Environment Ministry's expert panel, EAC, has suggested use of imported coal with higher ash content of up to 25 per cent, as against 12 per cent now, to help domestic thermal power plants use higher grade coal and bring down the cost of generation.The recommendation comes against the backdrop of recent demand of the Association of Power Producers (APP) that the ministry's February 2013 order to restrain ash content in imported coal up to 12 per cent has forced power plants in the coastal region to use only Indonesian coal.In a representation to the ministry, APP had sought review of the ash content restriction so that high grade, low moisture imported coal from Australia, South Africa and Russia can be utilised for better efficiencies, and lower the cost of generation with actual ash generation remaining the same."After detailed deliberations, the EAC recommended that the restriction on maximum ash content of imported coal may be increased upto 25 per cent and Environment Impact Assessment (EIA) be carried out accordingly," a senior Environment Ministry official said.The committee observed that bulk of the imported coal having ash content lower than 12 per cent are typically of Indonesian origin having high moisture content of about 30-40 per cent, while imported coal from Australia, Russia, the USA and Columbia have ash content of about 25 per cent with moisture content up to 15 per cent."EAC felt that when high moisture coals are fired in boilers, a substantial amount of the heat input is used to evaporate and superheat the moisture in the fuel, thus pay a substantial price in efficiency," the official added.The Committee further noted that lesser the ash generation, the lesser would be its environmental impact.However, by restricting the ash content up to 12 per cent, the source of coal gets restricted to a particular origin and thus the price competitiveness may have to be compromised.This may also be contrary to the objectives of the Competitive Bidding Guidelines and the Electricity Act, 2003, the official added.Coal imports rose 2 per cent to 18.6 million tonnes in August from a year ago, according to SAIL-Tata Steel promoted Mjunction Services Ltd.(PTI)
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Deep in the thickly forested hills in its east, India last month started production at what it hopes will in five years be Asia's biggest coal mine. At the open-cast mine, which involves the clearing of more than 18,000 hectares (44,500 acres) of land, noisy excavators are busy digging for coal that will feed a huge power plant being built nearby to fuel India's energy-hungry economy. India is opening a mine a month as it races to double coal output by 2020, putting the world's third-largest polluter at the forefront of a pan-Asian dash to burn more of the dirty fossil fuel that environmentalists fear will upend international efforts to contain global warming. Close to 200 nations are set to meet at a United Nations summit from Nov. 30-Dec. 11 to hammer out a deal to slow man-made climate change by weaning countries off fossil fuels. China has promised to restrict public funding for coal and Indian Prime Minister Narendra Modi is trumpeting investment in renewable energy, but in Asia's biggest economies the reality is that coal is still regarded as the easiest source of energy. "Environment is non-negotiable but we can't live without coal. You can't wish away coal," said Anil Swarup, the top official in India's coal ministry, who is leading the push to open new mines like Magadh, in poor but resource-rich Jharkhand state. "There is a temporary drop in demand, but no question of reducing coal output. We are well short of coal required in the country." Asia Keeps DiggingChina, India and Indonesia now burn 71 percent of the world's newly mined coal according to the World Coal Association, with new European and North American consumption negligible as their countries turn to cleaner energy. Other Asian nations are increasingly looking to coal to power their economies too, with Pakistan, the Philippines and Vietnam opening new plants, pushing the Asia/Pacific region to 80 percent of new coal plants. "Coal is still the most cost competitive power generation fuel, and in the end that's what matters most for emerging markets," said Frederic Neumann, Co-Head Of Asian Economic Research at HSBC in Hong Kong. Asia's developed nations, too, are finding it hard to kick the coal habit. Japan's use has reached a record after shrinking its nuclear industry and it plans to build another 41 new coal-fired units over the next decade. Australia's exports of thermal coal rose 5 percent to 205 million tonnes in the last financial year and are to increase by a further 1 million tonnes this year, driven by increased demand from Japan, South Korea and Taiwan. The rush to burn more coal comes as the world's major economies, including leading emitters China and the United States, have agreed to start cutting greenhouse gases over the next 15 years ahead of the U.N. climate change summit in Paris. India has rejected any absolute cuts, arguing that its per capita emissions are far below the world average and that it needs to emit more as it grows to beat poverty. In a climate-change policy statement released last week, New Delhi promised to slow the rate at which its greenhouse gas emissions rise by a third by 2030. Coal will remain the dominant source of its energy for decades, India said, but it pledged to invest in cleaner coal technology, modernise old power stations and plant trees to absorb up to 3 billion tonnes of carbon dioxide. The New China?Magadh mine is the biggest of the many New Delhi will open to hit an annual coal target of 1.5 billion tonnes by 2020, raising its production above the United States but less than half the amount China currently burns. Some 20 km from Magadh, along a bumpy track through mud-hut villages, lies a second vast coal pit launched last year. By 2018 another two mines will open nearby - combined, the mines in this one district alone will at peak generate as much coal as Poland, the world's ninth largest producer, delivered last year. The United Nations has agreed a goal of keeping warming below a ceiling of 2 degrees Celsius above pre-industrial levels to avoid the worst impact of climate change including more droughts, extinctions, floods and rising seas. Sticking to that goal would require world emissions to start falling now and India's to peak within a few years, said Glen Peters at the Oslo-based Center for International Climate and Environmental Research, but India's coal drive makes that near-impossible as its extra emissions outweigh any savings from more solar and wind power. Because of its low-quality, twice as much Indian coal is needed to produce the same amount of energy as the best Australian coal. If India burns as much coal by 2020 as planned, its emissions could as much as double to 5.2 billion tonnes per annum - about a sixth of all the carbon dioxide released into the atmosphere last year - Peters said. That would see India follow a similar path to China whose emissions, after growing slowly at the turn of the century, jumped when dozens of new coal power plants came on line. "If these coal targets are met, there could be a turn (in India's emissions), with a steep increase. China is starting to stumble; India could replace that," said Peters. He said India could replace the United States as the world's second largest emitter by 2025. "This is something no one would have expected." (Reuters)
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Shravan SampathOne of the key achievements of the Government of India over the past year and half is the auction of coal block. Minister Piyush Goyal demonstrated his Ministry’s ability to take the Supreme Court decision on cancellation of coal blocks allotted over the past two decades in their stride (with a bit of glee even) and auction most of the blocks to new allottees. The swiftness and success of the auction has been touted in many election speeches, with notional benefit to the state quoted in several lakhs of crores, numbers that would even make Vinod Rai cringe.However, two decisions mar the process – the first is the seemingly over-cautious decision to cancel the Gare Palma block to the Naveen Jindal led Jindal Steel and Power Ltd. It is a decision that will, in all likelihood, be set aside by the courts. The second is more intricate and complicated, and could mar the future of the captive coal based power sector as we know it.Shravan SampathFallacy in the Bidding MethodologyAt the time of the coal auctions, most of the experts (including yours truly most humbly) noted the fallacy in the methodology of bidding for power blocks. While the blocks for all other sectors were bid on the basis of a premium per tonne of coal, power sector blocks were bid on the basis of reverse auction – that is, the bid price was capped the price of Coal India Ltd.’s (CILs) Run of Mine price, and bidders were expected to bid a discount on this price. It was expected, that in an utopian world, power companies would bid lower than this price to reflect their efficiencies in coal extraction compared to CIL’s price. This discount on CIL price was intended to be passed onto power tariffs, which would then result in reduced power bills for the end consumer. Except, this logic ignored some basic understanding of a bidders mindset – for starters, a bidder always bids only in alignment with what he thinks the other bidders will bid. As the bidding goes lower, the bidder has no choice but to stay in the game. Second, the bidder always works on his BATNA (Best Alternative To a Negotiated Agreement). The bidders who had blocks for decades now and stable operating power plants linked into them, did not have an option but to go aggressive to retain them. Their entire power island would be stranded if they lost the bid. This resulted in a “winners curse”, whereby the bidders, the quintessential Indian promoters, moved their bids lower and lower until the bids became negative. In effect, the promoter was telling the Government – “Thank you very much for your coal block, we will not only extract the coal, but we will also pay you for extracting the coal, and we will also not charge for the coal thus extracted from power tariffs”. Thus, from a coal block auction perspective, these negative bids became the norm, and all power bids became negative and in the interest of politeness, are being called bids at an “additional premium”. The Bone of ContentionThis harakiri, once committed, put the government and the bidders in a tough spot. Experts were chuckling “I told you so”, but the Union Government swung into action. A notice was issued to the Central Electricity Regulatory Commission that such “premiums” should not be loaded in the fixed charge, and the fixed charge should be capped for bidding purposes. This left bidders with no option but to either let the coal go unmined, or to go to the courts and cry foul saying that this was not intimated to them at the time of bidding for the coal blocks. Anil Swarup, Secretary Coal in the Government of India of the Project-Management-Group fame, went to great lengths to clarify that all the bidders were fully aware that their premiums would not be passed through in tariffs. The matter now rests in court – pending this, future auctions to the coal blocks for power are now on hold. Of course, one can only hope that given the pace of the Indian judiciary, by the time the high Court decides and the Supreme court then sits on appeal and further decides, this unmined coal under the earth doesn’t further get converted to crude, natural gas or some other carbonaceous substance. That Elusive Clarification No 13Where does the answer lie? Did the Union Government goof up by not pre-empting the Indian promoter mindset, or was the promoter indeed not informed that this change would not be passed through in the tariffs? This is a question that the High Court will take a call on. The promoters appear to be right in stating that it was not directly informed to them as part of the bid documents or the amendment to the Act and Rules. However, it is well known that all subsequent clarifications issued by the bidding authority, and documented by way of a minutes of meeting and circulated to all the bidders, are considered part of the bid documents. In this particular case, the issue of negative bidding remained a concern during the bid process. It was also discussed in a pre-bid conference, and was also included as Corrigendum No. 3 to the Standard Tender Document on January 31st 2015. This clarification is available freely online, and Clarification No 13 says – “It is clarified that in the event that an ascending forward auction is conducted in accordance with Clause 3.3.2 (c)(iv), only the aforementioned Fixed Rate of INR 100/Tonne, will be the input for computation of energy charge for the purposes of determination of tariff for electricity and the Additional Premium shall not be reckoned for the purposes of determination of tariff for electricity” Does this clause not indicate that the additional premium shall not be reckoned for the purposes of determination of tariff for electricity? If this clause is so clear, the bidders appear to be treading on thin ice by going to the High Court to fight for a right that does not exist. The Flip SideThe power producers claim that while the bid documents clearly specified that the additional premium (negative bids) would not be passed on in the tariff, it was specifically intimated to them that the fixed charges would be “capped”. If this was the proposed methodology of capping, the Government could have intimated at the bid stage itself that fixed charges would be capped. This argument does hold some water – while the bid documents do specify that the additional premium would not be allowed to be passed through in the tariff, it does not explicitly state that there would be a capping of fixed charges. The Road AheadThe fundamental challenge is this – there is no clear way that one can ensure that the additional premium is not loaded onto the tariff. The bidder can always claim (and rightfully so) that the additional fixed charges are due to other project related reasons (like transmission, coal transportation, rupee dollar variability, etc.). It is an important point to think about – not a lot of damage has been done. It is a matter pending in the courts and can be resolved quickly if the Government finds an intermediate ground. While the courts are likely to uphold the stand of the Government, that would mean that all the projects with negative bids (basically all the projects) would be stalled and the coal would remain in the ground. The only option appears to be for the Government to honorably admit that it has made a mistake by relying on the rational mind of the Indian promoter, and to cancel all power sector coal block auctions and re-do the methodology. The important question for the power sector appears to be – if millions of tonnes of coal allocated to the power sector now disappear off the radar because the additional premium bids are no longer viable, where does that leave the power sector, and our fledging coal sector? Shravan Sampath is CEO of Oakridge Energy, a niche project turnaround specialist firm in the power sector. Oakridge specialises on building business cases and managing implementation of distressed and stranded assets in the power sector. Shravan is a graduate of IIM Lucknow and has spent many years working on developing power plants in India.
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Coal India Ltd, which had estimated a capital expenditure of Rs 60,000 crore to ramp up production to 908 million tonnes, may have to revise it in view of the proposed Land Acquisition Bill. "The current estimate of total capex is Rs 60,000 crore over the next five years. But it may get revised due to Land Acquisition Bill," Coal India chairman Sutirtha Bhattacharya said at the CIL AGM in Kolkata on Wednesday. "There are some issues with regard to land acquisition. The final capex amount will eventually depend on the amount of land acquired," he said. A large portion of the money would go towards acquisition of land required for mining of coal and the rest for buying machinery and equipment for the same, he said. CIL requires 20,000 acres in next five years to acheive its target of 908 million tonnes. The cost of land acquisition would depend on the proposed Land Bill which seeks higher compensation. Meanwhile, the miner is in talks for acquiring mining assets overseas. "We are pursuing diplomatic channels while pursuing these assets. We are in talks with various countries for buying mining assets," Bhattacharya said. Coal India is planning to raise coal production from underground mining to 100 million tonnes in the next 10 years, CIL Director (Technical) N. Kumar said. "We are looking at ways to increase underground mining production. Currently, nearly 93 per cent of Coal India's total production comes from open cast mines," Kumar said. "The plan is to raise it to 100 million tonnes in the next 10 years. Central Mine Planning and Design Institute Ltd has been asked to prepare a roadmap for the same," he said. The miner had been able to sell 24.8 million tonnes through e-auction route during the April-August period as against 18.2 million tonnes in the same period a year ago, CIL Director (Marketing) B.K. Saxena said. The company said dues from NTPC had come down from Rs 900 crore as on March 31, 2015 to Rs 600 crore in August.
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State discoms refuse to buy costly power from power companies due to high level of debt. Neeraj Thakur reports Suddenly there has been an excess production of coal in the country and the power plants are not willing to buy it. Till 2013, Coal India was the punching bag for the power sector for failing to supply coal to power generators. The power companies complained that their production was stalled due to lack of fuel. Coal India, at that time was entangled in the ‘go’ and ‘no go’ issue, with the ministry of environment and forest clearance. With close to 200 mines waiting for approval from the environment ministry under the then minister Jairam Ramesh, the Maharatna company managed to increase its coal production to 494 million tonnes in 2014-15, an increase of 32 million tonnes over the previous year. The rise was against a dismal performance in the previous four years when it added only 31 MT between 2009-10 and 2013-14. The all India production of coal in 2014-15 increased by 8.3 per cent to 612 MT and it seems that Coal India, which produces 80 per cent of India’s coal, will have to slow down production at its mines as it finds no buyers for its product. What has led to this scenario? While there are several views on the subject, depending on who you are talking to, RV Shahi, former Power Secretary, believes that Coal India is charging a premium for its increased coal supply from the companies. “If there is excess supply of coal in the country, then CIL should provide coal linkages to the power plants instead of supplying it to them through MOUs (Memorandum of Understanding). The price of coal under a MoU can be 40 per cent higher compared to the notified price under a coal linkage," said Shahi. Power producers, on their turn, have not been able to sell their power to state discoms as they refuse to buy expensive power due to high level of debt on their balance sheets. They often complain of not having enough liquidity to make payments to the power producers. Even if there is a demand from the consumers, the discoms are not in a position to buy power. Shahi wants the government to look into the issue and wants Coal India to provide coal linkages to power plants to bring the cost of power down. However, Salil Garg, a power analyst with India Ratings believes that even a company like NTPC, which mostly gets coal through linkages, has not been able to sell power in the market. The net profit for Country’s largest power generator for the first quarter of 2015-16 came down to Rs 2,135 crore, from Rs 2,201 crore NTPC’s falling Plant Load Factor or PLF to 77.6 % from 84.3 testifies what Garg says. The spot market price for electricity at the power exchanges has touched a low of Rs 2.56 per unit which is a significant decline from the peak of 2008-09 when electricity was trading at above Rs 6 per unit. A look at the break-up of the core sector data shows how the gap between the production of coal and electricity has been increasing for some time. While the production of coal between February and June 2015 has not been less than 6 per cent, the situation is not the same for electricity generation. From 5.2 per cent in February 2015, the growth in electricity generation came down to an abysmal level of 0.2 per cent in June 2015. Garg blames this situation to the poor demand of electricity from the industry. While Index for industrial production touched a high of 5 per cent in February 2015, it registered a growth of only 3.8 per cent in June 2015. While economists as well as the government like to believe that these numbers are a sign of green shoots in the economy, it has been more than a year since the economy has been trying to convert these green shoots into a flourishing growth story. This is precisely the reason why power companies are not able to sign power purchasing agreements with the state electricity boards, a per-requisite for getting coal linkages from the government. Amidst all this demand supply gap, another threat that is looming large over the thermal power sector is the one from renewable energy. Recently, Madhya Pradesh received bids from global companies to supply solar power at Rs 5 per unit. This shows that the thermal power companies cannot afford to remain inefficient and produce power which is above Rs 4 at the plant and results in the retail price of above Rs 5 per unit. If the thermal power companies have to be in business, they need to find ways to supply power at competitive rates for the discoms to be able to buy from them. Otherwise, very soon the solar power companies would be eating into the business of thermal power generators.
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India will auction about 20 major iron ore mines this year in its first such sale ever, a top government official said, as it looks to revive its corruption-tainted mining industry. India's mining sector has been mired in controversy over illegal allocation of resources. Once the world's third-biggest iron ore exporter, the country now imports the steelmaking ingredient due to a court-led crackdown on illegal mining. The government hopes auctions will help curb wrongdoing. While it is unlikely to lead to an immediate boost in iron ore output at a time when there is a global glut, mine sales will bring India closer to its target of tripling its steel capacity to 300 million tonnes by 2025 and relying less on ore imports. "Most of the states are in the midst of carrying out their pre-auction activities and hopefully by the end of October and November onwards they will start (auctions)," Mines Secretary Balvinder Kumar told Reuters in an interview on Monday evening. He expects about 80 mines to be auctioned in the first phase, including limestone, gold and "about 20 iron ore mines". States are estimating reserves, Kumar added. India produced 136 million tonnes of iron ore last fiscal year ended March 31. About 1.5 million tonnes of ore are needed to make 1 tonne of steel, implying India's ore output will have to more than triple in 10 years if steel companies are to be self sufficient. Most of the iron ore mines being sold are in the southern state of Karnataka, known for its high-quality ore. This will greatly benefit local steelmakers like JSW Steel. Led by JSW's purchases, India's ore imports hit a record of over 15 million tonnes last fiscal year as global prices collapsed. Kumar expects prices to improve by the time the mines start. "The mining process takes two to three years because they will need all kinds of clearances: forest, environment, from pollution control board. (It) takes a lot of time to comply." POSCO STEELIndia's new law to auction mines instead of handing them over to private firms without competition could, however, prompt South Korea's POSCO to scrap plans for a $12 billion steel project it agreed to set up in India a decade ago. While a withdrawal by POSCO could dent Prime Minister Narendra Modi's "Make in India" manufacturing push, Kumar said the government cannot change its laws for individual companies. Kumar attended a meeting in Prime Minister Narendra Modi's office on Tuesday to consider options for POSCO's plans for the steel plant in Odisha state that was billed as India's biggest foreign direct investment. A source at the meeting said there was no concrete result from it and Odisha and POSCO have been asked to look at other options. Odisha's state mining company can be allotted a mine, iron ore from which can be sent to POSCO if they form a joint venture, Kumar said. Odisha has said that was a possibility but POSCO wants to see the details first.(Reuters)
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Coal futures have fallen to 12-year lows, hit by soaring production and a slowdown in global buying, including from India and China which until recently have been pillars of strong demand. Benchmark API2 2016 coal futures last settled at $52.85 a tonne, a level not seen since November 2003. The contract is now over 75 percent below its 2008 all-time peak and more than 60 percent below its most recent high following the 2011 Fukushima nuclear disaster in Japan. The steady and sharp fall in coal prices has knocked down shares of big mining companies like BHP Billiton, Glencore and Rio Tinto, and it has seen many financers exit the sector. The price fall follows a rise in output from exporters like Australia at the same time as a sharp slowdown in overseas orders from major importers like the United States, and now also China and India. "Indian coal imports are now under pressure ... Both thermal and met coal imports ran at their weakest annualised rates since October 2014," Australian bank Macquarie said on Wednesday. "Such a fall might not be just a temporary blip. On the thermal coal side we have seen power plant inventories reach record high levels, domestic production growth improve significantly and demand growth slow," it added. Thermal coal is used in power plants while metallurgical coal is used to make iron ore. Demand from China has also slowed as its economy grows at its slowest pace in decades and the government has started a fight against rampant pollution, to which coal contributes significantly. In the United States, soaring natural gas from shale formations has made gas much cheaper, eating into coal's U.S. power generation share, and the government also plans to move away from coal for environmental reasons. Demand in Europe has been flat as energy efficiency improves, renewables take increasing shares of the power mix and many of its economies struggle to grow. Yet at some point the low coal prices could also start to stimulate demand as it has made the fuel super-competitive against its main competitor, natural gas. Reuters calculations show that the revenues from selling electricity generated from coal in Germany are around 20 euros per megawatt-hour higher than those produced from natural gas. Emerging markets which have yet to provide blanket electricity to its households and need cheap energy to develop their industry also still mostly rely on coal as their main fuel as they prioritize low costs over environmental concerns. (Reuters)
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Backing the controversy-hit Indian mining giant Adani's coal mine venture in Australia, Prime Minister Tony Abbott has said the 16.5 billion dollar project was "vitally important" and "sabotaging" of such developmental plans using legal means was "dangerous" for the country. "If the courts can be turned into a means of sabotaging projects which are striving to meet the highest environmental standards, then we have a real problem as a nation," he said. "We can't become a nation of naysayers; we have to remain a nation that gives people a fair go if they play by the rules," Abbott said. His remarks came after a court this week revoked the environmental approval for the Adani project, which aims to build one of the world's largest coal mine in Queensland, opposed by green groups and local residents. Commonwealth Bank of Australia, the country's largest lender, has ended its role as financial adviser to Adani Mining's multibillion dollar Carmichael Mine, in a further blow to the controversial project. Environmentalists hailed the CBA's decision and said it cast more doubt on the project's future. In his strongest defence yet of coal production in Australia, Abbott stated that the overturning of the proposed Queensland Carmichael mega coal mine project means courts can be used to "sabotage" worthy projects. "As a country we must, in principle, favour projects like this," he told The Australian newspaper. "This is a vitally important project for the economic development of Queensland and it's absolutely critical for the human welfare literally of tens of millions of people in India," the Prime Minister said. Abbott said he is "frustrated" at the court's decision and asserted that the projects like Adani mine were too vital to be hindered by red tape. "If we get to the stage where the rules are such that projects like this can be endlessly frustrated, that's dangerous for our country and it's tragic for the wider world," Abbott said. "So we've got to get these projects right...but once they are fully complying with high environmental standards, let them go ahead. While it's absolutely true that we want the highest environmental standards to apply to projects in Australia, and while it's absolutely true that people have a right to go to court, this is a US$21 billion investment, it will create 10,000 jobs in Queensland and elsewhere in our country," he said. Abbott also said the mine would have a positive impact in India, where Adani is headquartered. "Let them go ahead for the workers of Australia and for the people of countries like India who right at the moment have no electricity. Imagine what it's like to live in the modern world with no electricity," the Prime Minister said. "Australian resources can give them electricity and the interesting thing about Australian resources is that invariably they're much better for the environment than the alternative," he added. (Agencies)
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