AUGUST 2013
By:
B.M.VERMA
Advisor- Essar Power (M.P.) Ltd.
Ex- Chairman Jharkhand State Electricity Board
Ex Chairman / Jharbihar Collier Ltd.
Ex Chairman/ Karanpura Energy Ltd.
Ex- CMD/ Uttarakhand Power Corporation Limited
Contact: +91- 9810588500/9899337132
Email: bmverma@yahoo.com
POWER CUT
Date: 06-04-06 & 07-04-06
Power Cut
Unrestricted
Demand
Demand Met
(Total Availability)
Hydro Gen.
Net Import from
Grid
Time in Hrs.
 Hydro
 Gas
 Tapi
 Iran
 Bangladesh
 Nuclear
 Solar
 Wind
 Shale 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% only
XI FYP (MT)
XII FYP (MT XIII FYP
Projected)
(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)
Coal
Capacity addition@
for balance XIIth plan
(MW) (B)
Capacity at
March 31, 2017
(MW) (A+B)
Gas
Total
Installed
Capacity
122,900
Affected
Capacity
53,000
18,900
Stranded
Capacity
8,800
8,500
Coal
Gas
Total
Coal
Gas
Total
71,000*
7,500
78,500 193,900
26,400 220,300
71,900
71,000
7,500
78,500 124,000
26,400 150,400
17,300
35,500
7,500
43,000
16,000
18,900 141,800
44,300
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)
Coal Reserves in India
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
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
Coal present in 10 out of 28 states
Challenges for enhancing domestic coal production – Coal India
– Land Acquisition is the biggest bottleneck in coal mining operations
Land
Acquisition
– 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
- Delay in conducting Public Consultations
- SPCB takes considerable time to issue Consent to Establish and Consent to Operate
Environment
& Forestry
Clearance
-
-
Evacuation
Infrastructure
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.
- 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
Port Logistics
WEST COAST
Gujarat
Maharashtra
Goa
Daman & Diu Port
Karnataka
Kerala
Lakshadweep Islands
EAST COAST
# of Ports
40
53
5
2
10
13
10
# of Ports
Tamilnadu
15
Pondicherry
1
Andhra Pradesh
12
Orissa
2
West Bengal
1
Andaman & Nicobar Islands 23
US / Canada /
Colombia –
Attractive Ocean
Freight s will
result into
supplies into
Pacific Markets
including India.
China – May ban
import of High
Ash and High
Sulphur Thermal
coal with GCV
(ARB) below
4,800 Kcal/Kg.
25
147
BT
50
BT
246
BT
59
BT
32
BT
15
BT
115
BT
20
BT
76
BT
68
993
335
674
248
589
260
101
3520
325
Asia /
Pacific
Indonesia 65%
416
Asia Pacific Now dominant in Global Coal production and supply
SA Exports 2007
Europe :
42 Million
T
India : 9.22 MMT
China: 20 MMT
Rest Asia: 8.6 MMT
Factors : -
 Ocean Transportation cost(s)
 Voyage
 Availability & Domestic
consumption
 Regulatory issues
 Economy including currency
World Sea borne Trade 2010
Europe : 14.6
Million T
SA Exports 2012
India : 22.98 MMT
China: 12.8 MMT
Rest Asia: 13.83 MMT
Local
Issues,
Mining &
Labour
costs
M & A i.e.
Glencore Xstrata
Deman
d
Drivers
Index linked
spot / term
contracts, Cost
plus basis,
Dividend
Low /
Availability
and cost of
shale Gas, Oil
prices for
mining costs
High
CV, S,
TM,
VM
Australian Tax
for mining
coal, Indian
Clean Energy
cess
Change in Coal
prices (Import &
Export) due to
appreciation /
depreciation
29
INDONESIA
India’s Thermal Coal
Imports ~ 83.4 Million
tonnes
INDIA Imported ~
107 Million Tonnes
of Thermal Coal in
2012
Other Countries :
~ 4.3 Million
Tonnes
AUSTRALIA
India’s Thermal
Coal Imports ~
2.1 Million
tonnes
SOUTH AFRICA
India’s Thermal Coal
Imports ~ 17 Million
tonnes
30
- 27.5%
+ 8%
- 10%
- 41.3%
- 37.5%
- 7%
+ 6%
- 30%
- 34%
* ARGUS FOB Prices ( 90 Days Forward)
31
- 39.6%
+ 101.4%
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.
32
 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
33
34
35
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)
36
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.
CHINA : Largest & Fastest Growing
Coal Market
 Segmented between
public & private sector.
 Tight supply – demand balance.
 Production costs increasing
 Small mine closures continuing.
 Transportation & taxes
encourages imports.
38
 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.
39
 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.
40
Queries to Be Answered.
 Affect of Currency Depreciation
 Current Account Deficit
41
42
43
45
47
 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.
THANK YOU
52
 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% only
XI FYP (MT)
XII FYP (MT XIII FYP
Projected)
(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




 Reserves
91 billion Tons
 Indicated 116 billion Tons
 Inferred 37 billion Tons
 TOTAL 245 billion Tons
Others
13%
 Proven
Madhya
Pradesh
7%
Chattisgarh
16%
Orissa
24%
West Bengal
11%
 Coal reserves:
> 250 years at
present levels of consumption
 Concentrated in Eastern India
Jharkhand
29%
ULTRA MEGA
POWER
PROJECT