No auction of coal blocks for India power sector

India will not auction new coal mining blocks to the power sector and will instead allocate them to companies that offer to sell electricity cheapest, a government source said on Monday. The country is introducing a new system that will put an end to allocation of captive blocks to power plants at the government's discretion, as done in most cases in the past, and will help bring transparency at a time when the government is being buffeted by corruption scandals.

Power companies will be vying for about 16 of 54 coal blocks that the government has earmarked for allocation through bidding expected to take place by the year-end. "Auctioning of blocks will happen for cement and steel companies. But for power it will be through competitive tariff-based bidding," a senior coal ministry source said on condition of anonymity as the matter is still under discussion.

By using a method linked to tariffs, the government hopes to keep electricity costs low. Power tariffs are a highly political issue in a country where in some states millions of farmers are offered free electricity as a vote-winner.

The call for auctioning of coal blocks has grown following a leaked report by the federal auditor that accused Prime Minister Manmohan Singh's government of giving up $211 billion in potential revenues by giving away coal assets too cheaply.

No coal block has been awarded since 2009. In the past, a few captive mines had been allocated to power producers offering the cheapest electricity rates but discretionary allocations have been more prevalent. 

The coal ministry is appointing a consulting firm, probably within a month, to help with the auctioning and expects to finalise reserve prices for the blocks in the next four months, the source said. Power companies are likely to be attracted to the bidding as blocks will provide them with an assured supply of a fuel shotages of which have crippled expansion in the sector and forced many power plants to run below capacity.

In some cases, power companies with captive coal blocks are also allowed to sell a small portion of electricity in the open market where they can get higher tariffs.  Coal accounts for more than half of India's power generation and will be required for 85 percent of the 76,000 megawatts additional capacity targeted in the next five years.

Source: Reuters

Thermal coal imports via Paradip jump 50%

Thermal coal imports through Paradip port improved by 50 per cent to six million tonnes during 2011-12. This comprised the lion’s share of the 16 million tonnes of import traffic handled by the port during the year. The sharp jump in coal import through the port is attributed to higher demand for low-ash content coal, said port authorities. 

"Thermal coal imports improved to 37 per cent of total imports in 2011-12, from 30 per cent of the 13 million tonne import traffic seen in 2010-11, due to increasing demand for low-ash content coal,” said Saroj Mishra, traffic manager of Paradip Port Trust.

Even though Orissa is the second largest coal producer in the country after Jharkhand with 25 per cent of country’s deposits, the high ash content in its coal makes it less viable to produce power. Local industrial houses, therefore, depend on low-ash imported coal found in Indonesia, South Africa and Australia to blend with the domestic coal for power generation. However, industries with captive power generation capacities said higher import during a weaker rupee regimes indicate a problem in supply, and not demand.

“Our 2011-12 coal buying was certainly higher than the previous year as we had problems with supply from MCL (Mahanadi Coalfields Ltd),” said P R Choudhry, executive director of National Aluminum Company’s smelter facility at Angul.

MCL is mandated to supply 4.7 million tonne tonnes of thermal coal to Nalco every year, but its supplies were 360,000 tonne less in the last fiscal, forcing the aluminum producer to import more coal. It had placed an import order for 200,000 tonnes of coal in September after a fall in production, he added. Due to fuel supply problems, the company’s aluminum production declined by seven per cent in 2011-12 to 413,000 tonnes as power constitutes an integral part of aluminum making.

Similarly, ferro chrome producer and trader Indian Metals and Ferro Alloys resorted to coal imports last fiscal as it was yet to develop the coal block allotted to it. Costlier coal imports had affected the bottom line of the company in the third quarter and is expected to dent the Jan-Mar profits too, said trade sources.

Source: Business Standard

Coal India could get to pass on cost of expensive imports

The government is weighing a new coal pricing dispensation to help Coal India (CIL) recover the extra cost of imported coal it might have to give power plants to comply with the fuel supply agreement (FSA). The agreement means Coal India must guarantee supply of at least 80% of fuel required by these plants. 

Government sources said a committee of secretaries led by Pulok Chatterjee, principal secretary to the Prime Minister, has been mandated to evolve a pricing dispensation where power companies will have to bear the extra cost of imported coal to the extent of difference in the quality of imported and domestic coal. 

The quality of imported coal is much superior to domestic coal. For example, the ash content in domestic coal can be as high as 40%, compared with 10% in imported coal. The gross calorific value (GCV) of domestic coal is 3,000-3,500 Kcal/kg while that of imported coal is 5,000-7,000 Kcal/kg. 

CIL will be allowed to recover the balance of the extra cost of imported coal by increasing overall coal price. In other words, the proposed pricing regime will allow CIL to supply imported coal to power plants without having to bear the extra cost. 

Industry experts differ over the merit of the move. “Rather than a committee deciding on commercial issues, a coal regulator should be appointed as early as possible,” said Dilipkumar Jena, senior consultant and knowledge manager (mining), PwC. On the other hand, the association of power producers (APP), a body of private power developers welcomed the move. “The increase in price of coal due to imports would need to spread over the entire quantity of domestic production to keep the power cost manageable,” said director-general Ashok Khurana. The government came out with a proposal to set up a coal regulator in 2008 but is yet to deliver on the promise. 

The government favours Coal India importing coal through state trading agency MMTC rather than on its own, since it wants the coal monopoly to focus on its primary mandate of production.

India’s coal import bill is projected to rise fast in coming years as the country undertakes implementation of ambitious capacity addition plans in the power sector while domestic coal production stagnates. It imported 40 million tonnes of thermal coal (valued at $3.2 billion) only in 2010-11. But this could go up to 250 million tonnes ($30 billion) by 2016-17, according to the International Energy Agency. 

The secretaries panel was set up in February after industrialists including Ratan Tata and Anil Ambani met Manmohan Singh too seek his intervention to tackle the fuel crisis in the power sector. The committee backed appointing MMTC as the nodal agency for importing coal because it has been importing coal for state electricity boards (SEBs) for several years. The SEBs specify quantity and quality of coal to the canalising agency. MMTC follows the Central Vigilance Commission’s public procurement guidelines which mandate international tendering and award of contract to the lowest bidder, making the procedure quite transparent. This route also saves time. 

After initial resistance from its board, Coal India signed FSAs with power companies for supplying at least 80% of the annually contracted quantity for 20 years as per the PMO’s directive. But the penalty quantum, which is payable by Coal India in case of short supply, has been reduced from 10% to 0.01% of the value of shortfall. 

As per an estimate, Coal India must import 20-30 million tonnes of coal in the current year if it has to meet its contractual commitment. The Coal India board reduced the penalty amount after the public sector company was issued a Presidential decree to ensure it signed FSAs with power companies. The decree came after the company’s board rejected a proposal to comply with the PMO’s directive.

Source: Financial Express

Coal is cheapest way to power a light bulb

RESEARCH CONDUCTED by a University of the West Indies energy think tank indicates that coal is the most efficient energy source in powering a light bulb.

Arguing that given the current inefficiencies in the electricity production and distribution system, it takes approximately two barrels of oil to keep a 100-watt light bulb burning continuously for a year, the think tank said using coal-generated energy to do the same job would reduce the cost significantly.

"Using LNG instead of oil would cost roughly half the amount to burn the light bulb, and using coal would be about one-seventh the cost," the group said.

The think tank said using current prices, it would cost US$178.70 to purchase two barrels of oil to power the incandescent bulb. It said if coal were to be utilised to do a similar job, it would take only 396 kilograms (871lb) of the product at a cost of US$23.8, or 13 per cent of the cost of oil. The think tank also said liquefied natural gas (LNG) would be a more expensive option to coal. The researchers argue that it would require 333 litres of LNG to power the same 100-watt bulb, which would cost US$83.3, or 47 per cent of the cost of oil.

About 871lb of coal is needed to power a 100-watt light bulb for 12 months.  

Source: The Gleaner

Indian Ministries bicker over incentives for coal sector

An increasing demand-supply mismatch in the Indian coal industry has triggered competing and often conflicting demands for incentives among administrative and regulatory agencies for coal and thermal power producers.

 

The Central Electricity Authority (CEA), the regulatory body for electricity producers, has sought the introduction of the concept of ‘mega infrastructure status’ for all coal projects above five-million-tons-a-year capacity for standalone and captive mines, which would entitle them to incentives such as a five-year tax holiday and exemptions from other local levies.

At the same time, the Coal Ministry has written to the Power Ministry seeking the review of coal mines allocated to thermal power producers since the former’s cost of production of coal was almost double that of coal supplied by government-owned Coal India Limited (CIL).

The CEA has backed its demands for tax sops with a projected coal requirement of 842-million tons a year by 2016, against a projected availability of 450-million tons a year from CIL. According to the industry regulator, even after assuming supplies of 100-million tons a year from captive mines allotted to power companies, thermal power plants would need to import 54-million tons a year by 2016.

The regulator has also sought policy changes to facilitate the introduction of updated technology for improvements in productivity at coal mines and the further relaxation of rules governing the import of coal into the domestic market.

While the power regulator was batting for incentives for captive coal blocks, the Coal Ministry has sent a note to the Power Ministry seeking a review of coal blocks allotted to independent power producers and investors in ultra mega power plants (UMPP), whose cost a ton of coal production was double that of CIL.

The Coal Ministry has given the example of Reliance Power’s 4 000 MW Sasan UMPP, which mined coal at a cost of $17.33/t against a of production cost of $8.63/t for CIL in an adjoining block.

Consumers would have benefited from lower electricity tariffs had the coal blocks of Moher and Moher Amlorhi, in Sasan, been allotted to CIL with fuel supply agreements with Reliance Power instead of the former mining the coal, Coal Secretary Alok Perti said in a communication to his counterpart in the Power Ministry, P Uma Shankar.

In view of this, the Coal Ministry has sought a review of the cost of production of coal for all private investors in UMPP including that of government-owned NTPC Limited, the country’s largest electricity producer.

The exchange of missives between the two Ministries was prompted by a draft report of the Comptroller and Auditor General of India, which was leaked to the media. The report came down heavily on the free allocation of coal blocks to private power producers resulting in massive revenue loss to the Exchequer.

Source: Mining Weekly

Call for MCL to grant coal linkage to OPGC

The State Government has requested the Mahanadi Coalfields Limited (MCL) to grant interim coal linkage to the Orissa Power Generation Corporation (OPGC) which is in the process of adding capacity to the existing thermal power station at Banharpalii in Jharsuguda district. The State-run OPGC having two units of 210-MW capacity thermal power plant each is putting up two more units of 660-MW capacity (super critical) each at the same location to cater to the power requirement of the State.

Though the Ministry of Coal had allocated two coal blocks in the Ib Valley coalfields at Manoharpur and its deep side to OPGC for its captive consumption, the development of coal blocks is delayed for want of statutory clearance by the Ministry of Environment and Forest (MoEF). The MoEF classified the two blocks as ‘No-Go’ category and after much persuasion by the State Government the Ministry reclassified the same as ‘Go’ category. The State Government lost valuable 18 months due to objections raised by the MoEF.

“The expansion plan of the State is at an advance stage and the two new units are scheduled to be commissioned during the latter part of the 2016-17 financial year,” Energy Secretary G Mathivathanan said in a letter to MCL Chairman and Managing Director AN Sahay. MCL is a subsidiary of Coal India.

The scheduled coal production is likely to be delayed and there exists a gap between the commercial operation of the power plant and the full coal production from the allocated mine, Mathivathanan said. Meanwhile, OPGC has also applied for tapering coal linkage for the new units to the Ministry of Coal and the Ministry of Power has also recommended the case of the State PSU for interim coal linkage.

“In order to meet the power needs of the State, it will be highly appreciated if MCL can provide the interim coal requirement of OPGC to the tune of 16 million tonnes over a period of three years from the latter part of 2016-17 from Basundhara coal mines ...,” the Energy Secretary said. Since OPGC has planned to construct a merry-go-round (MGR) system from Manoharpur to the plant site for evacuation of coal, it will be much easier for MCL to supply coal for the interim period using the system, he said.

Sources believed that the State Government’s proposal to MCL for setting up a coal washery and coal reject-based thermal power plant in joint venture is an attempt to facilitate the tapering coal linkage to the new thermal units of OPGC.

Source: IBN Live

Jindal Steel Extends Drop as Panel Scraps Coal Project Approval

Jindal Steel & Power Ltd. (JSP), India’s biggest steel producer by market value, fell to its lowest price in more than three months after a court-appointed panel scrapped the approval for its coal mining project. 

The shares fell for the second day, declining 4.3 percent to 484.55 rupees, the lowest level since Jan. 9, at the close in Mumbai. The stock has risen 7 percent this year, compared with an 11 percent gain in the benchmark Sensitive Index. 

The National Green Tribunal, set up in October 2010 to hear cases relating to environmental protection and forest conservation, scrapped the project on April 20 and asked the Ministry of Environment and Forests to repeat public hearings. The tribunal said the environment ministry ignored the mandatory procedures while granting the license to Jindal Steel. 

The company plans to develop a 4 million metric ton coal mine and a washery of similar size in the central Indian state of Chhattisgarh. Jindal Steel is seeking to build coal mines to feed its proposed power plants in the country. 

Sushil Maroo, the group chief financial officer at Jindal Steel, didn’t respond to two calls made to his mobile phone. 

The tribunal on March 30 suspended environment approval given to Posco’s proposed $12 billion steel plant in Orissa state. It said the environment ministry should reassess the conditions on which clearance was granted to the project last year, Environment Minister Jayanthi Natarajan said that day. 

Source: Bloomberg