Coal news and updates

India’s coal imports may surge to 400 mt by FY20?

April 10: India's coal demand is expected to rise by 76% to around 1.5 billion tons from the current demand levels, based on actual availability of around 850 million tons (mt). And despite efforts to increase output to match prospective demand, the country’s coal imports are expected to rise by about 65% to about 400 million tons annually by 2019-20 from around 242 mt in 2014-15, according to an estimate by ICMW.

Incidentally, India’s coal demand stood at around 850 mt, based on actual availability - production of around 611 million tons in 2014-15 (CIL 495 mt, SCCL - 51 mt, captive blocks and Meghalaya - 65 mt and imports at 242 mt).

That demand will rise to 1.5 billion tons is believed to based on assumptions that the country’s GDP growth rate would be around 8% in the next five years.

Of the total production of 1.5 billion tons that have been planned, 1 billion tons are expected to come from Coal India Ltd (CIL) and 0.5 billion tons from captive coal blocks and Singareni Collieries Company Ltd (SCCL).

Even as there is uncertainty over whether CIL will be able to achieve its target because of issues related to land acquisition and lack of railway networks, the government feels that auction of captive coal mines and subsequent production from these mines as well as by SCCL will add around 500 mt coal in the next five years.

Captive mines:
So far, government has auctioned and allotted 67 mines (40 of which are working mines) and another 137 would be auctioned and allotted by March 2016.

As per the plan, as elaborated by Secretary (Coal) Anil Swarup in a recent interaction in Kolkata, the peak rated capacity of 67 mines that have already been auctioned and allotted is likely to be 80-90 mtpa and that of another 137 mines would be another 700-800 million tons.

So, it is assumed that if not the entire 700-800 mtpa, at least 400 mtpa will be achieved from the peak rated capacity of the 204 blocks, by 2019-20 and another around 100 mtpa will come from SCCL.

However, there is a question mark over whether the captive blocks (0.4 billion tons) as well as CIL (1 billion tons) and SCCL (0.10 bt) would be able to produce that much of coal in view of problems that are likely to come up in the area of land acquisition and other clearances.

Hurdles:
Doubts come especially in view of the problems that plagued the mining industry in India over the past few years – delay in clearances, land hurdles, logistics issues and land acquisition.

Going by the projected production, CIL's and SCCL's production has to more than double and that of captive mines will have to increase more than five - fold in the next five years.

Land acquisition:
Already, Opposition parties are up in arms against the new land acquisition Act. In addition, it has to be seen if other mines to be auctioned will have a smooth sailing as far as getting forestry and environmental clearances are concerned. As of now, it is taking 5-7 years for getting all clearances to start mining, including land acquisition.

Logistics:
There had been significant improvement in rake availabilities during the past 2-3 years due to less demand for export and domestic movement of iron ore, but that has not solved the problem and instead of requirement of around 225 rakes per day, CIL got on an average 194.5 rakes per day in 2014-15.

Moreover, there are issues related to connectivity of railway links because of which CIL alone is unable to move coal to the extent of around 70 mtpa.

Three major railway projects have been planned that are expected to help evacuation of around 200 mt of coal, but completion of those projects by 2019-20 is not guaranteed as of now.

Also, progress on the Dedicated Freight Corridors (DFCs) is also not up to satisfaction of many.

Land acquisition:
Land acquisition has emerged as a major hurdle during the past 3-4 years after the launch of the agitation by Mamata Banerjee at Singur in West Bengal that forced Tata Motors to shift its plant to Gujarat.

There is no sign of easing of the situation on this front because the new Act that is planned is also facing hurdles from Opposition parties.

Exploration:
Exploration may be another area of concern in increasing production from the captive mines as foreign companies are still not present in the country in a significant manner and domestic explorers led by CMPDI, a subsidiary of CIL. Other companies - GSI and MECL - operating in exploration have their limitations.

These explorers, including CMPDI, are facing problems in exploration because of delay in getting forest clearances even though exploration activity does not generally lead to loss of trees. The demand of CMPDI to allow it to drill 20 holes in an area of one square kilometre to improve exploration work has not yet been cleared.

Imports:
However, to be on the optimistic side and considering that there would be no hurdles from any side and there will indeed be an increase in production to 1.5 billion tons, India will continue to import coal because of various reasons though increase in production, if it at all happens as per projections, will hugely assuage India's coal shortage scenario, but imports will continue in future as well.

That imports will continue and also rise are quite obvious because first coastal power plants will continue to use imported coal. The total requirement from these plants is expected to be in the range of 100 million tons by 2019-20 from a low of around 43 mt in 2014-15.

Imports by non-coastal power plants will also continue because they are expected to get only around 80% of their requirement through fuel supply agreements (FSAs) for domestic coal.

Also, new plants are lined up in big numbers till 2017-18 and there will be significant addition in power generation capacities and as such the deficit of 20% in supplies will widen further. This will add another about 125 million tons of imported coal from a level of around 48.16 mt in 2014-15.

So, total coal imports by a conservative estimate by the power sector alone is likely to be 225-230 million tons by 2019-20 from around 127 mt (92 mt by CEA-monitored utilities and around 35 mt by other power plants in 2014-15). This is subject to all new power plants coming on stream and demand for electricity remains as per expectations.

In addition, cement and sponge iron plants, which get coal only to the extent of 50% of their requirement through FSAs will continue to use imported coal. This will add another around 75 million tons of imported coal, up from estimated 45 mt in 2014-15 as new cement capacities will come up in the coming years and there will be demand for imported coal from existing units.

Moreover, coking coal imports, a material India does not have, will account for another around 60 million tons, up from around 45 mt in 2014-15, while nearly 10 mt of coal is likely to be consumed by other sectors (brick kilns, paper etc.)

So, as per ICMW's conservative estimates, India's coal imports will grow to around 400 million tons.

This shows that with the increase in domestic production as planned, the pace of growth in imported coal that was witnessed during the last four-five years, when imports grew at a CAGR of around 23.28% between 2009-10 (85 mt) and 2014-15 (242 mt) may taper down, but that does not mean imports will come to a stop with the increase in domestic production, but CAGR may fall to around 10%.