Coal news and updates

Coal India on speed breakers - tough jobs ahead?

Coal India’s move to review dividend, buy-back arrangement and a stake sale was not conclusive as the same has been postponed to February, due to a strike threat by the workers’ union

India boasts 7% proven global reserves of coal, estimated at 60 billlion tonnes, and Coal India Ltd (Coal India), being the monopolistic supplier has a total production of about 452 million tonnes per year. The gap between production and supplies is about 70 million tonnes which is imported mostly from Mozambique and Indonesia.

Simple allocation of coal mines to a prospective power generator or a producer of steel, for instance nothing happens. Coal India must ensure that actual mining operation takes place within a reasonable period of time. From the past experience, it is known that a minimum of six years are needed before coal can actually be mined from the date of allocating a field. Laying of railway line to transport the mined coal is yet another issue.
 
The power sector alone consumes 78% of the domestic production. For the year ending March 2013, Coal India's target of 484 Million tonnes could not reached, just as it had failed to in the previous two years, resulting in import of 7.9 million tonnes of coking coal for India's cement and steel plants and 32.8 million tonnes of steam coal for thermal power generation. In fact, the first quarter of 2013-14, imports amounted to $3.8 billion as against $ 16 billion in 2012-13 covering imports of 35.6 million tonnes of coking coal and 106.7 million tonnes of steam coal.
 
One of the successful policies of the government was to allocate the coal mining responsibility, as a "captive" coal supplier, is to give the mines to power generators themselves. For instance, NTPC started mining from its captive Pakri Barwadid coal block in Jharkhand, but, yet, in the first six months of 2013-14, NTPC had to import 7.3 million tonnes (mt). It has six captive mines and hope to eventually reach 53 mt, but from five captive mines during the 12th Plan NTPC hopes to get 33 mt. Such actions of direct allotment of captive mines will reduce work responsibility of Coal India in the long run. Based on the work in progress, another four blocks, totalling two billion tonnes reserves have been allotted to NTPC; these are Banai and Bhalmuda, both in Chhattisgarh and Chandrabila and Kudanali-Laburi in Odisha.
 
 Narasing Rao's recent claim that the Government was forcing the issue of getting the FSAs (fuel supply agreements) signed with various consumers, without bearing in mind the enormous difficulties faced in obtaining various clearances on environmental issues, both at the ministerial and state levels have been giving them lot of worries, as work was not progressing at the desired speed.
 
In fact, to expedite the coal production, Coal India had sought the assistance of the Planning Commission to design a model concession agreement to outsource the work to mine developers and operators (MDOs). But this model agreement that runs to over 250 pages, simply is not workable as it passes the full responsibility of securing all the clearances to CIL and MDOs getting everything on a platter!
 
 In the meantime, the Coal Ministry is of the view that surplus coal from captive coal mines should be "bought" from the producers "at cost" only. The only exception was made in the case of Reliance Power (Sasan Ultra Mega Power Project), when it was cleared to use its surplus coal for its own power project in Chitrangi in Madhya Pradesh, way back in August 2008. In fact, the government must now permit the captive coal miners to sell directly any surplus coal that they may mine to others, be it steel, cement or power generators.
 
Such a move will lessen the burden on Coal India, and it is foolish to think that this will undermine the status or position of Coal India.
 
Narasing Rao, in his recent statement mentioned that Coal India would make an appeal against the penalty imposed on it by the Competition Commission of India to the extent of Rs1,773 crore for misusing the monopoly status by supplying poor quality coal at higher prices. This issue is likely to be debated in great detail, in as much as even coal rejects and middlings, after washing of coal are disposed off as per provisions of Colliery Control Rues 2004 and Coal Mines (Taking over Management) Act 1973. Even rejects lower than G-grade have caloric value and a huge market exists for these from power generators. Records show that Tata Steel was allowed to sell as much as 30.58 lakh tonnes of these by the coal ministry. As for the caloric values, one of the simplest solutions, by mutual agreement, would be to have regular tests prior to despatch, done on a random or representative sampling basis, as the quantities involved are huge.
 
Finally, the recent move by the Board of directors to review the issues of high dividend, buy-back arrangement and a stake sale upto 5% was not conclusive as the same has been postponed to February, due to a strike threat by the Union. The only redeeming feature that one can notice is the opportunity for Coal India to go into "capturing" the coal bed methane that is simply evaporating from its coal mines. The Board would do well to ensure that all Independent directors are in place and secure qualified and experienced overseas miners to undertake a joint venture to explore the CBM.

Source: moneylife