Displaying items by tag: Coal India
All the coal board’s men…
01 October 2014Energy costs for cement producers in India are set for volatility following the Supreme Court's decision this week to cancel the vast majority of allocated coal blocks. After ruling that the allocation process by the Indian government was illegal and arbitrary the court stopped 214 out of 218 coal blocks. The affected operators working on the blocks have six months until 31 March 2015 to wind down production. At this point the government intends to auction off the blocks.
The background to this decision lies in the so-called coal allocation scam or 'Coalgate.' Over 80% of coal in India is produced by the state owned company Coal India. Since 1993 though the Indian government has been allocating coal blocks or leases to mine coal for captive use by industries such as cement, steel and power generation.
However, the allocation process was accused of lacking transparency compared to an open bidding process. The Comptroller and Auditor General of India estimated the loss to the government was an incredible US$30bn. The allocation process received further scrutiny as Indian coal imports rose leading to accusations of inefficiency on the Coal India side and corruption on the coal block side. Meanwhile, major power cuts such as those in the summer of 2012 focused both domestic and industrial users' minds on the state of the country's coal industry.
Following the power cuts in 2012, an inter-ministerial panel recommended the de-allocation of two coal blocks held by five companies, including Gujarat Ambuja Cement, Grasim Industries and Lafarge India.
India's coal imports started to increase rapidly around 2009 with an annual growth rate of around 5% and a demand growth of 25% from 2009 – 2014. The majority of its imported coal comes from Indonesia, Australia and South Africa. In 2012 its coal imports were over 150Mt.
With Indian cement producers facing production overcapacity and falling profit margins in recent years, any disruption to input costs such as power is bad news. The growing import rates point to an increasing supply-demand mismatch. A more open process for the allocation of India's vast coal reserves should be good news for industrial users in the medium to long term. However, in the meantime they may face a jolt.
India: On 24 September 2014 India's Supreme Court cancelled all but four of the 218 coal blocks that have been allocated since 1993.
"We are relieved that the uncertainty is over, but now where do the cement and power plants attached to these mines get coal from?" asked Sushil Maroo, a director of Essar Energy and CEO of Essar Power. "What happens to the expenses already incurred? The government needs to give clarity on the modus operandi." The company stands to lose three coal blocks.
"This move will have an extremely negative impact on cement, steel and power companies as an issue that is almost 21 years old is now being addressed," said Issac George, CFO at GVK Power & Infrastructure. "A lot of investments have gone into these blocks, which will now be impacted. Most companies will have no option but to bid in the new round of auctions as one cannot depend on imported coal."
Coal-based projects represent about 59% of India's total installed power generation capacity. Apart from the cancellation, operational mines will have to pay a penalty of US$4.79 for every tonne of coal extracted since they started.
Coal India is set to take over the mines. In 2013 - 2014 Coal India produced 462Mt of coal, missing a target of 482Mt. The coal ministry anticipates that local supplies will fall by as much as 185Mt short of the country's projected demand of 950Mt in 2016 - 2017. The gap could widen if the cancelled mines fail to produce the projected volumes of coal.
India: A new Inter-Ministerial Task Force (IMTF) has been constituted to undertake a comprehensive review of the existing coal resources and to consider feasibility for rationalisation of linkages.
The major recommendations of the IMTF include acceptance of the recommendations of Coal India Limited (CIL) to rationalise existing coal resources. CIL has received 31 applications for rationalisation, including eight from captive power plants, out of which it recommended rationalisation in seven cases. There were two applications from cement plants.
"The approved recommendations of the IMTF were sent to CIL," said Coal and Power Minister Piyush Goyal. "CIL and the coal companies have implemented the recommendations pertaining to rationalisation of coal resources to captive power plants, sponge iron and cement plants." With regard to the rationalisation of resources of power utilities, the IMTF's recommendations are all inter-linked and could be implemented only with the consent of all the consumers. However, the consumers concerned did not agree to the revised arrangement.
The government has also expedited environment and forest clearances and land acquisition processes to improve Indian coal production. According to Goyal, India does have adequate coal resources to meet demand. Steps have been taken by CIL and its subsidiaries to augment production, including capacity addition from new projects and the use of mass production technologies. As per official data, the total estimated quantum of coal resources in India is 301.56Bnt. Some 12.53Bnt of coal has been extracted between 1950 and 2013-2014, with 566Mt of that in 2013-2014 alone.
Ambuja, Grassim and Lafarge face coal block cancellations
26 September 2012India: An inter-ministerial panel has recommended the de-allocation of two coal blocks held by five companies, including Gujarat Ambuja Cement, Grasim Industries and Lafarge India, bringing the total number of such blocks to 13. The Inter-ministerial Group (IMG) has completed the review of 29 coal blocks held by private companies and recommended cancellation of licences for blocks holding an estimated 2.6Bnt of coal, affecting 28 private companies.
The affected blocks include the Bhaskarapara block in Chhattisgarh and Dahegaon Makardhokra IV in Maharashtra. The Dahegaon Makardhokra IV coal block, with 132Mt of reserves was allocated to IST Steel & Power, Gujarat Ambuja Cement and Lafarge India in 2009. The Bhaskarapara block with 48Mt of reserves was allotted to Electrotherm (India) Ltd and Grasim Industries Ltd in 2008. The coal ministry has not decided yet how it will re-allocate the 13 blocks.
A senior coal ministry official said the coal blocks would be auctioned to private firms or given to government companies at the reserve price if the ministry does not want to allocate them to Coal India. The ministry has already identified 54 coal blocks for three types of allotments: to government companies, to power companies and to private firms through auction.
"If we decide that Coal India has enough blocks, we may give it to other companies through the auction route. Whatever the route is, no block will be given free of cost and even Coal India will pay a reserve price," the official said.
The de-allocation recommendation follows a probe into the so-called 'coalgate' scam, concerning the allocation of coal mines to private firms since 1993. The practice of granting captive coal blocks to private power, steel and cement companies began in 1993, following an amendment to the Coal Mines (Nationalisation) Act. India's main opposition, the Bharatiya Janata Party, has accused the government of using the probe for alleged vested political interests.
India: Coal India Ltd (CIL) has threatened to cut coal supplies and break long-term linkages with four of UltraTech Cement's captive power plants in the states of Rajasthan, Madhya Pradesh and Chhattisgarh due to non-completion of the units.
Maharatna CIL has threatened to break long-term linkages and cut coal supplies for 16 captive power plants, including four of UltraTech Cement's captive power plants. When the Indian state-owned CIL signs long-term linkages with a proposed plant, deadlines for the different stages of completion of a plant and the date of commissioning are agreed. All of these plants were incomplete when the Standing Linkage Committee reviewed their implementation status.
"If the captive plants are found to be commissioned with all the milestones achieved, the Fuel Supply Agreement (FSA) may be concluded with them within three months from the date of issuance this notice. Otherwise, linkages may be cancelled," said CIL.
Indian production challenged by local coal shortage
17 October 2011India: Indian cement companies are facing a shortage of coal from Coal India Ltd, the country's largest producer. However they are unlikely to be affected by this due to the high levels of imports, a cement trade official has said.
"Most cement companies import up to 70%-75% of the coal needed to run their captive power plants. As of now, I don't expect cement supply to be affected by the coal shortage," said Sanjay Ladiwala, president of the Cement Stockists and Dealers Association of Bombay.
A brokerage report by Emkay Securities has stated that large cement companies such as ACC, Ambuja Cements and Ultratech Cement source around 20% of their thermal coal needs from Coal India's monthly electronic auctions. The report also said that Coal India has diverted the 4Mt for auction in October 2011 to power generation companies. This could lead to some cost escalation for cement producers as they have to rely on higher-priced imported coal.
Separately, Ladiwala said that cement prices rose across most of the country in October 2011, except in southern regions, as demand from the construction sector revived after the summer monsoon rains ended.