Long-term deal with power distributors, must for Coal India supply

Power generators who do not have power purchase agreements (PPA) with electricity distribution companies will not get Coal India supplies.A senior power company official said about 20,000 MW of merchant power projects will be stranded if the Government does not review its decision. 

The Government has directed Coal India to sign FSAs (fuel supply agreements) with plants that have entered into long-term PPAs (power purchase agreements) with power distribution companies that have been commissioned or would get commissioned on or before March 31, 2015. Coal India has begun the process of inking the supply agreements. 

Merchant power projects were set up under the Government-initiated programme to draw private participation into the sector in 2006. The Government had also extended support to them in land acquisition, rehabilitation and clearances. 

Mr Shubhranshu Patnaik, Senior Director, Deloitte in India, said about 35,000 MW of merchant power projects were being set up, mostly in Odisha and Chhattisgarh. Some projects (Lanco in Odisha and Essar Power in MP) have inked PPAs with states.

Most merchant plants have memorandums of understanding with State Governments in Odisha and Chhattisgarh, under which they need to offer 5-10 per cent of power at a concession rate and another 20-25 per cent at tariffs regulated by the State electricity regulators.Developers were free to sell the remaining power via the merchant route. 

Given the constraints Coal India is under, it would be difficult for them to get FSAs, as the priority is PPA-linked developers, he said. 

Mr Ashok Khurana, Director-General of the Association of Power Producers, said the Government cannot allow coal at subsidized rates to be passed on to the private sector. If merchant power plants require Coal India supply, they need to get into PPAs, irrespective of whether they had the Letters of Assurance from Coal India, he said. 

Source: Business Line

Coal India: A victory sans the spoils

Coal India’s victory of reducing its penalty to near zero seem to be short-lived. As had been expected by the market, power producers, including public sector giant NTPC have refused to sign the new fuel supply agreement with Coal India. This news is expected to affect power sector companies more than it will affect Coal India.

The reason power companies are refusing to sign the agreement is because they feel it is biased and absolves Coal India from all obligations. NTPC chairman and managing director Arup Roy Choudhury has been quoted by The Economic Times saying “We will not sign the new fuel supply agreement in the present form because it does not provide much in terms of coal supply commitment.”

After refusing to agree to sit on the negotiation table, Coal India was issued a Presidential directive to issue Fuel Supply Agreements with power companies. Coal India managed to bargain a low penalty clause, thanks largely to the stand taken by independent directors and shareholder activism led by The Children Investment Fund.

According to the new pact, Coal India will be liable to pay a penalty of 0.01%, that too after three years if it fails to supply the fuel. The contract also gives discretion to the supplier to terminate an agreement unilaterally. This clause itself is enough to scare away the power producers as it creates uncertainty over the tenure of the agreement.

Earlier Coal India had said that, if they had to import coal to feed the power producers it will be passing on the differential between the price at which they sell in the domestic markets and international market to the power producers.

According to a report in the Financial Express, Association of Power Producers has said that the increase in price of coal due to imports would need to spread over the entire quantity of domestic production to keep power cost manageable. In other words, power companies are not willing to buy coal at imported price, but need it subsidised by passing on the higher price to all domestic consumers.

It is this subsidised price which seems to be stalling the entire process, as agreement for coal at international prices could have been signed by the association of power producers themselves. Commenting on NTPC’s refusal to sign the fuel supply agreement DNA quotes the newly appointed chairman of Coal India as saying that “The main issue is they are not agreeing to accept the gross calorific value (GCV) formula and want to go back to old useful heat value (UHV)”

Price thus seems to be the main issue, penalty clauses are just a negotiation tool being by the power producers.

Source: Business Standard

Indonesia Coal Swap Falls; Newcastle at 18-Month Low

Swaps contracts for lower-quality coal from Indonesia, the world’s biggest exporter of the power- station fuel, dropped 0.9 percent, according to Ginga Petroleum Singapore Pte Ltd., an energy broker. Newcastle cargo prices slid to the lowest in 18 months. 

The June 2012 contract for Indonesian sub-bituminous coal with a heating value of 4,900 kilocalories per kilogram net as received basis declined 70 cents to $75.50 a metric ton, according to data from Ginga. The swap for the third quarter of 2012 was 75 cents lower at $75.25 a ton. 

A commodity swap is a financial agreement whereby a floating, or spot, price is exchanged for a fixed rate over a specified contract period.Coal with a heating value of 5,500 kilocalories per kilogram net as received basis delivered to South China for June fell 85 cents to $101.40 a ton, Ginga said. The swap for the third quarter of 2012 was 50 cents lower at $101.50 a ton. 

The price of thermal coal shipments at the Australian port of Newcastle, the physical benchmark contract for Asia, dropped below $100 a ton to the lowest since October 2010 because of weakening demand from China and rising supply of the fuel from countries including Colombia and the U.S. 

Newcastle coal dropped $1.60, or 1.6 percent, to $99.95 a metric ton in the week ended April 27, according to IHS McCloskey, a Petersfield, U.K.-based provider of data. It declined for a third week. 

Sub-bituminous coal has a higher moisture level and lower carbon content that reduces the heating value compared with grades with a higher value such as the 6,700 kilocalories-per- kilogram Newcastle grade. 

Source: Bloomberg

ASIA COAL: Prices stable in quiet trade ahead of May Day holiday

Indonesian thermal coal prices were stable Monday with no reported trades ahead of holidays this week in some parts of Asia. But market sources said they believed that demand from China would rise in the near term.

Markets in China, Singapore and India will be closed on Tuesday for Labour Day holiday.

"Buyers are holding back...now. India and China seem to be quiet," a Singapore-based source said.

Demand from China is expected to improve in July as the approaching summer is expected to lead to lower hydroelectric power generation and higher need for electricity, an Indonesia-based source said.

"We are waiting for that (summer demand)," he said. 

Higher freight rates are affecting demand, market sources said.

Platts assessed the daily Panamax freight rates from South Kalimantan to India's west coast at $10.80/mt and to the east coast at $10.30/mt, both unchanged from Friday, when it had assessed these rates higher on-day.

However, the Indonesia-based source said higher freight rates might be favourable for Indonesia, given its proximity to major coal consuming countries, as freight rates for cargoes from America and Australia might get impacted due to their longer journeys.

Rains in Kalimantan continue, but it is not heavy enough to impact production, this source said.

Platts assessed the daily 90-day prices for FOB Kalimantan 5,900 kcal/kg GAR at $90.25/mt, and 5,000 kcal/kg GAR at $70.50/mt, both unchanged from Friday. They are down 75 cents and 25 cents, respectively, since April 2.

Source: Platts

No checks on coal exploitation

Indonesia may be the world’s top coal exporter, but limitations in the supervision of coal mining may be placing the country at risk of massive financial losses and environmental damage, an investigative audit by the Supreme Audit Agency (BPK) has revealed.

The audit, a copy of which was obtained recently by The Jakarta Post, blamed the Energy and Mineral Resources Ministry for failure to provide a set of decrees stipulating a mechanism on supervisions and sanctions for coal miners as mandated by the 2009 Minerals and Coal Law.

“This has undermined the government’s law enforcement measures and supervision toward mining activities,” said the audit report, which was submitted to the House of Representatives and President Susilo Bambang Yudhoyono early this month.

“Miners committing violations have never received any sanctions, tempting them to repeat their violations and create potential state loses,” the audit said.

Although local administrations have the authority to issue several mining permits, a decree from the ministry is needed to ensure the administrations and miners comply with the law, according to the BPK.

The agency’s audit covered state budget management for the 2010 fiscal year and the first half of 2011, and was completed in December last year. The full report was only made public this month.

The audit covered coal mining activities and local administrations in South Kalimantan, East Kalimantan and Central Kalimantan. Kalimantan is the world’s largest exporter of thermal coal for power plants.

Due to the absence of supervision, the audit, for example, found 329 mining companies on the island had evaded paying royalties and permanent fees amounting to US$43.3 million and $10.4 million (Rp 94 billion) in the 2010 fiscal year alone.

On the environment side, the audit found that 43 mining companies had not fulfilled technical and financial guarantees related to compulsory reclamation and post-mining rehabilitation. Five miners in East Barito regency, Central Kalimantan, were even found to be
operating in a forest without a license.

“A failure by the companies to comply with environment regulations will cause problems that will eventually be a burden on regional and state budgets,” said the audit.

An executive with the Indonesian Forum for the Environment (Walhi), Mukri Friatna, said a clear regulation on supervision would allow the authority to immediately take action against mining companies that created environmental damage.

“There are more than 1,000 mining companies across the country that fail to comply with environment-related requirements,” Mukri said.

Indonesia, which exports 75 percent of its coal output, mostly to China and India, has been enjoying a “coal boom” in the last 10 years.

However, legal infrastructure and supervision mechanisms have failed to run at pace with exploitation, giving rise to substantial problems for not only environment and state revenue potential, but also for legal disputes between companies.

The BPK audit also highlighted several overlapping concessions in Kalimantan that were primarily caused by local administrations. As of March, only 40.5 percent of 10,235 listed companies had received legally “clear and clean” statuses for their concessions.

“To a certain extent, the central government must intervene in regional administrations on the issuance of mining permits to prevent any future disputes,” said Indonesian Resources Studies (Iress) chairman Marwan Batubara.

The ministry’s director general of mineral and coal, Thamrin Sihite, could not be reached for comment. However, in his official response to the BPK last November, Thamrin said the ministry was currently in the process of deliberating a ministerial decree on the matter that was aimed at addressing the supervision issue.

Source: Jakarta Post

Coal India ignores NTPC call, asks it to sign up

Coal India has upped the ante in its confrontation with NTPC by sending out letters asking it to sign fuel supply agreements (FSA) which make absolutely no provisions for any of the demands raised by the power major. These include changes in the pact incorporating safeguards, ensuring supply guarantees and changes in existing gross calorific value (GCV) system.

While the heads of two public sector behemoths—the country’s largest power producer and the near-monopoly producer of coal—have gone public with their views with the former even refusing to sign FSAs for new units that have come up in existing plants, and the head of the latter saying talks are on to resolve the issue, the FSA letter available with DNA shows that none of the demands has been addressed.

The FSA letter sent by CIL to NTPC on Friday to the latter’s head office at Noida for two power plants, Farakka Stage 3 unit and Kahalgaon Stage 2 Phase 2 unit aggregating 1000 mw capacity, a copy of which is available with DNA, refers only to the model FSA dated April 19 and no subsequent communication or any proposed changes.

Both the units at Farakka and Kahalgaon are brownfield projects and CIL has based its FSAs for these two units on the GCV system while NTPC has demanded that they should be on the earlier useful heat value or UHV system applicable for the old generating units.

“In terms of directive from the ministry of coal … you are invited to execute FSA in the model of new SEB/state gencos through LOA for supply of coal to Farakka Stage III and Kahalgaon Stage II, Phase II Unit 7 for annual contracted quantity of 23,12,00 mts each of GCV grade band of 4001-4300 kcal/kg and below, subject to PPAs being executed by you with discoms,” the CIL letter to NTPC’s general manager (fuel management) said.

“Subsequent to the decision by the board and approval of the model FSA, copies of which were given out to our subsidiaries, there hasn’t been any further instructions to make any changes in the FSAs including those meant for NTPC. So, the letter sent by us to NTPC on Friday is based only on the model FSA of April 19,” a CIL official said.

Curiously, NTPC has only verbally communicated to CIL that it won’t be signing the FSAs. The letter has asked NTPC to provide, among other things, an undertaking giving details of the PPAs with Discoms including the period of such PPAs and affidavit or declaration indicating that no coal block has been allocated to these two units.

Source: DNA

Coal block to Gujarat may be scrapped

A coal block jointly allocated to Gujarat and Puducherry governments in Odisha's Angul district is likely to be cancelled following the former showing no sign of setting up power plants near the site.

The Union coal ministry had recently shot a letter to the Gujarat government, saying the change in its commitment to shift the power plant to its own state instead of locating it closer to the pithead has so far not taken favorably either by the Odisha government or the ministry of power. The coal ministry put the onus on Gujarat government to pursue the Odisha government and the power ministry on the matter and get back to it latest by April 30. "In case no response is received by April 30, 2012, the ministry of coal would be constrained to acknowledge that ministry of power and government of Odisha have not accepted the shifting of the power plant to Gujarat," the April 10 letter to Gujarat chief secretary said.

Sources here said the state government, already in deep trouble for mindlessly allowing industrial projects mostly by private houses and acquiring thousands of acres of agriculture lands, is wary of giving its consent for taking away coal for use in other states. "We had supported the joint allocation of coal block at Naini in Angul district because Gujarat Mineral Development Corporation (GMDC) and Pondicherry Industrial Promotion Development and Investment Corporation Ltd. (PIPDICL) had committed to set up two 1500 mw capacity power plants. We kept quiet after finding the GMDC planning to shift the power plant to Gujarat and use our coal," said a senior official in the energy department, indicating the allocation of coal block is most likely to be cancelled under the circumstances. He said chief minister earlier this year had drawn the attention of the Centre seeking cancellation of certain coal blocks.

The Naini coal block is reported to have a reserve of over 500 mt and it was jointly allocated to GMDC and PIPDICL in 2007. Both the government bodies had subsequently formed a joint venture, Naini Coal Company, for developing the coal block. The PIPDICL on its part had entered into pact with a private industrial house for setting up a 1980 mw power plant here and even signed MoU with the state government. Sources however said trouble started after the GMDC wanted to transport coal to its own state instead of setting up power plant either at Angul or, as per the official commitment, near Dumka in Jharkhand.

The Centre's move on Naini coal block is bound to bring relief for the local people as the mining project, if materializes, will displace people in more than five villages and acquire over 800 acres of land. The Talcher region dotted with coal mines and many power plants, both functioning and proposed, has been witnessing unabated public protests on issues involving displacement, pollution, growing scarcity of drinking water and agriculture land.

Source: Times of India

Government decides in favour of R-Power's coal transfer plan

The Empowered Group of Ministers (EGoM) on ultra mega power projects (UMPP) Saturday agreed not to review an earlier decision of allowing Reliance Power to use surplus coal from its Sasan plant's captive mines for another upcoming project. Law Minister Salman Khurshid said the EGoM, led by Finance Minister Pranab Mukherjee, came to this conclusion after consultation with Attorney General (AG) G.E. Vahanvati. 

 

"We stand by that decision. We cannot review decisions of the past but we can certainly look at the implication of those decisions in changing circumstances and what we need to do in the future," Khurshid told reporters after the EGoM meeting.

The government had earlier given its nod to the Anil Dhirubhai Group company for using surplus coal from its Sasan captive mines in Madhya Pradesh for an upcoming project based in Chitrangi in the state. 

The EGom, at its earlier meeting in December, had decided to seek legal opinion from the AG on the matter.Khurshid said the EGoM accepted the Attorney General's interpretation of surplus coal. 

"We were trying to understand that decision based on the Attorney General's opinion. The Attorney General had given us an opinion that surplus coal is such coal that is available after satisfying the needs of a UMPP.

"Now what to do with the surplus coal is the question and this is to be seen in the context that you have not to discourage a developer from producing coal," said Khurshid. In 2007, Reliance Power had bagged the 3,960 MW Sasan UMPP which will have six units of 660 MW each with super-critical technology. The company was allotted three captive coal mines namely Moher, Moher-Almohri and Chhatrasal for the project. 

These blocks have a peak potential to produce up to 25 million tonnes of coal per annum.

Besides Khurshid, others who attended the EGoM meeting were Planning Commission Deputy Chairman Montek Singh Ahluwalia, Power Minister Sushilkumar Shinde and Coal Minister Sriprakash Jaiswal.

Source: Hindustan Times

Coal India refuses supply to new power plants

In a twist to the unending drama over coal supply, Coal India Ltd (CIL) has refused to supply to power plants commissioned since December 2011. The move is set to stall investment worth Rs 40,000 crore in new power capacity of 8,156 Mw. This includes a 300-Mw unit of Reliance Power’s Rosa power plant in UP and a 660-Mw plant of China Light & Power (CLP) at Jhajjar, Haryana.

The source of the current controversy is an April 19 circular issued by CIL’s subsidiary, Central Coalfields, for May. The circular stated the rake movement plan would be accepted only from plants that had signed fuel supply agreements (FSAs). This could bring power companies under pressure, as these are unwilling to sign FSAs in their current form, with a low-penalty level. Power companies give a rake movement plan to CIL, the coal ministry and the rail ministry a month before tying up necessary evacuation facilities for coal transport to plants.

The circular has left power companies jittery, as these were hopeful of receiving coal under the existing memorandum of understanding (MoU) route until FSAs were signed. CIL’s fresh missive is despite Prime Minister Manmohan Singh’s diktat in February, followed by the President’s order in April, asking the company to meet at least 80 per cent of the coal supply to 50,000-Mw capacity plants to be commissioned up to 2015, including 26,000 Mw commissioned by December 2011.

“CIL’s insistence on accepting the rake movement plan only from plants with FSAs has stalled 8,156-Mw capacity projects. This is an operational issue, but shows Coal India’s attitude towards meeting the supply obligation. This has happened despite the power ministry’s assurance to us that supply would continue under the MoU route,” Ashok Khurana, director-general of the Association of Power Producers (APP) told Business Standard. APP is an industry representative body of 22 major companies in the sector.

A Reliance Power spokesperson declined to comment on the matter. Coal India would sign FSAs for 900 Mw of the total 1,200 Mw capacity of Reliance Power’s Rosa plant. The current controversy covers only a 300-Mw unit of the plant, commissioned after December 2011. CLP could not be contacted for comments.

Until March 2009, CIL supplied coal to power plants under FSAs with 90 per cent supply commitment. Since then, however, the world’s largest coal producer has been insisting on supplying coal under the MoU route, with only 50 per cent commitment and no legal obligation, as delayed clearances for new mines took a toll on production. When CIL decided to sign FSAs for projects commissioned till December 2011, after a Presidential directive, companies were assured by the power ministry that FSAs for projects completed by March 2012 would also be signed in due course. Meanwhile, supply to these plants would continue through the MoU route.

However, “apprehending CIL’s ingenuity in springing surprises”, APP took up the matter with the power ministry, expressing fear over the possibility of CIL refusing to supply coal. The power ministry had then assured the power industry that status quo would be maintained until FSAs were signed. “This circular, if not withdrawn immediately, would ground the entire 8,156 Mw capacity commissioned after 31 December 2011, adding to the power deficit and consumer woes. As the summer intensifies, the position is likely to worsen and, therefore, the capacity created should be utilised to the maximum,” Khurana said in an April 25 letter to Power Secretary P Uma Shankar, Coal Secretary Alok Perti and Shatrughna Singh, joint secretary to the prime minister.

Meanwhile, CIL has already signed at least 10 of the 50-odd FSAs envisaged with power companies for plants commissioned between March 2009 and December 2011.

Source: Business Standard

Coal of Africa moves first production for export

Coal of Africa, whose thermal and coking coal operations are all in South Africa, has moved its first production destined for the export market.

About 1,500 tonnes of thermal coal from its Vele Colliery in the Limpopo Province is heading by rail for Mozambique, where it will be shipped and sold to Asian markets.Coal of Africa said the exercise was a test of state logistics before it pushes ahead with weekly loadings on the existing line.

Production at Vele resumed in December 2011 and the colliery is expected to produce 2.7 million tonnes of run-of-mine production yielding around 1 million tonnes of saleable coking coal per annum.

Source: Reuters

Irregularities in coal block allocation in 2006-2009: Opposition

The Opposition criticised the functioning of the coal ministry in the Rajya Sabha on Wednesday, alleging irregularities in coal block allocation in 2006-2009.

BJP charged that the four years of 'black gold rush period' from 2006 was in no way less a scam than the 2G spectrum allocation. "While 2-3 mines used to be allocated between 1993-2005, it was like a 20:20 match after 2006. In the four years since then, it had allocated 73 coal mines to 143 companies having a cumulative reserve of 17 billion tonnes...it is worth Rs 51 lakh crore," BJP member Prakash Javadekar said.

Other Opposition parties like AIADMK and Shiv Sena also questioned the government's failure to take remedial action against private companies for failing to begin mining. Even Congress MPs said that allowing private firms to operate coal blocks did not help improve production capacity or operation of coal mines.

Congress MPs also expressed serious concern over pilferage of coal, illegal mining and serious corruption allegations in supply of coal to small investors.

Refuting allegations of wrongdoings in coal block allocation, coal minister Sriprakash Jaiswal said that the pace of giving away mines was increased to match the growing domestic demand. Jaiswal said that it would neither be wise to halt the progress of the country nor stop industrialisation for want of coal.

Hitting back at BJP, Jaiswal said, "I hope you (the NDA) would have also done the same thing (had you been in power)." He said that the decision to allow private participation in coal mining was taken to ensure higher production in the country. 

Source: Economic Times