172 pacts with power utilities, which will increase availability. However, lack of progress on the three rail corridors dedicated to coal evacuation will hit supply to power stations. This is likely to dampen the prospects of evacuating 300 mt of coal output from mines.

Also, more clarity on the pricing front is expected once a regulator is set up. It is likely the regulatory authority will be empowered to decide the methodology to fix prices, even as prices will be set by the Coal India board. This will allow the Coal India management to decide prices and the current government control on pricing decisions to continue.

Next year, higher coal imports by companies are likely. Imports have already risen 40 per cent so far this financial year. Though global coal prices fell up to 15 per cent this year, a similar trend is unlikely in 2014. Power companies may have to spend more for coal imports.

A similar trend is also seen in the case of iron ore, a key input for steel.

While 2013 was a mixed bag for the mining industry, the Supreme Court provided relief to the sector in Goa and Karnataka. But it will take at least a year before operations normalise in Karnataka, where partial resumption of mines has been allowed.

In November, the Supreme Court allowed the e-auction of 11.4 mt of iron ore already mined in Goa. A monitoring committee will conduct the e-auction and deposit the amount in a separate account, after deducting the royalty and trade taxes. In 2014, another panel will be formed to decide on a cap on the output in the state. An interim report on this is likely to be submitted by February 15, 2014.

Goa, which earlier accounted for more than half of India's iron ore exports, hasn't recorded any exports since a ban on mining operations was implemented in the state. This resulted in India becoming an importer of iron ore in recent times; earlier, it was the world's third-largest exporter. Most of the mined iron ore in Goa belongs to companies such as Sesa Goa (a unit of Vedanta) and Fomento.

The court had banned mining in Goa in September 2012, following a petition by Prashant Bhushan after a judicial commission, headed by

M B Shah, exposed a Rs 35,000-crore scam involving top mining companies, politicians and bureaucrats. The court had also banned mining in Karnataka in July 2011, but a partial resumption of mines was allowed in April this year. In Odisha, the state government had banned iron ore exports in October 2012. It said iron ore mining could be carried out for captive use alone.

Following the ban, India's iron ore exports fell 70 per cent to 18.3 mt in 2012-13. Exports stood at 117 mt in 2009-10, 97 mt in 2010-11 and 61 mt in 2011-12. Production fell from 167.2 mt in 2011-12 to 135.8 mt in 2012-13.

Despite the positives, experts believe any real reform in the mining sector is unlikely soon. "We can have auctioning of coal blocks, thinking it will bring transparency in the process, but bidding is unlikely to be successful, as most of the blocks are not explored. The situation of uncertainty will prevail until the coal sector is opened to independent mining by the private sector. The need of the hour is to take a relook at the fundamentals of captive mining," said Dipesh Dipu, associate professor of energy at the Administrative Staff College of India.