REVIEW OF INDIAN COAL SECTOR

MANOJ JHAWAR 12125027 , MBA,IIT KANPUR

Coal on Global perspective

Globally, coal resources have been estimated at over 861 billion tonne

Coal meets around 30.3% of the global primary energy needs and generates 42% of the world’s electricity

Coal production in the Asia Pacific region has grown tremendously and accounts for over 67% of the total production globally (2012) as compared to about 27% in 1981 (in terms of energy equivalent).

In year 2012 around 6.1 billion tonne of hard coal and 1 billion tonne of brown coal were used worldwide

Brief facts about India Coal Industry

India has the fifth largest coal reserves in the world.

88% are non-coking coal reserves & 12% coking coal reserves

Indian coal is characterised by its high ash content (45%) and low sulphur content

Power sector is the largest consumer of coal followed by the iron and steel and cement segments

Demand -Supply scene

Coal production has increased from~431 MT in 2006-07 to ~554 MT* in 2011-12 (an increase of 28.5%).

Demand for coal has grown at a CAGR of more than 7% in the last decade and has reached around 600 MT

Country’s total demand-supply gap (including coking coal) at about 98MT

India imports about 85 million tonne of coal

Trend in Coal consumption

Trend in industry wise consumption

Trends in Coal Import

Trends in Coal consumption (Industry wise)

During 1970-71, the railways were the major consumer of coal (15.58 MTs), followed by steel and washery industries (13.53 MTs), electricity generation (13.21 MT) and cement (3.52 MTs).

Since 1975, the electricity generation is the biggest consumer of coal, followed by steel industries. Estimated coal consumption for electricity generation increased from 23 MTs during 1975-76 to 435 MTs during 2011-12.

Coal consumption has increased in almost all industry

segments with electricity contributing the highest

consumption clocking a CAGR of nearly 9% over the years

from 1970 to 2011.Except cotton industry which shows a

negative CAGR, the consumption of coal for other

industries has gone up over the years.

For steel and cement sector, coal consumption almost

remained stagnant in 2007 to 2009 due to global slump. It

recovered in 2009, but recorded a down swing in

2010-11 indicating the slow growth of the segment due to

global recession and European crisis.

Trend in Coal Import

Gross import of coal has steadily increased from 20.93 MTs during 2000-01 to 73.26 MTs during 2009-10.During this period, the quantum of coal exported increased from 1.29 MTs during 2000-01 to 2.45 MTs during 2009-10. However, there was a decline of 5.92% in gross import and 8.89% in net imports of coal in 2010-11 over the previous year. The exports to neighbouring countries increased by about 80% during the same period

Important observations about Coal import

China & India becoming the highest gross net importer of the coal

India was traditionally a coking coal importer due to unavailability of good quality coking coal for steel, but the situation has changed in favour of non coking coal in the past five years with non coking coal imports rising from countries like Indonesia and South Africa.

Further, the coal washing capacity in the country has not increased sufficiently, due to various reasons, to generate the required quantity of washed coal for consumption, particularly in steel plants. This necessitates the import of high quality coal to meet the requirements of steel plants

Sector wise Coal consumption in india 2011-12 (Source : Coal Ministry)

Electricity Sector

India is the world’s fifth largest energy consumer, accounting for 4.1% of the global energy consumption.

The current per capita consumption of energy in India is 0.5 toe against the global average of 1.9 toe, indicating a high potential for growth in this sector

Total electricity consumed in India approximately 80% is produced from coal

Steel sector

In 2011, the world crude steel production reached 1,518 MT, reflecting a growth of 6.2% over 2010.

The per capita finished steel consumption in 2011 is estimated at 215 kg for world and 460 kg for China, while that for India it is estimated currently at 55 kg (provisional). This clearly indicates scope for increasing the per capita steel consumption, a factor which correlates to the coking coal availability and production within the country.

Coal demand trend of Steel industry in India vis-à-vis Steel production

Coal imports by Steel industry

Cement sector

India is the second largest producer of cement in the world

Around 450g of coal is consumed to produce 900g of cement. Ratio of 1:2

cement industry is the third largest consumer of coal in the country.

Coal demand trend of cement Industry in India vis-à-vis cement production

Major Coal Mining Companies Based on production data from Coal

controller organization report 2011-12, top 5 coal producing company in terms of coal production are :

1. CIL (PSU) 2. SCCL (PSU) 3. PANEM (Private) 4. TSL (Private) 5. JPL (Private)

NCDP (New Coal distribution Policy)

The category of Core/Non Core sector was dispensed with Defence and Railways requirement of coal to be met in full Power and Fertiliser sector normative requirement to be met

with 100% supply Other sectors demand to be met with 75% of their normative

requirement State nominated agencies to be provided with coal to further

distribution to small and medium industries for capacity of 4200 tonnes per annum

Steel plants will be supplied coal, but price to be linked with import parity

Fuel Supply Agreement to be signed with all end consumers lifting coal from CIL

Coal Sector Value Chain

Mining Industry’s Contribution to the GDP

Captive Coal Blocks

Ways to increase coal supplies in India

Operational or sustenance issues Fund raising Performance improvement All the minerals are not reported as per UNFC classification

Key administrative issues Long queue of mining applications pending at different

levels with the state and centre: This is a deterrent for future investments.

Single window clearance agency (SWCA) Large number of compliance reports to be filed by the

investors to CCO, state DMG, DGMS, tribunals, state and central agencies

Multiple registration requirements for miners,transporters, traders and end-users

Ways to increase coal supplies in India...

Regulatory issues Lack of policy support for transfer of mining

concessions Blocking of resources Lack of incentives for exploration

Fiscal issues Poor connectivity of mining areas and poor

evacuation facilities Infrastructural issues

Cadastral (Khasra) maps are either not digitised or the geo-referencing has not been done properly. This creates problems in lease boundary determination, thus hampering genuine miners.

Challenges in increasing the production capacity

For CIL,179 forestry proposals are awaiting clearances and if all approvals are secured on time, it canmore than double its output to 1,132 MT, given that mines start production from 2016-17.

Majority of the coal projects have been halted and delayed due to issues in acquiring land and strict rules and regulations (R&R).

Bottlenecks in domestic coal transportation and lack of proper road connectivity further increase the challenge. Also, availability of railway wagons and mismatch of demand and supply of wagons and coal offtake affect production capacity.

Delay in mining activities at captive coal blocks and concerns relating to theincreasing ash content of run-of-mine (ROM) coal further hinder production

Way Forward for CIL

CIL needs to strengthen the operations in its core area of mining

Aggressive investment of surplus available with CIL, may go in for new technology and UG mining, improvement in transport and logistics

Switch to market driven pricing for different consumers (regulated pricing for power and fertiliser sector and market price at par with other unregulated sector)

Way forward for Coal Ministry Coal ministry should attract private investment in

exploration, drilling and planning activities and also in mining through necessary policy changes and welcome the private players

The bore hole density from 1.5 per sq km to 15 per sq km without any forest clearance.

Competitive bidding for coal blocks but only after full exploration of coal blocks

The government has initiated the process of competitive bidding of 54 coal blocks and Crisil has submitted its report on coal bidding guidelines. It is under evaluation from different stake holders. The government has identified coal blocks and segregated them so that the coal blocks come under different categories for power, steel and state companies.

The sooner the coal regulator is in place, the better it will be for the coal industry

Way Forward for Private Players Private parties to enter aggressively

through MDO route wherever available

Coal washeries is lucrative business option, need to partner with state or central government, else develop captive coal washery for own use

Aggressively foreign asset acquisition and exploring arbitrage opportunity, whether to source coal to the country or trade in global platform

My Recommendations

There is a need for private players in coal mining operations and MDO provides the best opportunity for private players in the current scenario. e.g

Huge investment and big push in UG mining is inevitable for future sustainability coal mining operations.

Only explored coal blocks are considered for competitive bidding for captive coal block allocation and government should fast track the process.

CIL needs to put all its act together for a double digit growth in coal production, lack of co-ordination between ministries poses the biggest hurdle.

Exploration offers the maximum opportunity for private players, if opened fully, coal washing the next big thing