coal insights, february 2015

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A Bid too far? After the first round of coal block e-auctions, the industry stands divided over the justification of high bids, even as the government expects more to come. Also read: ● Inspired by Coal India, SCCL draws up Vision 2020 ● Digital mapping of India's coal bearing areas to be ready by March ● MoC, CIL kick-start Tech Mission for 2020 ● Global coal demand to taper down over 20 years Plus regular coverage of international coal prices, India's coal production and import updates, interviews, corporate, social buzz and many more. Read Coal Insights February 2015 issue and get a complete insight into the Indian coal value chain...!

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Page 1: Coal Insights, February 2015
Page 2: Coal Insights, February 2015

4 Coal Insights, February 2015

COnTEnTs

32 | CovER SToRYA bid too far?The first coal block e-auction shows voracious appetite, but will the aggressive bids prove justified in the long run?

40 | GovERNMENTMoC, CIL kick-start Tech Mission for 2020Miners, OEMs discuss threadbare the challenges; suggest special task force to overhaul India’s mining technology.

10 | FEATuREIndia’s coal production up 9.19% till DecemberOutput continues to grow at near double digit, implies days of stagnated growth are over.

20 | FEATuRESCCL draws up vision 2020Now, Singareni draws up roadmap to increase output to 80 million tons by next five years.

29 | SpECIAL FEATuREDigital mapping of India’s coal blocks by MarchAfter a decade’s hard work, CMPDI is going to complete the project which could be a money spinner.

6 Steam coal prices volatile in Feb 8 Coking coal offers continue downtrend in

February 14 Strike and delay in EC clearance may force

CIL to miss FY15 targets 18 CIL gearing up for 1 bn ton production

target: Chairman 22 Indian merchant met coke makers hit by

cheap imports 24 January power capacity addition almost

trebles m-o-m 26 India’s cement output up 10.6% in

December m-o-m 28 CIL aims to sell 46 mt coal through e-auction

in FY15 45 NTPCfloatstendersfor7mtofimported

coal for 17 TPPs 46 CILlikelytosufferadropinnetprofitin

2014-15 47 Corporate updates 49 US power sector coal use to fall 1.5% in

2015 50 Global coal demand to taper down over 20

years: BP 53 China’s coal conundrum 55 Global coal supply may level out against

demand in 2015 57 Social buzz 65 APSEZ commissions Tuna Tekra bulk

terminal 66 Oversupply of ships to continue for next 2-3

years: Anglo Eastern 67 Railways Jan coal handling at 48.9 mt in Jan 68 Thermal coal handling by major ports at

70.77 mt in Apr-Jan 69 Supply data 70 E-auction data 72 Port data

Page 3: Coal Insights, February 2015

10 Coal Insights, February 2015

fEATuRE

India’s coal production up 9.19% till December

Coal Insights Bureau

India’s coal production during April-December, 2014-15 stood at 427.03 million tons (mt), up 9.19 percent

compared to 391.08 mt produced during the corresponding period of 2013-14, according to provisional data available with Coal Insights.

Production during April-December 2014 was, however, lower than the target of 444.03 mt set for the period.

Coal output in December 2014 stood at 58.37 mt, up 7.63 percent as compared to 54.23 mt in December 2013, the data shows. With this, India’s coal production in December 2014 was the highest in the current financial year though the output for the month fell slightly short of the targeted 59.04 mt. India’s coal output for the month of December was 98.87 percent of the target, the data reveals.

Production in December 2014 was nearly

7 percent higher than 54.62 mt produced in November 2014.

For financial year 2014-15, India’s coal production target stands at 630.25 mt of which 507.00 mt is to be produced by Coal India Ltd (CIL), 55 mt by Singareni Collieries Company Ltd (SCCL) and 68.25 mt by captive coal mines.

Captive blocks’ output up 30.7% During April-December, 2014-15, coal production from the captive blocks in India stood at 49.41 mt, up 30.78 percent from 37.78 mt recorded in the same period of the last fiscal.

The target for the first nine months was 51.18 mt, which means output from the captive blocks during the period fell short by 1.77 mt.

In December 2014, as per expectation, captive coal production rose 32.70 percent to 6.29 mt, compared to 4.74 mt produced in the corresponding month of 2013, the provisional data shows. In December, production from captive block surpassed its monthly target. Production target for December was 5.69 mt, same as in November, October, September, August, July and June.

India’s coal production (in mt)

Note: Figures include Meghalaya production

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Apr May Jun Jul Aug Sep Oct Nov Dec

2012-13 2013-14 2014-15

Page 4: Coal Insights, February 2015

COvER sTORy

A bid too far?Madhumita Mookerji

Seven days into the first of its kind e-auction of coal mines in the country, and the distinct trend which has emerged is that players in the non-regulated sector, comprising steel, cement and sponge iron, are pulling out all stops to try their luck and win the hand. The unspoken aggression has translated into the winning bid

price with the Minister for State with Independent Charge for Power, Coal & New and Renewable Energy, Piyush Goyal, saying that “more aggressive bids are expected for such producing mines in the coming days”.

The government has put on the block from February 14-22, a lot of 21 coal mines from the 204 cancelled by the Supreme Court verdict in August last year, under Schedule II of the Coal Mines Ordinance. The highest bid, so far, has been for Gare Palma IV/5 at a closing bid of `3,502 per ton of coal and the lowest for Gare Palma IV 2 & 3 at `108 per ton.

32 Coal Insights, February 2015

Page 5: Coal Insights, February 2015

Coal Insights, February 2015 33

COvER sTORy

The moment the Supreme Court gave its judgment disallowing the allocation of 204 blocks to the erstwhile captive users, the BJP-led government worked overtime to devise criteria for e-auction of the cancelled blocks. This was simultaneous to the government passing an Ordinance to get this process through. This underscores the fact that the government’s resolution to complete the auction process by March 31, 2015 is on track.

Surprisingly, the e-auction of these blocks does reveal a voracious appetite of the industry to aggressively bid with very high premiums to ensure continuity of fuel supply for their plants. Some may have gone overboard. However, this may not necessarily be true as the end-users seem to have made all the calculations before aggressively bidding with such large numbers.

The moot point is that, while this was expected to a certain extent, the question, nonetheless, begs the answer, why so? Also, does the entire process imply a “bid of roses” or a “bid of nails” for the end-use players? Of course, it is difficult to see who the short-term and long winners will be and a lot will depend on how government policies pan out as well as their implementation by the respective state governments and regulators.

Aggression… misplaced or justified?But still, from the first few days’ show, it is obvious that for some it has been early to bid, early to rise…!

While four companies, namely Jaiprakash Associates, Sunflag Iron and Steel Company, CESC, and Naveen Jindal-promoted Jindal Power Limited won back their originally allotted Gare Palma IV/ 2 & 3, others too flexed their financial strength to get what they wanted – a good fuel resource for their end-use plant. Examples include HIDALCO, Sova Ispat and Jai Balaji and Prakash Industries.

Coal Insights has extracted three key reasons for the current trend in the coal e-auctions. First, companies are obviously bidding to meet their short-term coal security. Captive power producers’ end-use plants are commissioned but they don’t have the coal linkages from Coal India. Where the non-regulated industries are concerned, they are not sure how much of coal the government will be able to produce in the short term, say in the next 1-3 years. We

may see the magic figure of 1 billion tons production in the next 5 years but the growth in coal production and evacuation from mines to plants may not happen in the next 2 to 3 years to make sufficient fuel available to the existing commissioned plants. Captive producers fear the extra coal production is likely to be diverted to the commissioned independent power plants (IPPs) – but these will run at lower plant load factor (PLF) due to lower coal availability or capacities waiting to be commissioned.

Secondly, the non-regulated industries, including captive power plants (CPP), have suffered a setback in coal availability during August-November, 2014 because of the drastic cut in the e-auction quantity. This had adversely impacted industries, forcing them to run their capacities by buying coal from the e-auctions at prices even 30 percent higher than that of imported coal on landed basis. And remember aluminium is a very power-intensive business. It is not like other industries where one can regulate production if power availability is reduced. For the aluminum industry, if one is not able to arrange for power within three hours then the aluminium pots freeze and the plant is forced to shut down for a long period. So it is a huge risk if an aluminium player does not have coal security. This may force it out of business for a longer period of about 6 months due to shut-down of capacities (because of freezing pots). No wonder HINDALCO was conspicuous at the auctions!

Thirdly, India’s railway infrastructure is badly constrained. If these players import coal to meet the balance requirement they know that getting that coal from the port to the plant is a nightmare due to poor port infrastructure, long waiting time for vessels at ports ( 2-4 weeks) and non-availability of rakes and en-route railway traffic congestion.

So, the crux is, in the short term, if the captive players have their capacities in place and some security to run those capacities, they have to bid aggressively.

Corroborating the above points, an official from a coal trading company said even though prices of imported coal are low at present, there is no parity because of the huge demurrage charges players have to pay. “Indian coal works out to be cheaper,” the official said. “Many companies are nowadays wary of importing because of the huge demurrage charges at the ports. A Panamax

vessel carrying 150,000 tons of coal incurs demurrage charges of $5,000-12,000 a day, the official observed, adding that no end-use plant can afford such monstrous expenses in an overall depressed market.

As said Amulya Charan, Advisor, Energy, Infrastructure & Finance: “Bidders are trying to protect complete wash-out of the investments they have already made in their existing mines and end-use plants as per earlier policies. Some of them have quoted zero and then negative prices — they will not be recovering their costs from their end-use power plants and I wonder what view will be taken by the power regulators for such bids while re-calibrating their power prices in their respective power purchase agreements (PPAs). Going by the past experience, there is going to be unmitigated gloom, blame game and litigations. Losers will be all around! Our economy and banks are going to be big-time losers.”

An informed source speaking on condition of anonymity, told Coal Insights that it is imperative for the companies to get some of these mines which have already been developed with substantial investments already poured into them.

One such company, for instance, which bid aggressively and got back its previously allocated mine located in the Western Coalfields (WCL) area, had invested over `120 crore in developing that block and had even got a railway siding since the mine had been logistically unviable by road in terms of transporting the coal. The company’s plant had been located approximately 140 km away from this mine and it had been incurring freight charges of `400 per ton of coal. This mine had been allotted to it through the screening committee route during the UPA regime around 10 years back.

Earlier, it seems, it had been procuring coal from South Eastern Coalfields (SECL) and in such a scenario, freight charges from the mine to the plant had amounted to `700-`800 while the quality of coal it had been obtaining from the Coal India subsidiary had not been up to the mark either, the source informed.

It may be mentioned here that four other competitors had been in the fray for this block, including Topworth, Reliance Cement and Adani. “Many companies had an eye on this block since it had been developed, along with an attendant railway siding. It was,

Page 6: Coal Insights, February 2015

40 Coal Insights, February 2015

MoC, CIL kick-start Tech Mission for 2020

GOvERnmEnT

Coal Insights Bureau

In order to bridge the increasing gap between the coal demand and domestic supply of coal, Government of India has

directed Coal India Limited to enhance its coal production from the current level of about 500 million tons (mt) to 1,000 mt by 2019-20. However, this would not be possible for CIL unless the critical technology development issues and mechanisation issues are addressed comprehensively.

Against this backdrop, the MoC in association with the Indian National Committee of World Mining Congress recently conducted a one-day workshop at New Delhi with wide participation from the coal industry, including CIL and its subsidiary companies, Singareni Collieries Company Ltd (SCCL), domestic and foreign equipment manufacturers and miners

– BEML, HEC, L&T, Komatsu, Caterpillar, Joy Global, Rio Tinto, Gmmco, Atlas Copco, Leibherr and Peabody – and members of the World Mining Congress.

CIL’s outlookCIL mentioned about the volumes to be handled in the next five years through opencast mining and the enhancement in coal production. By 2019-20, the state-owned miner has projected an overburden (OB) removal of 2,500 million cubic meters as against about 1,000 million cubic meters currently. The average stripping ratio is envisaged to increase from the current level of 1.8 to 2.75 in 2019-20.

Towards strengthening exploration, CIL envisages usage of more numbers of hydrostatic drill rigs, adoption of 2D, 3D seismic surveys with high resolution and advance software tools for geological

modeling and mine planning. Adoption of high capacity earthmoving equipment for OB removal and coal extraction, adoption of in pit crushing technology for OB and coal, deployment of surface miners, extensive use of high capacity graders and dozers for proper maintenance of haul roads are envisaged for enhancing coal production. Adoption of high angle conveyers, skip conveyers and tube conveyers for transportation of coal from pit to surface and installation of more number of coal handling plants with large capacity silos are required for faster loading of coal into the wagons. In order to address the maintenance issues, CIL proposed to upgrade the existing workshops with modern facilities for condition monitoring of the equipment and online monitoring.

For enhancing coal production from underground mines, it is proposed that CIL should adopt high speed drivage equipment

If you thought the 1 billion tons of production is just a conjecture, think again! The Ministry of Coal (MoC) is taking up ambitious projects that may change the face of the Indian coal sector in years to come. Amid the din over the initial success of coal block e-auctions, the ministry and Coal India Ltd

(CIL) have quietly started the ground work for a technology overhaul in the Indian coal vertical. All in all, the government is keeping no stone unturned to make the march towards 2020 a ‘mission possible’…!

Page 7: Coal Insights, February 2015

Coal Insights, February 2015 41

for shaft sinking and incline drivage. Other important measures include deployment of high capacity continuous miners, low height continuous miners for thin seams, flexible conveyor trains and high capacity shuttle cars and adoption of power supported longwall/shortwall technology. Adoption of highwall technology and hydraulic mining is also envisaged. Further, the use of raise borer for winning steep seams is proposed. Extensive use of manriding systems, skip loading and belt conveyors is also proposed for matching mass production technologies.

Deployment of universal drilling machines/hydraulic drills/jumbo drills to replace the handheld drills is one of the productivity improvement proposed in the meet. To address the shortage of sand for stowing operations, it is proposed to crush the overburden material and use it for filling of voids and use of fly ash.

Properly designed strata control management with online monitoring of strata movement and online monitoring of underground environment through chromatographs is also brought under consideration. Use of advanced communication systems in underground mines along with radio frequency detectors are proposed for improving the communications and locating the miners. Satellite based subsidence monitoring systems, slope stability monitoring are required for improving the safety of operations. To address the inundation related dangers, directional drilling and seismic survey technologies could be of use. Improving the mine safety through using simulation training of all the workers/operators of machines, establishment of refuse chambers are some of the measures proposed in the workshop. For improving the efficiency of blasting operations and control of ground vibrations, it is proposed that the miner adopt advanced blasting technologies.

Extensive use of information technology for equipment monitoring, maintenance, inventory management and safety management is critical. CIL in its presentation mentioned the projected requirement of major heavy earthmoving machinery for opencast mines and equipment for underground mines in the next five years.

Subsidiaries’ viewsBharat Coking Coal Ltd (BCCL), a subsidiary of CIL, mentioned about the business models

it has adopted in developing underground mines with power supported longwall (PSLW) technology. Simultaneously, development of mines with continuous miner technology was also presented. The business models adopted have helped the company in taking up six underground projects, four with PSLW technology and two with continuous miner technology. BCCL emphasised on indigenisation of the longwall equipment manufacturing and continuous miner manufacturing which would help the industry in replicating the technologies.

Eastern Coalfields Ltd (ECL) in its presentation emphasised the need for single stage extraction of more than 4.5 meter thick seams preferably up to 6 meters and to a maximum of 8 meters with continuous miner technology which is a practice in South Africa and the US. The company also emphasised the need of using diesel operated multipurpose free steered vehicles for men and material transportation in underground gassy mines of Degree II and Degree III mines in order to improve productivity. Longwall top caving methods for extracting thick seams deploying longwall technology and high speed stowing for extracting below waterlogged and heavily built up areas are important for ECL. High speed shaft sinking and incline drivage is also important for enhancing production from underground mines. ECL envisages development of six continuous miner units and one longwall unit by 2019-20. The miner observed that

performance of BEML supplied 35 ton dumpers and L&T supplied hydraulic shovel and HEC supplied 5 cubic meter electric rope shovel are adversely affected for various reasons including delay in supply of spares. In case of equipment supplied by Caterpillar, it was mentioned that spare parts supply is an issue for different equipment supplied by their conglomerates. The company further emphasised on the need to incorporate proximity warning systems, rear vision cameras, vehicle help monitoring system, payload monitoring system, in the HEMM being supplied by various manufacturers. The consignment store concept for timely supply of quality spares with zero inventories as entered into by ECL with BEML is helping them in addressing the spare management issue. It was suggested for extensive use of surface miners and rippers near habitation and surface structures, in pit crushing for OB disposal, transport of coal to tube conveyors and adoption of highwall technology.

Central Coalfields Ltd (CCL) in its presentation emphasised on deployment of surface miners in all projects with more than 5 million tons per annum (mtpa) capacities; conveyor transportation from face to surface and rapid loading systems. Adoption of continuous miner technology and information technology tools was suggested for planning and monitoring. Multi-skill development is essential for successful mechanisation.

GOvERnmEnT

Page 8: Coal Insights, February 2015

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Coal Insights, February 201574