POWER

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POWEREPC INFRASTRUCTURESOLAR NATURALRESOURCES

Date: 22.08.2014

R.B. Mathur.Sr. Advisor (Coal)

4th COAL MARKET CONFERENCE IN INDIA

“Overseas Coal”- Sourcing & Securing

August 22nd-2014 –IBK MEDIA.


1. Coal is the main stay of Indian economy and with 279 billion tons of gross coal

reserves; India is the 3rd largest holder of coal reserves. Despite this, India is

importing coal not only coking coal but non coking coal as well.

2. Non coking coal demand has gone up due to capacity addition in Power sector.

3. Coal imports have grown by 19:46 percent CAGR and in 2013-14 India imported

171 Million tons of coal. Import bill has gone up to 15 billion us dollars approx.

4. Planning commission getting abolished, there will now greater responsibility on coal

Ministry, Power Ministry & Steel Ministry to finalise realistic demand, supply

scenario and workout strategy. Coal industry as such has high financial resources

and does not need Govt. support for growth except statutory clearances.

Preamble:-


1. Internationally coking coal prices have dropped from us $ 330 per ton to us $ 110

per ton. 77% of Indian import of coking coal is from Australia.

2. . As regard thermal coal, The ruling price range is us $ 45 to us $ 55. Despite this

drop. Cost of power produced from imported coal is almost double considering

the prevailing power tariff. Indian Govt. will not permit the high cost of generation

to be passed on to general public. Hence, enhancement of Coal production in

India is paramount to keep the power cost low.

Internation Coal Prices & Indian Govt. Policy frame work


1. 3 types of coal are imported

a. Metallurgical coal :- 15% of total imports on average

b. Thermal coal :- 84.60 %-----do-------

c. Anthracite :- 0.40 %--------do------- 2. Countries important to India from perspective of Import.

A. Indonesia :- Thermal coal

B. Australia :- Coking coal

C. South Africa :- Thermal

D. U.S.A. :- Coking + Thermal

E. Mozambique :- Coking + Thermal

F. New Zealand :- Coking

Others :- Canada, Russia, Columbia.

Indian Coal Imports


Global Energy Situation

• Increasing global consumption has led to the rapid depletion of fossil fuels, especially oil and gas, resulting in rising energy costs and energy shortages.

• Renewable energy currently accounts for only a small percentage of the global energy mix and is often very costly, geographically unsuitable or unproven.

• We therefore look to the most readily available natural resource, which is also an extremely cost effective source of energy: Coal

• Type of Coal:– High Rank Coal: Bituminous, Anthracite

• (Low Moisture, High Energy Content)

– Low Rank Coal: Peat, Lignite, Sub-bituminous• (High Moisture, Low Energy Content)


Key Points regarding GCV based PriceIntroduced from 01.01.2012

1. There are 17 bands against 7 band earlier.2. The range has been compressed to 300 Kcal/Kg between two

adjacent grades against 900Kcal/Kg earlier.3. 4300+4600 –GCV band corresponds to E & F grade. Price

fixed is Rs. 970/ton. Earlier E+F price of E+F/2 was Rs. 790+630/2=Rs.710.Hence there is increase which is quite appreciable.Even if we take lower band – price is Rs.880 the increase per ton is Rs.170/-

Inference: Coal India has gained by compressing the range and also by changing over from UHV system to GCV system.


Old Grades GCVSECL Old

Price

New Price (Rs/MT) % Price Hike

Lower Higher Average Lower

RangeHigher Range

Average

A 6454 3690 4460 4900 4680 21% 33% 27%

B 6454-6049 3590 4130 4130 4130 15% 15% 15%

C 6049-5597 1050 2940 3990 3465 180% 280% 230%

D 5597-5089 880 1849 2060 1955 110% 134% 122%

E 5089-4324 730 970 1849 1410 33% 153% 93%

F 4324-3865 570 630 880 755 11% 54% 32%

G 3865-3113 430 620 630 625 44% 47% 45%

New Coal Price Based on GCV vis Old Price


FOB Values in Rs/MT

CIL New GCV in Kcal/Kg CIL New Base Price Newcastle RBCT Kalimantan VariationExceeding 7000 4900 6700-7000 4690 6400-6700 4460 6100-6400 4130 5883 42%

5800-6100 3990 5459 5141 33%5500-5800 2940 5200-5500 2060 4900-5200 1890 4028 113%4600-4900 1680 4300-4600 970 4000-4300 880 2438 177%3700-4000 630 3400-3700 630 3100-3400 620 1855 199%2800-3100 620 2500-2800 550 2200-2500 480

CIL GCV’s Price Policy with International Market


Pooling of price of Domestic Coal

Types of Coal Fired Thermal Power Plants:1. Based on domestic coal.2. Based on Imported coal.3. Based on Imported coal + domestic coal.4. Based on captive coal blocks.5. Case 1 – bidding projects. (Completely Greenfield) 6. Case 2 – bidding projects. (Partly Greenfield & rest confirmed)7. UMPPs.

The objective of pooling the cost of indigenous coal and imported coal is to minimize transportation and physical movement of coal. Coal India can be pool operator on behalf of all utilities. Alternatively a J.V. can be formed of Coal India, NTPC and UMPP holders. This can also include major IPPS.


COAL ASSETS-ACQUISITION ABROADIndian Company Country Deal Value Foreign Company

under deal

Coal India Ltd.

USA US$ 1 billion Massey Energy Company/ ALFA

Australia US$ 10 million Peabody Energy Corporation

Indonesia N/A Indonesia SinarMas

NTPC Ltd

Indonesia N/A Kalimantau Coal MinesMozambique N/A N/AAustralia $ 1.2 billion N/ASouth africa $ 500 million N/A

Essar Group Indonesia US$ 200 million Aries Coal MinesAdani Group Australia US$ 1 billion Linc EnergyJSW USA N/A Mines in west Virgina


Continue……

Indian Company

Country Deal Value Foreign Company under deal

NLC USA &Indonesia N/A N/A

R-Power Indonesia N/A Srivijaya Bintangita Energy, Brayan Bintangita Energy & Sugico Pendragon Energy

GMR Indonesia $ 200 million PT Burasentosa Lestari

Tata Power Indonesia $ 1.3 billion Khaltim Prima & Arutima Mines in Bumi Resources

Lanco Infratech

Western Australia 800 million Aus. $ 1.2 billion

Griffin

GVK Power GVK Power 1.8 billion Hancock


Fact Sheet Regarding Overseas Coal

1. Indonesia: Export of Coal having GCV of less than 5100 Kcal/K will be prohibited in near future. There will be increasing demand for thermal coal in Indonesia itself. New legislation would require Indonesian coal exporters to hold a special licence issued by the trade ministry before they can ship coal cargoes. Mining firms will also have made all royalty and tax payments before cargoes can be shipped. Governments selected surveyors will be appointed to verify the origins of coal cargoes and monitor vessel-loading operations.

2. Australia:I. Carbon Tax of ~ 1 dollar per ton tax has been imposed effective from 1st July,

2012.II. Mineral Resource rent tax is going to be imposedIII. Human Resource control is increasingly become difficult


Liberalization of Coal Sector in India

• The Liberalization Policy for coal sector commenced in 1993-94. as per this policy, 237 coal blocks have been allotted so far and 52 blocks have been cancelled leaving a balance of 185 Live Blocks.

• Out of 185 Coal Blocks, only 37 coal blocks allotted to 26 parties have started production.

• A close analysis has indicated that captive sector has failed because of lack of efforts on its part but because of Government policies in respect of following:• Forestry clearance• Environmental clearance• Land acquisition and R & R


Everyone connected with coal believes that adoption of PPP model for execution of large opencast projects in MCL, CCL, and SECL shall result in quicker development and higher production. While this is true to fast track the projects and reduce imports, the PPP model presently under consideration has to address following important aspects of contract.

1. There should be sharp delegation or division of roles and responsibilies of both parties Viz Govt. party &

PVT party.

2. 51:49 model adopted by State Psus involved sweet equity to be given to state Psu. And all investments by

PVT Company are within the ambit of 49% equity which amounts to total investment. The PVT Company

evidently works on cost plus basis and may mine as much coal as it likes. Coal so produced may be costlier

than coal from Coal India LTD.

3. 74:26 model is also in vogue, but here the MDO is essentially a contractor who owns 74% of the J.V. set

up. This J.V. then outsources the contract to MDO. The price changed in such a model is pegged to prevailing

sale price of coal for the corresponding grade.

Coal India fixes price based on coal of mining from both types of mines viz O.C. and U.G., but the MDO block

is generally opencast. This confers same benefit to MDO. Hence Coal India price should not be used as

reference price. The tender places the onus for land acquisition, R &R on the MDO and the rationale behind

this is that PVT company can do better land acquisition. This is a classic example of State shrugging its

responsibly.

Increasing Coal Production in India- through PPP model to reduce imports.


Facts- Coal shortage and Import

• Coal India growth in production has come down from 6 percent to 2 percent and in the current year also the trend is not good.

• Instead of resolving the problems of Public & Pvt. Sector Coal producers, Government decided to encourage Import of Power Grade Coal hoping that extra cost will be compensated by better quality coal (5600 kCal/kg vis-à-vis 4000 kCal/kg).

• Power sector was highly enthused with the above decision of Government that not only MOP but its department – CEA started setting annual coal import targets for Power Stations. In power projects like “Udipi” in Karnataka which was earlier owned by LANCO imported Coal cost is a pass through item and therefore this TPS has now been taken over by Adnai.


JV & Acquisitions• JV between Indonesian Coal Co. & Power Producer in India

Need of the hour: Coal upgrading plants and removal of external moisture in coal drying installations.

• Mozambique: Moputa & Beira ports to be made functional.– Moputa Port: Rail linkage is yet to be established– Rail work execution in Mozambique: Rites an Indian PSU is on the job.– Other sources to be tapped: (A) Swaziland (b) Madagascar (C) Botswana

• Columbia: Coal quality is good. Higher freight charges.• USA: Higher freight charges• Australia: Costly coal, both types of coal OK in quality.

Kalimantan Sumatra

a) More explored a) Higher exploration rate is requiredb) Coal better b) GRS not available.

c) Infrastructure better c) Poor rail facility

d) Port facility better for mid-stream loading.


Investing Abroad- Coal assets Acquisition

• Main Considerations:

– Coal Reserve, Quality of Coal– Cost of Production– Location, Infrastructure– Political Environment– Availability of technical manpower– Legal framework – statutory clearances required– Taxation


Dependence on Coal Supply• Indonesia:

Best sources for power coal, but legal complications may sometimes result in executing mining lease. Geological information has improved of late but further improvement is expected. Value addition to ROM to bring GCV to a level of 5400 will be in force from 2013.

• Mozambique:Green field area. Port capacity limited. Moputo & Beira are the only two ports. Burnt coal and high ash coal only one producing coal mine. Rail infrastructure under construction.

• South Africa:Limited capacity of port. Richard bay coal terminal.

• Australia:High price of coal – High Freight – Main source for Coking Coal in India (95%). Australia has imposed Coal Tax.


Price Comparison of Power Coal (F.O.B.)Coal Grade Indian Price

(Ex-mine)Indonesian

PriceAustralia

PriceSouth

Africa Price

Grade – F INR 870/-US$ 15 (4000 GCV)

US$ 40 NA NA

Grade – D INR 880/-US$ 25 (4800-5400 GCV)

US$45 FOB NA NA

Grade – A INR 2700/-US$ 30 (>6400 GCV)Company SECL

US$ 65 US$ 70 US$ 75

Shipping Freight US$ 15 FOB US$ 20 US$ 20

Metallurgical Coal

Prime Coking coal 18% Ash

US$ 120 NA US$ 200 NA


Overseas Co-operation in Coal Sector

• Government Help:1. Partnership with other countries, we are trying to

draw greater attention to economic diplomacy in resource sector to ensure sustained growth of 7 to 8% in the coming decade. Resource partnerships have to be forged which are mutually beneficial e.g. India-Mozambique Coal Partnership

2. Creation of “Sovereign Fund” to Acquire coal assets abroad, but new budget does not provide for it.


Conclusion 1. Rationalisation of coal linkages could lead to substantial cost savings in

range of Rs.4000 to 5000 crores2. Supply improvements can be achieved in following ways:

– Allowing sale of surplus coal from captive coal blocks at CIL notified price– Amend CMNA to permit merchant mining and create framework for block allocation– Focus on debottlenecking 3 critical rail linkages (200 MTPA) and first mile transport

3. Productivity improvement at CIL in the following manner: – Leadership development and accountability framework– Increased mechanisation, automation and large scale adoption of international best

practices – Modernisation of planning

4. Policy related measures leading to productivity and supply improvements:– Re-orient the MDO/ PPP model to get international miners – Mandate coal washing for greater than 500 km distance (currently 750 km) – Explore cost-plus mines framework to make it more commercially exploitable


Conclusion

• Issue– Coal shipment is sub-optimal: Example –Western Coalfields Ltd. supplies coal to

Raichur power plant, Karnataka (710km) Mahanadi Coalfields Ltd. supplies coal to Vidarbha (587km). If WCL were to supply to Mauda and MCL to Raichur, it would result in net savings of 134 km travel.

– Need for new plants to be set-up at locations that are optimal from the country’s resource, infrastructure availability perspective

• Intervention– Have a policy to allow swapping of coal linkages between plants Criteria for

swapping to be defined» Commercial arrangement to be settled between parties» Approval by a committee to ensure holistic view and benefit transfer to consumers

– Revive inter-governmental panel(comprising of Coal India, CEA and railway officials) that will determine optimal coal linkages for various power plants. This committee will subsume role at point 1.3 above.

– Ear-mark funds for implementing rail-linkages required to support the optimal route plan.


Thank You

POWER

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