4 Coal Insights, July 2014

COnTEnTs

18 | FEATUREIndia’s proven coal reserves at 125.9 bn tons Total reserves of coal stand at 301.6 bn tons as of April 2014, estimates GSI.

32 | INTERvIEw‘Import duty on coal to be absorbed by the trade’ Capt. D Lokapure of Pipavav Port says there will be no impact on import volume.

10 | FEATURENo takers for new blocks on auctionCMPDI receives only two bids for three blocks put for competitive bidding.

26 | CovER SToRy‘Bring India’s entire energy sector under single regulator’Dr Rajendra K Pachauri, chairperson of IPCC, urges to make room for renewables.

38 | CoRpoRATE3 MCL mines on brink of closureCome October, these mines may face indefinite closure due to land gridlock.

6 Spot steam coal prices edge lower in July

8 CokingcoalpricesflatinJuly 12 India’s Q1 coal output up 5%, but way

below demand 14 India’s coal, coke imports cross 50 mt in

firstquarter 20 India’s June power capacity addition at

978.67 MW 22 India may add 90 GW of thermal

capacity by 2017-18 24 DRI production suffers on sluggish

demand 34 Jaitley takes vital singles to deliver

better GDP scores 40 GAILconsortiumseekscoalgasification

tech for Angul 41 Corporate updates 44 Objective behind nationalisation of coal

mines forgotten? 47 South Africa’s H1 coal exports down

4.80% y-o-y 48 US coal consumption at 951 MMst in

2014: EIA 49 Tata Steel to transport coal, steel via

waterways 50 Coal handling by major ports at 19.62 mt

in Apr-Jun 52 Railways’ coal handling down 5.44%

m-o-m in June 54 E-auction data 56 Port data

12 Coal Insights, July 2014

fEATuRE

Coal Insights Bureau

India’s coal production is estimated to have increased by around five percent during the first quarter ended June 2014

(Q1 FY15) over the same period last year. While this appears to be a healthy growth, output continues to fall significantly below the level of demand, especially from the power sector.

According to estimates by Coal Insights, total production during April-June, 2014 stood at around 133 million tons (mt), compared to 126.6 mt achieved for the same period last year (Q1 FY14). A month-wise

break-up shows that output during the first three months were 44.11 mt in April, 45.58 mt in May and 43.25 mt in June, respectively.

Of the total production in Q1 FY15, Coal India Ltd (CIL) produced 108.3 mt (102.87 mt in Q1 FY14), Singareni Collieries Company Ltd (SCCL) reported 9.8 mt (10.397 mt), while captive production contributed around 15 mt* (13.38 mt). This shows that while CIL and captive production registered positive growth on an annual basis, SCCL suffered a marginal drop.

However, output from both CIL and SCCL fell short of the respective targets set

India’s coal production in Q1 FY15 (in mt)

April May June Q1 Fy15

Q1 Fy14

Target for Q1 Fy15

Target for Fy15

production in Fy14

Target for Fy14

CIL 37.51 36.27 34.54 108.33 102.87 113.01 507 462.25 482

SCCL 2.37 3.72 3.71 9.8 10.397 12.464 55 50.47 50.30

Captive 4.23 5.59 - - 13.38 - 68.25 52.64 72.25

Total 44.11 45.58 - - 126.65 - 630.25 565.64 604.55

India’s coal off-take in Q1 FY15 (in mt)

April May June off-take Q1 Fy15

Target Q1 Fy15

CIL 40.54 40.71 38.29 119.55 130.95

SCCL 4.272 4.277 4.03 12.579 13.588

Total 44.812 44.987 42.32 132.129 144.538

for the period. The total shortfall for these two miners exceeded 7 mt in Q1 FY14. As for captive blocks, production during the first two months (April and May, 2014) was 9.82 mt. Data for June production was not yet available and is estimated at around 5 mt.

For financial year 2014-15, India’s coal production target stands at 630.25 mt, in which Coal India has been mandated to produce 507 mt, Singareni Collieries Company Ltd (SCCL) 55 mt and the captive coal mines, 68.25 mt.

Off-take below target

India’s coal off-take during April-June, 2014 stood at 132.129 mt, about 12.4 mt less than the quarterly target of 144.538 mt.

In the total off-take pie, CIL’s share was 119.55 mt against the targeted 130.95, while SCCL achieved 12.579 mt versus its target of 13.588. CIL’s off-take performance was, however, better than the 115.25 mt recorded for the same period last year.

The shortfall in off-take was primarily due to insufficient availability of rakes. It also affected supply of imported coal lying at various ports to consumption points and, in turn, led to a higher waiting period for vessels at such ports, industry sources said.

“At present, Indian Railways is providing rakes only for the movement of coal meant for the power sector and as such a lot of cargo from sectors like cement and sponge iron are piling up at various ports,” they added.

This was seen particularly at ports like Dhamra, Mundra etc, where new vessels arriving were unable to unload their cargo.

Where domestic coal supply is concerned, it was the non-power consumers who bore the brunt of the rake shortage. In many cases, rakes were diverted for carrying coal to the power sector, the sources said.

* The estimate for captive production is based on an expected production of 5 mt in June.

India’s Q1 coal output up 5%, but way below demand

14 Coal Insights, July 2014

fEATuRE

domestic steel sector, compared to the volume imported during the same quarter last year. Coking coal imports during Q1 FY15 stood at 8.48 mt, about 9.8 percent lower than 9.4 mt imported in Q1 FY14.

The data further shows that coking coal imports were down in the months of April and May, 2014 in comparison to the volumes imported during the same months last year. Only the number reported for June showed an increase on a year-on-year basis.

Going by the trend, coking coal imports may not show any significant increase in FY15 over 35.79 mt imported last year.

“The prolonged slowdown in the Indian steel industry is slowing the growth in coking coal imports. Along with low demand for steel, the industry is facing problem in sourcing iron ore, the other vital inputs required for steel-making. Overall, coking coal demand is likely to stay subdued in the near term,” the analyst said.

In fact, a closer look at the import figures shows that almost the entire increase in coal import volumes in 2013-14 (FY14) came in the non-coking coal segment. During the last four years (FY11 to FY14), coking coal imports have grown by only 5 mt (from 29.4 mt to 34 mt), while that of non-coking coal leapfrogged by 50 mt (from 83.1 mt to 135 mt). The same trend is likely to prevail in the current year.

Government’s stance unclearAlthough it is widely debated that the bulging import bill of coal into India is an avoidable expenditure, the government seems to care less about taking corrective measures. The previous UPA government did precious little other than issuing repeated reminders to Coal India Ltd (CIL), the major supplier of the fuel in India, to jack up production. The new NDA government seems to be giving mixed signals so far as imports of coal is concerned. On one hand, it has asked the power sector to import more coal to run their plants. On the other hand, it has hiked the customs duty on coal in its maiden Annual Budget 2014-15 placed by Finance Minister Arun Jaitley in July.

“In order to ensure adequate availability of coal,” Coal and power minister Piyush Goyal recently said in a written reply to the Rajya

Customs duty hike not to impact imports

India’s coal, coke imports cross 50 mt in first quarter

Coal insights Bureau

In line with the surge in recent years, India’s imports of coal and coke crossed 50 million tons (mt) during the first

quarter (April-June) of 2014-15 (FY15). Going by the trend, analysts forecast total imports may reach close to 200 mt in FY15, which is about a 10.4 percent jump over 181 mt imported last year.

As estimated by Coal Insights*, coal and coke imports stood at 50.94 mt in the first quarter (Q1) of FY15. This however showed a modest increase of 3.87 percent over 49.04 mt imported during the same period last year.

Of the total imports in Q1 FY15, steam coal accounted for 40.2 mt, coking coal 8.48

mt and anthracite and PCI coal around 0.2 mt. Imports of pet coke were at 0.39 mt while that of met coke was estimated at 0.2 mt.

“Although there is a sluggish trend in the domestic economy, the low international prices have attracted Indian buyers to enter into bargains, resulting in increased volumes during the quarter,” an industry analyst said.

If the current trend persists, he said, total imports of coal and coke may reach close to 200 mt in FY15. This will include around 152 mt of non-coking coal and 38 mt of coking coal imports besides around 10 mt of other coal and coke products.

Coking coal imports downIncidentally, the first quarter import figures show a drop in coking coal imports by the

* Estimate based on monitoring of vessels and customs data

26 Coal Insights, July 2014

Dr Rajendra K Pachauri, Director-General, The Energy and Resources Institute, feels, India needs to put its energy sector under a single ministry and do away with energy subsidies. Also, a single regulator is required to rationalise energy prices and costs. He also feels the Green brigade is not divided

into ‘crusaders’ and ‘scaremongers’ but rather along the lines of how to protect the environment. He also acknowledges that the challenge lies in reducing our reliance on coal and finding ways to eliminate carbon emissions. Pachauri, who is serving as the chairperson of the Intergovernmental Panel on Climate Change (IPCC) since 2002 and was awarded the Nobel Peace Prize in 2007, discusses a gamut of Green issues in a free-wheeling interview with Arindam Bandyopadhyaya of Coal Insights.

COvER sTORy

‘bring india’s entire energy sector under single regulator’

Shun misconception & inertia, make room for renewables

Coal Insights, July 2014 27

COvER sTORy

Excerpts:

The world over, there are but two opinions on the Greens: Crusaders and scare-mongers. Which one is more apt to describe the new tribe?

I don’t think there are only two opinions. People who are concerned about the environment come from all walks of life and hold a wide range of values and political viewpoints. I think the vast majority of people are environmentalists given that almost everyone cares about their natural surroundings and the sustenance they gain from it. The divide is along how to protect it, not its inherent value. I would like to put forward the example of my own institute, The Energy and Resources Institute (TERI), which is a non-governmental research institution and where we focus entirely on finding solutions. For instance, as part of our bio-technology research programme, which is very strong, we are trying to come up with technologies for producing coal bed methane directly from underground coal seams. If this succeeds, we would have a technology for using coal, which is also protective of the environment.

What is the difference between natural warming of the climate (as found in the history of the earth) and man-made warming?

We know with a very high degree of certainty that the earth’s climate is influenced by natural forces and human activity. Natural warming can occur as a result of various factors, such an El Niño, the phenomenon associated with unusually warm ocean temperatures in the Equatorial Pacific as well as complex solar activity and volcanic eruptions. Man-induced warming

is caused by a variety of our own activities, most notably the unmitigated burning of fossil fuels. Scientific literature clearly shows that the rapid warming we have seen in recent decades can only be explained by human activity. We know of no natural forces that could have brought on such a sharp rise in temperatures. On the basis of rigorous validation exercises which have been carried out to corroborate actual observations on warming with computed values for the past, including both natural and human induced changes, we can separate clearly in quantitative terms the effects of one versus the other. The science on this is very robust and compelling. The fact is, we live in an era of man-made climate change.

Just how susceptible is the world today to an environmental collapse? Where do India and China rank on the list of the most imperiled nations?

Future risks from a changing climate depend strongly on the amount of future climate change and, therefore, the amount of greenhouse gases we continue to emit. Increasing magnitude of warming increases the likelihood of severe and pervasive impact that may be unexpected or irreversible. The precise levels of climate change sufficient to trigger tipping points remain uncertain, but the likelihood of crossing the tipping points decreases with reduced greenhouse

gas emissions. By “tipping points”, I mean abrupt and drastic changes to various ecosystems. An example would be large and irreversible sea-level rise from the loss of ice sheets.

I can’t comment on where China and India rank, but I can say that poorer nations face greater threats than richer ones, which have a greater capacity to adapt to climate change. At the same time, climate change threatens every country to some degree, so this is a global problem.

The choice, as it appears, is between a Greener-but-poorer India and a polluted-but-rich India. What are your views on this?

I don’t think those are the choices. The latest report from the Intergovernmental Panel on Climate Change (IPCC) estimates that ambitious mitigation of greenhouse gas emissions would reduce global consumption by about 0.06 percentage points per annum. And that does not include the benefits of reduced climate change or the potentially enormous costs of doing nothing. The evidence suggests that we can build stronger economies over time and create a more stable and livable world while preventing climate change .

What would be your prescriptions for the Indian energy sector to make it more efficient and less polluting?

The most important action that is required is to see that the energy sector in the Government of India is under one single ministry and not fragmented in the

I am not interested in demonising any portion of the energy sector, but I am interested in the facts. Coal and the people who work so hard to

produce it are not the root of any evil. But the fact is that the renewed and rapidly increasing use of coal is a major contributor to climate change. The challenge is to reduce our reliance on coal and/or find

ways to eliminate the carbon it contributes to the atmosphere.

Pachauri with UN Secretary-General Ban Ki-moon

34 Coal Insights, July 2014

GOvERnmEnT

Jaitley takes vital singles to deliver better GDP scores

Coal Insights Bureau

Faced with the onerous responsibility of balancing fiscal prudence with stimulating measures against the backdrop of a

beleaguered economy seeing less than five percent growth for two consecutive years (for the first time in the last 25 years), the new Finance Minister, Arun Jaitley, traded cautiously, eliciting a mixed reaction from India Inc.

Where the energy sector is concerned, the need of the hour is huge funding resources coupled with cogent policy decisions to make the country energy-secure. Arun Jaitley’s maiden Budget, while not exactly hitting sixers on this front, has at least attempted to take a few vital singles to deliver better DGP scores in the future.

“We shall leave no stone unturned in creating a vibrant and strong India,” Jaitley told Parliament, as he set a target of raising the economic growth to 7-8 percent in three to four years from less than five percent in the last fiscal. He further said the fiscal deficit target for this year (2014-15) would be kept intact at 4.1 percent as set by the previous government and be brought down to 3.6 percent for 2015-16.

However, there was lack of clarity on how this would be achieved.

Jaitley announced an eight percent rise in spending and said the government will seek to raise a record $13 billion through disinvestments.

On the growth front, the finance minister sought to rejuvenate agriculture by setting up Farmer Markets, raising agricultural credit at lower interest, setting up agri-universities and strengthening NABARD for re-financing to support these measures.

In order to revitalise the industry and manufacturing sector, Jaitley provided a slew of incentives by reducing the limit of investment to `25 crore for 15 percent investment allowance, reviving investor interest in SEZ, increasing investment on national highways etc. He further announced raising the ceiling on foreign investment in defence and insurance to 49 percent.

On the tax front, there were sops for income tax payers in the form of raised exemption levels and other benefits.

Coal proposals

y The Budget proposes to rationalise the duty structure on coal. At present, coal attracts customs duties at different rates. Jaitley aims to rationalise the duty structure on all non-agglomerated coal at 2.5 percent basic customs

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58 Coal Insights, July 2014