AUGUST 2013

By:B.M.VERMAAdvisor- Essar Power (M.P.) Ltd.Ex- Chairman Jharkhand State Electricity BoardEx Chairman / Jharbihar Collier Ltd.Ex Chairman/ Karanpura Energy Ltd.Ex- CMD/ Uttarakhand Power Corporation

LimitedContact: +91- 9810588500/9899337132Email: bmverma@yahoo.com

Power Cut

Unrestricted Demand

Hydro Gen.

Net Import from Grid

Time in Hrs.

Demand Met

(Total Availability)

POWER CUT

Date: 06-04-06 & 07-04-06

HydroGasTapiIranBangladeshNuclearSolarWindShale Gas

India has fifth largest coal reserves in the world with power sector consuming ~70% of domestic coal produced in the country. Coal accounts for 69% of total power generated in the country

India’s coal demand increased at CAGR of 8.5% in the 11th plan. Compared to this, CIL’s domestic production during this period increased at a CAGR 4.6% onlyXI FYP

(MT)

XII FYP (MT Projected)

XIII FYP (MT Projected)

Demand 696.03 980.50 1373

Supply 554 715 950

Gap 142.03 265.5 423

Particulars

Capacity at January 31, 2013

(MW) (A)

Capacity addition@ for balance XIIth plan

(MW) (B)

Capacity at March 31, 2017

(MW) (A+B)

Coal GasTotal Coal Gas Total Coal Gas Total

Installed Capacity

122,900 18,900 141,800 71,000* 7,500 78,500 193,900 26,400 220,300

Affected Capacity

53,000 18,900 71,900 71,000 7,500 78,500 124,000 26,400 150,400

Stranded Capacity

8,800 8,500 17,300 35,500 7,500 43,000 44,300 16,000 60,300

It is estimated that investments of about Rs 340,000 crores are impacted on account of current Affected Capacity of 71,900 MW

Limited availability of coal has impacted new power plants and also existing ones. Shortage in domestic coal production estimated at 64 MPTA for 2012.

Stranded Capacity is derived from Affected Capacity and refers to the actual shortfall in generation due to non-availability of adequate coal and gas. Current Stranded Capacity is estimated at 17,300 MW.

Generation loss on account of this is estimated at about Rs 42,000 crores (120 billion units @ Rs 3.50 per unit) which works out to about 0.45% of Gross Domestic Product (GDP)

Total Resources ~ 285.90 Bt; Proved ~ 114 Bt

Total Production in FY11 ~ 532 Mt, largely non coking (~93%)Power sector is single largest coal consumer, approx 64 % supplied to the sector

Indian coal is generally high ash, low sulphur

Average heat value ~ 4400 kcal/kg

Coal Reserves in India

Coal present in 10 out of 28 states

Power sector remains the largest consumer of coal at about 401.0 million tonnes per annum (MTPA) for FY2012 accounting for ~ 75% of total coal consumption

Challenges for enhancing domestic coal production – Coal India

– Land Acquisition is the biggest bottleneck in coal mining operations

– CIL faced prolonged delays in implementation of its projects leading to loss of production

– Even after acquisition, possession of land presents another problem to the company

Land Acquisition

Environment & Forestry Clearance

- Delay in conducting Public Consultations

- SPCB takes considerable time to issue Consent to Establish and Consent to Operate

- Environment Clearance given up only to a certain capacity (projected peak production) for specific project. Further capacity expansion requires new clearance which again a prolonged process

- Forestry clearance takes much longer time and even being denied.

Evacuation Infrastructure

- The progress of new railway line projects related to coal evacuation have not achieved the desired progress in the last few years (Tori-Shivpur-Hazaribagh, Angul-Kalinga, Gopalpur-Manoharpur,

• Non-availability of sufficient number of railway rakes CCL , MCL & BCCL particularly facing the problems in

dispatch of coal and increasing coal inventory levels 18

WEST COAST # of Ports

Gujarat 40 Maharashtra 53 Goa 5 Daman & Diu Port 2 Karnataka 10 Kerala 13 Lakshadweep Islands 10

EAST COAST # of PortsTamilnadu 15Pondicherry 1Andhra Pradesh 12Orissa 2West Bengal 1Andaman & Nicobar Islands 23

Port Logistics

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China – May ban import of High Ash and High Sulphur Thermal coal with GCV (ARB) below 4,800 Kcal/Kg.

US / Canada / Colombia – Attractive Ocean Freight s will result into supplies into Pacific Markets including India.

246

BT

15 BT

32 BT

50 BT

59 BT

115

BT

20 BT

76 BT

147

BT

248

Asia Pacific Now dominant in Global Coal production and supply

68

993

101

674

260

589

325

416

3520

335

Asia / Pacific

65%

Europe :

42 Million T

SA Exports 2007

India : 9.22 MMTChina: 20 MMTRest Asia: 8.6 MMT

Europe : 14.6 Million T

India : 22.98 MMTChina: 12.8 MMTRest Asia: 13.83 MMTSA Exports

2012

World Sea borne Trade 2010

Factors : - Ocean Transportation cost(s) Voyage Availability & Domestic consumptionRegulatory issues Economy including currencyCoal Cost(s)

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Local Issues,

Mining & Labour costs

Availability and cost of shale Gas, Oil prices for mining

costs

M & A i.e. Glencore -Xstrata

Demand

Drivers

Change in Coal prices (Import &

Export) due to appreciation / depreciation

Australian Tax for mining

coal, Indian Clean

Energy cess

Index linked spot / term contracts, Cost plus

basis, Dividend

Low / High

CV, S, TM, VM

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INDIA Imported ~ 107 Million

Tonnes of Thermal Coal in 2012

SOUTH AFRICAIndia’s Thermal

Coal Imports ~ 17 Million tonnes

INDONESIAIndia’s Thermal Coal Imports ~

83.4 Million tonnes

AUSTRALIAIndia’s

Thermal Coal Imports ~ 2.1 Million tonnes

Other Countries : ~ 4.3 Million

Tonnes

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* ARGUS FOB Prices ( 90 Days Forward)

- 10%+ 8%

- 7% + 6%

- 34%

- 30%

- 27.5% - 41.3%

- 37.5%

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The HBA is the minimum price used for the calculation of taxes for producers pay for all future exports and domestic coal sales.  It is calculated using a basket of indices, including the price is a monthly average of the Indonesia Coal price Index (ICI-1), Platts-1, Newcastle Export Index and the globalCOAL Index from the previous month.

+ 101.4%

- 39.6%

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Coal imports up 30% in Q1

Coal generation up 4%

Q1 7.7% GDP growth exceeds government targets

Urbanization expected to send 15 to 20 million people to cities each year

~250 GW of new coal generation by 2017

Coal imports up 25% in Q1

Coal generation up 9%

Domestic coal production below targets; Minister of Coal calling for increased imports

New port projects underway to enable greater imports

~70 GW of new coal generation by 2017

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35

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Demand Growth 7 -8% (5 year CAGR) as against ~ 5% production growth

In overall terms, GAP between projected demand of 980.50 MT and the projected domestic availability of 715 MT works out to be 265.5 MT in year 2016-17. (235 MT Thermal Coal and 30.5 MT Coking Coal)

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INDIA: Fastest Growing Coal Importer

Long – term coal use could quadruple to 2 billion TPA.

Heavy reliance on imported coal.

Bridge between Atlantic and Pacific markets.

Segmented between public & private sector.

CHINA : Largest & Fastest Growing Coal Market

Tight supply – demand balance.

Production costs increasing

Small mine closures continuing.

Transportation & taxes encourages imports.

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Thermal coal prices face downside risk. Thermal coal prices to drift lower in the coming months. Supply remains strong overall. However, Atlantic demand is thinning, while Pacific demand is not robust enough to absorb market excesses.

Atlantic demand is fading as summer approaches, and demand from

China is lower on potentially strong hydropower generation and, above all, strong overall supply.

China’s hydropower generation, up 15% y/y in March, looks set to outperform again this summer as reservoirs remain at above-average levels; this will be a drag on thermal coal demand.

Coal inventory restocking in China is unlikely to see a corresponding increase in seaborne coal prices.

Standard Chartered has lowered their 2013 Newcastle price forecast to USD 89/tonne (t) (from USD 94/t previously) and their 2014 forecast to USD 91/t (from USD 96/t) to reflect current market sentiment.

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Tough times ahead for producers – near/mid term buyers market.

Indonesian and Australia face competition from each other and the wider market.

Demand will be there and continue to grow, however, market [prices] will recover when demand over takes supply again.

China being largely a spot market means business is increasingly

being pushed towards the prompt.

Indian will buy when the price works, which should be ok for the near term, especially as freight is relatively cheap.

Whilst prices may remain relatively soft in the near term, they will become increasingly volatile in the prompt.

Indonesia maintains almost monopoly on sub-bituminous and low rank exports,

ideally situated between the growth markets of India and China.

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Affect of Currency Depreciation

Current Account Deficit

Queries to Be Answered.

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45

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Coal futures contracts are not yet liquid and it is risky to lock price for long term.

There is no depth in futures markets as very low participation of Speculators.

Most of coal future contracts are cash settled (financial settlement) and delivery happens for few U.S. Coal contracts and API 2 (CIF ARA) on CME.

On intraday basis, there is not much volatility which stops speculators to enter the markets as they look at an opportunity with change in intra day prices.

Coal prices depends upon logistics / ocean transportation, customer base, local issues i.e. regulatory, economy, weather, demand - supply etc. and it is not necessary that increase in Indonesian coal price will lead to increase in SA and / or Australian and / or U.S. coal(s) too.

Coal forward prices are mostly determined by financial institutions and brokers as trade happens through OTC. Coal end-users hardly participate to mitigate price risks.

52

THANK YOU

India has fifth largest coal reserves in the world with power sector consuming ~70% of domestic coal produced in the country. Coal accounts for 69% of total power generated in the country

India’s coal demand increased at CAGR of 8.5% in the 11th plan. Compared to this, CIL’s domestic production during this period increased at a CAGR 4.6% onlyXI FYP

(MT)

XII FYP (MT Projected)

XIII FYP (MT Projected)

Demand 696.03 980.50 1373

Supply 554 715 950

Gap 142.03 265.5 423

Most of the Indian Power Sectors are now looking for imported Coal

India’s coal imports have more than doubled over the last five years

There is a huge price difference between domestic and imported coal

In addition the dynamism in the regulations of the countries from where coal is being imported pose further hurdles by way of political risks.

The Indonesian government implemented the Indonesian Coal Price Regulation, which requires prices for all transactions to be benchmarked against a set of international and domestic indices and all sale contracts to be modified retrospectively by September. Several developers have already entered into long term PPA’s with distribution utilities based on fuel tied up from Indonesian mines which have now been covered under the new law posing uncertainty over the operational viability of the affected plants

ReservesProven 91 billion Tons Indicated 116 billion Tons Inferred 37 billion TonsTOTAL 245 billion Tons

Coal reserves: > 250 years at present levels of consumption

Concentrated in Eastern India

Madhya Pradesh

7%

Others13%

Jharkhand29%

Chattisgarh16%

West Bengal11%

Orissa24%

ULTRA MEGA POWER

PROJECT