4th COAL MARKET CONFERENCE IN INDIA
“Overseas Coal”- Sourcing & Securing
August 22nd-2014 –IBK MEDIA.
EPC
POWER
SOLAR
NATURAL
RESOURCES
INFRASTRUCTURE
R.B. Mathur.
Sr. Advisor (Coal)
Date: 22.08.2014
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Preamble: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.
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Internation Coal Prices & Indian Govt. Policy frame work
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.
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Indian Coal Imports
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.
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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)
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Key Points regarding GCV based Price
Introduced 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.
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New Coal Price Based on GCV vis Old Price
Old Grades
GCV
A
6454
64546049
60495597
55975089
50894324
43243865
38653113
B
C
D
E
F
G
New Price (Rs/MT)
SECL
Old
Price
Lower Higher
3690
4460
4900
3590
4130
1050
% Price Hike
4680
Lower
Range
21%
Higher
Range
33%
Avera
ge
27%
4130
4130
15%
15%
15%
2940
3990
3465
180%
280%
230%
880
1849
2060
1955
110%
134%
122%
730
970
1849
1410
33%
153%
93%
570
630
880
755
11%
54%
32%
430
620
630
625
44%
47%
45%
Average
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CIL GCV’s Price Policy with International Market
FOB Values in Rs/MT
CIL New GCV in Kcal/Kg
Exceeding 7000
6700-7000
6400-6700
6100-6400
5800-6100
5500-5800
5200-5500
4900-5200
4600-4900
4300-4600
4000-4300
3700-4000
3400-3700
3100-3400
2800-3100
2500-2800
2200-2500
CIL New Base Price Newcastle
4900
4690
4460
4130
5883
3990
2940
2060
1890
1680
970
880
630
630
620
620
550
480
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RBCT Kalimantan
Variation
42%
5459
5141
33%
4028
113%
2438
177%
1855
199%
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.
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COAL ASSETS-ACQUISITION ABROAD
Indian Company
Country
Deal Value
Foreign Company
under deal
USA
US$ 1 billion
Massey Energy
Company/ ALFA
Australia
US$ 10 million
Peabody Energy
Corporation
Indonesia
N/A
Indonesia SinarMas
Indonesia
N/A
Kalimantau Coal Mines
Mozambique
N/A
N/A
Australia
$ 1.2 billion
N/A
South africa
$ 500 million
N/A
Essar Group
Indonesia
US$ 200 million Aries Coal Mines
Adani Group
Australia
US$ 1 billion
Linc Energy
JSW
USA
N/A
Mines in west Virgina
Coal India Ltd.
NTPC Ltd
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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
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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 imposed
III. Human Resource control is increasingly become difficult
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Liberalization of Coal Sector in India
•
•
•
The Liberalization Policy for coal sector commenced in 199394. 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
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Increasing Coal Production in India- through PPP model to reduce imports.
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
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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.
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JV & Acquisitions
• JV between Indonesian Coal Co. & Power Producer in India
Kalimantan
Sumatra
a) More explored
a) Higher exploration rate is required
b) Coal better
b) GRS not available.
c) Infrastructure better
c) Poor rail facility
d) Port facility better for mid-stream loading.
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.
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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
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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.
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Price Comparison of Power Coal (F.O.B.)
Coal Grade
Indian Price
(Ex-mine)
Indonesian
Price
Australia
South
Price
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
US$ 15 FOB US$ 20
US$ 20
Shipping Freight
Metallurgical Coal
Prime Coking coal US$ 120
18% Ash
NA
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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.
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Conclusion
1. Rationalisation of coal linkages could lead to substantial cost savings in
range of Rs.4000 to 5000 crores
2. 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
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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.
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Thank You
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