India's Coal Sector

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CIL in talks to buy Indonesia mine for $1 bn: sources

Coal India, the world's largest coal miner, is in advanced talks to buy up to 40% stake in Indonesia's Golden Energy Mines in a deal valued at between $750 million and $1 billion, three sources with direct knowledge said on Thursday.

Golden Energy is a coal mining subsidiary of energy and infrastructure firm Dian Swastatika Sentosa, and is estimated to have 400 million tonnes of reserves.

It owns 10 coal mining areas across Indonesia including in Sumatra and Kalimantan islands in the world's top exporting nation of coal for power plants.
State-run Coal India is half way through the due diligence for the asset and a final bid will be submitted by the end of June, two of the sources told Reuters.

United Tractors, Indonesia's biggest heavy equipment provider controlled by the country's largest listed firm Astra International, has withdrawn from the bidding process for the asset, sources said.

The sources declined to be named as the information is not public. Officials at Coal India, headquartered in Kolkata, and Dian Swastatika in Jakarta could not be reached for a comment.

Indian coal, steel and power firms have been scouting for coal assets overseas to feed power plants at home. The energy-hungry nation aims to halve a near-14% peak-hour power deficit within two years.

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RPower in race for coal mine in Australia

Reliance Power is believed to be one of the firms short-listed for the auction of diversified industrial group Wesfarmers' Premier coal mine in Western Australia.

According to a report in 'The Australian' daily today, Wesfarmers chief Richard Goyder put the asset on the auction block in March.

The move was prompted by a number of interested parties approaching the company in the wake of the 800 million Australian dollars deal that was signed last year between India's Lanco Infratech and collapsed miner Griffin Coal for a western Australia mine, neighbouring the Premier mine, last year.
The Griffin coal mine had also attracted interest from Reliance Power, besides GMR Group and Adani Power.

Indicative bids for Premier were submitted about a week-and-a-half ago and Wesfarmers and its advisers at Gresham and UBS started the second stage of the process this week, the report said.

The auction was expected to be dominated by Indian and Asian players seeking coal for energy.

Besides Reliance, GVK Infrastructure and Lanco are also believed to have evinced an interest in Premier.

Premier has estimated reserves of more than 100 million tonne of sub-bituminous thermal coal.

Earnings before interest and tax from the mine have been estimated at just $30-35 million, about 5% of the company's total resources income.

While Wesfarmers would love a sale at similar prices to Griffin, analysts have estimated the value of the asset at $400 million-plus.

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GMR bids for coal assets in Australia, Indonesia

GMR Infrastructure today said it has bid for two coal assets in Australia and Indonesia, aiming to secure raw material needs for its upcoming power projects.

"We have bid for one project each in Indonesia and Australia but I won't be able to give you the names as we have signed confidentiality agreements," GMR Group Chief Financial Officer A Subba Rao told PTI over the phone from Bangalore.

However, sources said GMR Group is among the shortlised bidders for Bandanna Energy's coal mines in Australia and is competing with other Indian entities like Aditya Birla Group, JSW Steel, JSPL along with some Chinese and Korean companies.
The company would soon begin the due-diligence of the asset and value of the bid could be anywhere beyond $1 billion, sources added. Rao, however, declined to comment.

Brisbane-based Bandanna Energy has 16 exploration permits for coal in the Bowen and Galilee Basins in Queensland and has commenced a strategic review late last year to develop three projects in Bowen basin.

GMR Group has embarked on a massive expansion plan to increase its power generation capacity to 10,000 Mw by 2017 from 823 Mw now. It will add 1,768 Mw capacity this fiscal.

Asked about the bid for Indonesian coal mine, GMR Group CFO said, "It is a large asset, having a reserve in excess of 500 million tonne." GMR is looking at a minority stake here.

"All I can say is that it is not a majority stake," Rao said but refused to comment any further.

Industry sources said the asset is located in Kalimantan province of Indonesia but the reserve size and company name could not be immediately verified.

The GMR Group already has operations in Indonesia, from where it is planning to begin the production this year.

"We will begin with 2 million tonne production initially. Ramping up the production will depend on whether we require coal here for our operations," he said.

In 2009, GMR Energy had acquired Indonesian coal company PT Barasentosa Lestari for $80 million and has reserves of 100 million tonne.

According to Indonesian Coal Mining Association, India would become the largest importer of coal from the country, surpassing Japan and will be taking as much as 60 million tonne to meet the rising demand.

By 2013, the coal imports from Indonesia is expected to be over 90 million tonne, the Indonesian Coal Mining Association had recently said.

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No coal price rise soon despite wage burden

What already afflicts the state-owned oil refining sector has now begun to constrain the functioning of Coal India Limited (CIL). Under pressure to raise prices of coal to meet higher costs, the CIL management is likely to decide against it, thanks to signals from the ministry on not taking such a decision.

The government’s desire to control and delay pricing decisions for petroleum products has already led state-run oil marketing companies to project a revenue loss of over Rs 1,80,000 crore in the current financial year. While there is currently no such burden on CIL, prospects of the country’s monopoly coal producer incurring such losses are not remote anymore.

Underlying the two developments, experts point out, is a worrisome trend hampering the growth of the overall energy sector as state-owned companies are not allowed to sell products on economic logic dictated by market forces.

COAL INDIA FINANCIALS FOR 2010-11

# Net Profit: up 12.9% at Rs 10,867 cr

# Net Sales: up 12.5% at Rs 50,233 cr

# 70% of sales (Rs 35,752 cr) came at notified price through FSAs.

The CIL management has indicated that despite the financial burden the upcoming wage revision in July brings, no coal price increase is on the horizon.

“A rise in coal prices is unlikely even after the wage revision. We will try to offset the impact of the wage burden by the additional revenue from the last price increase in February,” said a senior executive from CIL, who did not wish to be identified.

The state-owned coal producer had last raised prices in February adopting a differential pricing strategy.

It increased prices by 30 per cent for non-regulated sectors such as cement, steel and paper.

While the regulated sectors of power and fertilisers were largely spared from the price hike, coal offered by Mahanadi Coalfields Ltd (MCL) was made costlier for the power sector by Rs 90 a tonne, or 20 per cent, owing to a parallel decision to bring parity in the prices of E&F grades, the most inferior grade.

Even after the increase, coal is being priced at a discount of around 15 per cent to the import parity prices. The price rise in February had translated into an additional revenue of Rs 650 crore for Coal India in the last financial year (2010-11).

For the current financial year ending March 2012, the Maharatna PSU would garner revenues to the tune of Rs 6,500 crore owing to the last increase.

“Apart from the revenue from the last price rise, we will try to minimise the wage burden by increasing volumes, improve offtake and liquidating pithead stocks of 70 million tonnes (mt),” the Coal India executive said.

Though the official denied any pressure from the government to raise prices, he agreed that despite decontrol of coal prices, the opinion of concerned stakeholders needed to be taken before taking a pricing decision.

“And if the stakeholder is a majority shareholder, its approval becomes important,” he said. The government currently holds a 90 per cent stake in Coal India after its divestment and subsequent listing on the bourses last November.

The petrol price decontrol happened in June last year. This was followed by a chain of increases in petrol prices beginning by a seven per cent rise in June, eight per cent in December and a further four per cent in January this year.

After January, no petrol price increase was announced even as international crude prices continued their upward rally. The next rise came only on May 15 after the assembly elections in Assam, West Bengal, Tamil Nadu, Kerala and Puducherry were over.

Unlike the oil sector, the impact of desisting from a price rise in the coal sector is likely to be more adverse owing to the lack of competition with CIL accounting for over 82 per cent of domestic production of 530 mt.

Chairman and Managing Director N C Jha had last month told Business Standard that the joint tripartite committee for wage revision was yet to be formed and the increase would not be available until the wage award was signed, which was expected to take two months.

CIL’s production during 2010-11 remained flat at 431 mt. The company posted a 12.9 per cent jump in net profit for the full year at Rs 10,867 crore owing to higher realisation from selling coal at market price.

Around 70 per cent — Rs 35,700 crore —of the company’s overall sales of Rs 50,233 crore came by selling coal at the notified price of Rs 960 per tonne through Fuel Supply Agreements.

The rest 30 per cent was sold at the market price through e-auction (17 per cent), increased sales of washed coal (7.8 per cent) and coal sold through memoranda of understanding (MoUs) (4 per cent). CIL sells coal under the MoU route to customers willing to buy premium quality coal (A and B grade) at market prices.

Experts agree that the current under capacity of infrastructure in energy sectors is a result of the half-hearted reforms flowing from the government’s will to control pricing decisions which hampers investor confidence.

“The government, no doubt, has to play a role in ensuring transparent availability of natural resources. But this does not mean that it has to be a majority owner in companies. Instead, regulators should be set up to protect consumer interest. The decontrol process has not translated into reality owing to the government’s influence,” said Gokul Chaudhri, partner, BMR Advisors.

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Coal rule slams Adani, Sterlite, Lanco plants

Power plants, which sell generation on a merchant basis, and those that run on 30% imported coal are in trouble.

Owing to scarcity, the government has decided to allocate coal only to plants that are based on cost-plus and case 1 bidding.

Case 1 is an open bidding where the developer of the project decides on fuel supply, technology and location of the plant, while Case 2 bidding is where the government sets out everything.

Cost-plus means a project where the tariff is based on cost of the fuel plus a government-set profit percentage.

The decision will directly impact the currently operational plants of Lanco (Pathadi Unit-1), Sterlite (TPP Unit-II) and Adani (Mundra TPP Phase I & II).

On the other hand, the decision will increase the coal supply to cost-plus-based power plants of companies such as NTPC (Kahalgaon, Farakaa, Simadri and Korba units), the RP Goenka-owned CESC (Budge Budge Unit 3), Reliance Power (Rosa Unit I & II) and other state-sector plants.

“India faces severe coal shortage. We have very little coal to allocate to plants commissioned after March 31, 2009, so we have given preference to plants that will pass on the benefits of low-cost coal from Coal India Ltd to consumers,” said a power ministry official.

“The benefits of cheap fuel from Coal India are unlikely to be passed on to the consumers by merchant power plants, which offer market pricing for electricity. So we will allocate coal to them only when it is available to us,” the official said.

The reason for not allocating coal to plants that are based on 30:70 imported/domestic coal is that the cost of power from these plants is already very high, the official said..

Lanco’s Pathadi Unit I has been denied coal because the company has not stuck to its contractual commitment of selling a portion of its generation at contracted prices, the official said. The company is selling all its produce on a merchant basis, the official said.

On the other hand, Sterlite’s TPP Unit-II is a merchant power plant where it is free to price its produce.

Adani Power’s Mundra unit is based on 30:70 imported/domestic supply.

Coal India has offered 347 million tonne of coal for supply to power utilities during the current financial year.

Since 306 million tonne already stands committed for supply to generating units commissioned till March 31, 2009, only 41 million tonne is available for distribution among the slew of generating units commissioned after that date.

Even of this 41 million tonne, the government has kept 8.5 million tonne for units that will come up during the current fiscal, while the remaining 32.5 million tonne would be distributed among plants commissioned during 2009-10 and 2010-11.

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'India's buying of low-grade coal may cause bottlenecks'

India's growing appetite for low-grade, low-priced coal could give South African state utility Eskom fuel supply problems, Graham Parker, director of traders Traxys Coal, said on Tuesday.

A shipment of 4,800 kc/kg coal, significantly below the standard grade of around 5,800 kc/kg for export coal, was sold last month to an Indian buyer by one of South Africa's biggest mining companies, Parker said at the Navigate shipping conference.

"India's demand isn't for standard 6,000 kc/kg coal, it's increasingly for low calorific value (cv), low priced coal," he said.
"India is dragging in Indonesian sub-bituminous and what might be seen as mining discard from Australia," he said.

"In the last week or so a cargo of low cv coal has gone from South Africa to India and the importance of that cannot be underestimated," he added.

Lower energy content coal, which is mined simultaneously with export grade coal in South Africa, is almost entirely burned by state utility Eskom, which generates more than 90% of the country's power.

Any drift of lower cv coal into exports and away from Eskom would either force the utility to pay at parity with export prices or exacerbate South Africa's existing power difficulties, he said.

On Tuesday, South African shipping and logistics group Grindrod said it aims to expand its South African and Mozambican coal export terminals to add more than 20 million tonne a year by 2014.

These expansions will be aimed at smaller miners who have failed to find space at South Africa's Richards Bay Export Terminal and have no ability to export at present.

When they can do so, these miners are expected to sell increasingly to Indian buyers unless the government bans such exports to protect Eskom's supply or Eskom sharply increases the prices it pays.

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Coal ministry for overhaul of national distribution policy

The widening demand-supply gap and depleting production of Coal India Limited has compelled the coal ministry to overhaul the national coal distribution policy. If the ministry has its way then soon a new distribution policy would be in place to serve the comprehensive coal linkage needs of core and non-core sectors by introducing adequate flexibility in coal supply to meet the growing demands of these sectors and promote energy security.
After a meeting with senior officials from coal, power and other ministries today, coal minister Sriprakash Jaiswal told The Indian Express that the distribution policy, which was over three years old needed to be re-shaped as due to ever-growing demand of the mineral from the power sector, it has virtually become impossible to provide additional coal to other sectors. Due to the negative balance of coal, the Standing Committee on Linkage for steel and cement could not be convened for the past three years, he said. This was also the reason why CIL’s policy for non-SLC (LT) category of consumers could also not be notified so far.

The existing policy mandates coal companies to meet 100 per cent requirement of defence and railway sectors at notified price, while meeting 75 per cent of the quantity of normative requirements of other linked consumers through Fuel Supply Agreements (FSAs). Under it Letters of Assurances are issued and all core and non-core sectors are required to enter into FSAs with the companies. The policy mandates the states to nominate their agencies to the Centre for transparent distribution of coal to small and medium consumers, whose annual requirement is less than 4,200 tonnes.

“The ACQ tends to change from year-to-year, leading to problems related to fuel shortage at the power plants. Besides, the power utilities have been complaining that the existing system of FSAs lacked flexibility,” he argued.

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ICVL eyes 59% stake in Mozambique coal firm

State-run International Coal Ventures Pvt. Ltd (ICVL) is evaluating an opportunity to buy a 59% stake, estimated to cost around $1 billion (Rs. 4,490 crore), in Minas de Revuboé, which owns the Revuboé coal mining project in Mozambique.

ICVL is considering to acquire this stake currently owned by Australia’s Talbot Group. The greenfield metallurgical coal mining project, with an estimated reserves of 700 million tonnes (mt), is owned by Minas De Revuboé, with Talbot Group being the project manager. Other stakeholders in the company are South Korean steel maker Posco, Japan’s Nippon Steel and the Mozambique government.

“Talbot Group’s stake is on offer. We are evaluating the opportunity for submitting a non-binding bid,” said an ICVL executive, who did not want to be identified.

Rothschild is the merchant banker for the deal.

Another top ICVL executive, who also requested anonymity, confirmed the proposal but declined to comment further.

ICVL was set up by five state-owned firms—NTPC Ltd, Steel Authority of India Ltd (SAIL), Coal India Ltd, Rashtriya Ispat Nigam Ltd and NMDC Ltd—to secure coal assets overseas and has been competing with Chinese coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd, which are actively buying overseas mining concessions.

While Talbot Group could not be contacted, questions emailed to the spokespersons of Minas de Revuboé and Rothschild’s Mumbai office on Friday remained unanswered at the time of going to press.

Indian businesses have in recent years made inroads into the mining and cashew processing industries in Mozambique, a former Portuguese colony, which has seen stable administration since the end of a civil war in the early 1990s.

India does not have substantial good quality metallurgical coal reserves. Demand for the resource in 2009-10 was 40 mt, of which 23 mt was imported. Demand is expected to rise to nearly 90 mt by 2020.

There has been a growing demand for metallurgical coal due to the growth expected in the steel sector. Australia, emerging as a major source of India’s mineral imports, is the largest exporter of metallurgical coal in the world.

While private Indian firms have been successful in securing coal resources overseas, government-owned entities such as ICVL and NTPC have not been successful. Bids by Indian miners tend to be relatively uncompetitive because most Indian companies seek the coal for their own end-use projects, while rival bidders may have higher-margin alternative plans.

“There is no reason why the public sector units can’t secure assets. In fact, they have a much better chance as they have access to government’s support,” said Shubhranshu Patnaik, senior director, energy and resources, Deloitte Touche Tohmatsu India Pvt. Ltd.

India has a known coal gross resource base of 264,000 mt, the fourth largest in the world, of which proven reserves are around 101,000 mt. Demand is around 600 mt per annum (mtpa), which is set to touch 2,340 mtpa by 2030.

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Coal india gets 18 bids for 360 mt imports

Coal major to shortlist and strike a deal within five months.

State-run Coal India Ltd (CIL), has got 18 tenders from international companies for long-term thermal coal offtake agreements. The Maharatna company will shortlist and strike a deal from this — based on the price and quantity of coal to be supplied — within five months.

“CIL has got 18 proposals to import about 360 million tonnes (mt) of coal for a period of 10 years . We will shortlist from these, once we finalise the price and the quantity of coal to be imported. It is expected to happen within five months,” Chairman and Managing Director N C Jha said.
The world’s largest coal producer and India’s second largest company in terms of market capitalisation had invited expressions of interest (EoIs) from global companies at a discounted price for long-term offtake agreements early this year. It received 27 proposals from 16 companies and later the PSU had sent them requests for proposal (RFP) and they were advised to give proposals on quality and quantity of coal to be supplied. The last date to submit bids was May 25.

“The deal would be to import coal from four countries — South Africa, Australia, Indonesia and the United States,” Jha added. Though Jha refused to reveal further details about the proposals, an official close to the development said the proposals included some of the global coal giants.

According to reports, the companies which submitted the EoIs included Rio Tinto, Xstrata, Peabody, Massey Energy and Sinarmas.

“Since CIL has already received a demand of 10 mt from NTPC, we are expecting to import some amount of the total 360 mt this financial year only,” Jha said. The company is currently supplying about 125 mt of coal to NTPC on an annual basis, which include supplying for some new plants from March 2011.

According to the memorandum of understanding with the government for the financial year 2011-12, CIL’s targeted production and offtake is fixed at 452 mt and 454 mt respectively. The company has earmarked Rs 10,000 crore as capital expenditure for the current financial year on capacity expansion and acquisitions.

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SCCL eyes 30% underground coal mine productivity improvement

India’s oldest coal miner Singareni Collieries Company Limited (SCCL) will focus on increasing productivity from existing underground mines by at least 30% to cope with dwindling growth opportunities in its mining hinterland.

The company also plans to diversify into thermal power generation, leveraging its experience in giving consultancy services to coal-based power projects in India.

Government-owned SCCL has submitted a production plan for 2012 to 2017 to India’s Coal Ministry, outlining its plans to increase yearly output from 52-million tons to 57-million tons.

The company would increase underground mining production by nearly 30% to 15.5-million tons a year by 2017, from around 12-million tons a year at present, while opencast output would rise only marginally to around 41.5-million tons a year from 40-million tons a year.

SCCL, the second-largest Indian coal miner after Coal India Limited, operates 13 opencast and 42 underground mines in the Godavari River Valley, in southern India. The Godavari River Valley basin is estimated to have a coal reserve of 8.79-billion tons along a single stretch of 350 km.

“I am expecting tougher days for coal operations in days to come. Therefore, I expect after four to five years, profits from coal operations to be very tight,” SCCL chairperson and MD, S Narsing Rao said.

SCCL will now focus on improving the contribution of underground mining and output per man shift as the company has almost reached a plateau in coal extraction and it is unlikely to report more than one-million to 1.5-million tons of incremental growth a year going forward, Rao said.

He attributed this to the restrictive and difficult geo-mining conditions of the Godavari Valley coalfields, known for deep forest reserves, lot of faults, poor grade coal and steep gradients.

The company had done as much as it could to control production costs. With 85% of underground mining costs fixed and 15% variable, SCCL said it would focus on mechanisation in underground mines to improve productivity.

SCCL plans to take up two long-wall mining projects at Adriyala, near Ramagundam, and Bhoopalapally, in the Warangal district, with capacity of 3.5-million tons a year and 2.5-million tons a year, respectively, with production starting within the next two years.

To diversify into power generation, the company will be looking at projects to construct coal pithead-based power generating plants, either through joint ventures or on its own, depending on access to virgin coal blocks that could be developed as captive sources of coal for the power plant. To mark a beginning, the company is considering construction of a 2 x 600 MW power project in Adilabad district in the southern Indian state of Andhra Pradesh.

To pursue other diversification projects, SCCL has entered into an agreement with Carbon Energy, headquartered in Queensland, Australia, to collaborate in technologies for surface coal gasification, coal-bed methane and underground coal gasification projects.

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CCL records highest profit, 21% increase

RANCHI: The Central Coalfields Limited (CCL), a subsidiary of Coal India Limited, has registered the highest ever profit in the history of the company in 2010-11, recording around 21 per cent increase compared to the previous financial year.

According to the latest audit report released by the CCL, the company recorded profit before tax (PBT) was Rs 1,860.22 crore for 2010-11 against Rs 1,533.10 crore for the previous financial year. Coal production for the financial year was 47.52 million tonne (MT) registering one per cent growth compared to corresponding last fiscal when the production was 47.08 MT. Coal dispatch was 46.23 MT in 2010-11 compared to 44.29 MT previous year. The company has 60 operational mines in Jharkhand. Citing the audit report, a CCL spokesperson said the company also paid Rs 1,703.83 crore including royalty of Rs 613.28 crore to the state government. "This is the highest ever revenue to the state government by the company. We are the highest corporate tax payer of the state," he said.

In 2009-10, the CCL had paid Rs 1,465.89 crore, including Rs 583.36 crore royalty, to the government exchequer.

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Coal imports shoot up, CIL says no to new customers

India's coal imports have shot up by nearly 50% in the past five months in the face of domestic shortages, forcing Coal India (CIL) to say 'no' to new customers in the current fiscal.

"After accounting for the existing commitments and the quantity to be offered under e-auction, the net coal quantity available to...New consumers would be minus 11 million tonne [this fiscal]," a source quoting CIL Chairman NC Jha said.

Jha had made this observation at a recent meeting chaired by Coal Minister Sriprakash Jaiswal to review the coal distribution policy.
Coal imports between January and May went up by nearly 50% to 44.7 million tonne, according to data compiled by industry portal 'mjunction Services'. Imports were 30 million tonne in the same period last year.

In his presentation before the meeting, also attended by senior officials of steel and power ministries, Jha had painted a dismal long-term outlook.

"If all the LoAs (Letter of Assurances) which have been issued fructify, the negative coal balance would range from minus 157 million tonne to a level of minus 254 million tonne during 2020-21," he had said.

Demand supply gap for CIL would be 137 million tonne in this fiscal against 69 million tonne in 2010-11.

The coal firms, including CIL, had been unable to achieve their planned production targets due to various constraints like delay in obtaining environmental and forestry clearances, land acquisition and local law and order problems.

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Coal India assures efforts for extra coal supply to consumers

Coal India has assured the government that it will make efforts to increase coal availability to the users by 28 million tonnes in the current financial year to tide over the shortages.

Coal Minister Sriprakash Jaiswal gave this assurance on behalf of the Maharatna PSU to the Group of Ministers (GoM) which met last week to take stock of the problems affecting the coal production, including those relating to clearances by the Environment Ministry, sources said.

“Coal India will try to lift 28 million tonnes of coal from pithead,” an official said.

Besides the problem of environment clearances, the stock piled at the pitheads of the coal mines has reached 70 million tonnes. Coal India Ltd (CIL) is facing difficulties in transporting the dry fuel from pithead to the consumers like power, steel and cement plants for want of railway rakes, company sources said.

Mr. Jaiswal assured the GoM that the CIL would make efforts to reduce the stockpile from 70 to 42 million tonnes by March 2012.

CIL, which accounts for over 80 per cent of domestic production, has been facing problems of coal evacuation due to the shortage of railway rakes.

Last month, the Coal Ministry had proposed to assist Railways in arranging finances for purchase of rakes to speed up coal transportation.

The GoM headed by Finance Minister Pranab Mukherjee has met thrice since February to sort of ongoing issues, mostly relating to go and no-go’ of the environment ministry hurting coal production.

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Coal Min revokes licences of 2 more NTPC blocks

The coal ministry on Friday cancelled allocation of two coal blocks of NTPC for not developing them within the stipulated time frame. The blocks -- Brahimini in Jharkhand and Chichro Patsimal in Orissa -- hold 2,256 million tonnes coal reserves and were allocated to the company in 2006.

The coal ministry on Thursday issued orders to revoke mining licences of five blocks of NTPC, Damodar Valley Corp and Jharkhand State Electricity Board with combined reserves of 1,000 million tonnes. The power ministry said it would take up the issue with coal ministry and higher authorities.

NTPC floated a joint venture company with Coal India Ltd to develop Brahimini and Chichro Patsimal blocks to meet coal requirement of Farakka and Kahalgaon expansion projects.

The coal ministry had last month announced decision to revoke licences of 15 coal and lignite blocks, 12 of which belonged to state-run companies. On June 1, letters were issued to three companies Bhaidyanath Ayurved Bhavan, Andhra Pradesh Power Generation Corp and Bhatia International for cancellation of five blocks.

The move is followed by recommendations of a review committee on progress of coal blocks. The panel had originally recommended de-allocation of 31 coal blocks held by 26 firms including Tata Steel, NTPC, Hindalco and Nevyeli Lignite Corporation. The de-allocated blocks would be allotted to Coal India Ltd or its subsidiaries for mining.

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ICVL closes in on Indonesian mines

ICVL, the consortium of five state-run firms formed to scout for coal assets overseas, is close to completing the due diligence for a coal mine at central Kalimantan and has initiated similar process at four resource assets outside Indonesia.

A team led by ICVL head, C S Verma, who is also the chairman of state-run steelmaker SAIL, recently returned from Indonesia. In January this year, an MoU was signed between India and Indonesia on a processing facility, a steel plant and for building the required mining infrastructure in Borneo island where the mine deposits are located.

When contacted, Verma declined to offer more details on his visit to Indonesia. ICVL has also opened an office to support its move to search for coking coal assets in Indonesia.

According to a person who was part of the team, the existing center at BHEL, could likely accommodate ICVL's new liason office. ICVL has been co-promoted by public sector units Steel Authority of India, Coal India, Rashtriya Ispat Nigam Limited, NMDC and NTPC.

Other Indian investors who have ventured into Indonesia include the Tata Group and Punj Loyd, which through a Singapore-based subsidiary, bought 50% in a thermal coal mine company in Central Kalimantan in April this year. Last month, Anil Ambani-led Reliance ADA Group, which already owns a coal block in Sumatra, announced a $5 billion investment plan for coal mining, power plants and infrastructure.

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Indonesia new coal policy worries India power firms

Tata Power, Adani group, Lanco Infratech and Reliance Power, among other Indian coal importers, are waiting to assess the impact of the Indonesian government attempts to benchmark its coal prices to international indices. The new system has the potential to increase the cost of thermal power generated using imported coal in India.

The new method that will come into effect from September attempts to link the royalties paid to the Indonesian government to an index of coal prices for Australian and South African coal in addition to others. But Indian firms said Indonesian coal is of lower calorific value and, hence, priced cheaper compared with Australian and South African coal.

Deepak Amitabh, director (corporate finance) of PTC, said there are lots of issues, which still need to be sorted before the coal prices are determined. “We are still not clear how the government will work out the price differentials between Indonesian coal and that produced by Australia or South Africa, for example. Also the spot prices are always costly compared with the long-term sales contracts. We need to find out if the long term contracts for Indonesian coal would be at discount to international market prices or not.”

In September 2010 the Indonesian government issued new regulations to determine the benchmark price for the sale of coal and minerals. The regulation proposes to peg the price for both domestic sales and export of coal to a ‘benchmark price’ for all the mining licensees. Dipesh Dipu, director, consulting (mining) at Deloitte in India said the new regulation will force companies to transact at market prices, which may be seen as raising the cost of delivered coal in India.

“When companies invest in Indonesia, they tend to have the intent to sell coal at cost, so that Indonesian business unit remained at no or negligible profits. Taking a holistic view, however, the cash flows in an integrated Indonesian coal mining and Indian power generation unit after this regulation will continue to be similar, except that income taxes will be paid in Indonesia, and the cash flows will need to be brought on the books on Indian power project after paying taxes in Indonesia through appropriate and innovative business structuring,” said Dipu.

Banmali Agarwala, executive director and head of business development at Tata Power said, “The increased pricing will definitely affect the cost of generation and we are trying to work out a strategy to handle the additional hike.”

Adani group that sources coal from its mines in Indonesia is also expected to be affected by this regulation, as Adani Enterprises has direct stake in Bunyu mines in Indonesia. Adani Power has contracted to procure 4.6 mtpa coal from Adani Enterprises at $36 per tonne. However, the total import requirement for present operational capacities is around 6 mtpa.

Vijaykumar Bupathy, senior analyst with Spark Capital Advisors, said in report that “Assuming a $50 per tonne increase in the free on board (FoB) price of coal, there would be Rs 1,040 crore incremental fuel cost to the group to the extent of the committed 4.6 mtpa of supply alone.” However, when Financial Chronicle contacted Adani Enterprises, the company said there will be no direct impact on the company, since its total cost of mining and transporting Indonesian coal to Mundra is $25 per tonne. The coal is sold to Adani Power at $36 per tonne. “Any hike in price would only increase the royalty payments by around $1 or $2 per tonne. This may have a marginal impact on the company,” said a senior finance official of Adani Enterprises.

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NTPC Plans to Bid for Bandanna Stake by July 29

NEW DELHI -- India's largest power producer, NTPC Ltd., Wednesday said it plans to make a final bid for a stake in Bandanna Energy Ltd. by July 29 as the race for the Australian miner's coal assets heats up.

"We're considering the stake we should buy in Bandanna," NTPC's chairman and managing director Arup Roy Choudhury told reporters, declining to disclose the size of the stake being considered.

State-run NTPC's bid comes amid the backdrop of India's energy crisis, where a worsening shortfall in coal supplies is affecting electricity generation at power plants and threatening the capacity addition targets of power companies.

Choudhury said NTPC has cut its generation capacity target to 70 gigawatts by March 2017, from 75 GW earlier, mainly due to coal, gas supply and land acquisition issues.

Tighter regulations and higher prices in Indonesia, as well as infrastructure issues in South Africa, are affecting coal shipments to India, forcing companies to look as far off as Australia to meet their requirements. Indonesia and South Africa and among the largest suppliers of overseas coal to India.

"India's dependence on coal is high. India's ability to increase its own coal production has its constraints. There is no doubt in any calculation that coal imports will increase," Montek Singh Ahluwalia, the deputy chairman of the country's Planning Commission, told reporters.

In May, Bandanna Energy said it received several preliminary bids for its assets, which include 16 exploration permits in the Bowen and Galilee basins of coal-rich Queensland, plus licenses to explore for minerals and oil shale in the state.

According to the company, it has a resource of more than 1.4 billion metric tons, which represents the largest thermal coal inventory for any exploration company in Australia.

Bandanna, valued at A$921.3 million, also has an allocation for 4 million tons a year at the planned Wiggins Island Coal Export Terminal, which would allow it to ship from early 2014.

Previous media reports suggested other Indian companies have expressed an interest in Bandanna, but no bids could be confirmed.

More Indian companies are joining the race for Australian coal assets, pitting them against Western firms and Chinese corporations.

Macarthur Coal Ltd. Monday said it received a takeover offer from Peabody Energy Corp. and ArcelorMittal that values the Australian coal miner at A$4.68 billion.

Indian companies have shown interest in Whitehaven Coal Ltd. and the mines of Hancock Prospecting Pty. Ltd. as well.

Lanco Infratech Ltd.'s acquisition of Griffin Coal Mining Co.'s assets and Adani Enterprises Ltd.'s acquisition of the Galilee coal mines of Linc Energy are among the recent deals by Indian companies.

"There is no restriction on Indian companies from acquiring coal assets abroad. In fact, the planning commission encourages it," Mr. Ahluwalia said.

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JSPL, GVK & 3 others may lose coal blocks

The coal ministry has asked five firms, including Jindal Steel and Power and GVK Power, sitting idle on the coal blocks allocated to them for captive use, to either begin production or it would cancel their licences.
“The allocatee is hereby warned and directed to develop the block without any delay. Any further failure in the development of the block would lead to necessary action... including de-allocation of the coal block,” according to the warning letter sent by the ministry to the five firms.

JSPL was warned for delaying the development of Utkal-B-1 block, which the coal ministry had allocated to it in 2003 for supply of coal to the proposed two million tonnes per annum (MTPA) sponge iron plant, 8,000 tonnes capacity ferro alloys plants in Orissa, and proposed power plants in Orissa.

GVK Power (Govindwal Sahib) was issued letter for significant delay in developing Tokisud North coal block.

The other companies which were issued warning letters are Damodar Valley Corporation for Khagra Joydev coal block, Jharkhand State Mineral Development Corporation for Latehar coal block and Bihar Sponge Iron for Macherkunda coal block.

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Coal imports from Russia set to rise

After South Africa and Indonesia; Russia may emerge as India's third source of thermal coal imports.

Though still in an evolving phase, coal imports to the country from the Eastern Russian ports of Vladivostok, Vanino Vostochny and others on the Pacific are surely rising and may cross the one million tonne (mt) mark this year.

Major Russian miners are also building large coal terminals on Pacific ports to meet Asian demand.

The imports from Russia – though insignificant at this juncture when compared to India's projected import bill of over 100 mt for 2011-12 – may in the longer run help reduce the country's dependence on existing sources, especially on Indonesia.

The first move in this direction was made by India's largest coal importer and infrastructure major Adani Enterprises in early 2011 when it brought a capesize coal cargo from the largest coal port of Vostochny on the Pacific to the group-run Mundra Port. Capesize is one of the largest bulk carriers, which are typically above 1,50,000 tonne deadweight.

Since then, the Adani group has brought four coal cargoes to India. While comments were not available from the company, market sources told Business Line that the Adani group was pursuing more such imports from Russia during the year.

To add momentum to the trend, the trading arms of the Kolkata-headquartered Visa Group – Visa Resources Pte of Singapore and Visa Comtrade – are now pushing import plans from Russia.

According to Mr Siddharth Kasera, General Manager of Visa Comtrade, the company is now planning to import a capsize cargo – to be unloaded at the newly built Dhamra port in Orissa – from the Russian port of Vanino at Muchka Bay on the Pacific.

A major importer on behalf of cement plants, Visa Comtrade posted a turnover of Rs 1,000 crore in the last fiscal.

Available information suggests that Russian coal is similar to the South African varieties currently imported into the country.

Despite a longer sea-route what apparently is working in favour of Russian coal is a price discount compared with South Africa ($116 a tonne on fob basis at the spot market) and lower freight rates on the Pacific.

However, that is not sufficient to convince the coal importers at large to make a beeline for Russia.

Mr Abhay Chaturvedi, Vice-President of Gupta Coal (India) Ltd, another major importer in India, feels that while the imports from Russia are viable only in Capesize cargoes as there are limited options available in the country for unloading of such very large cargo carriers (VLCC).

“Currently Mundra Port in the West coast and Dhamra and Gangavaram in the East are capable of handling such cargoes. To add to the problem, limited rail infrastructure makes it difficult to transfer such huge consignment to the buyers in the hinterland of the country,” Mr Chaturvedi said.

The Nagpur-based company was not exploring import opportunities from Russia.

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Mjunction aims CIL's end-to-end support for coal e-auction

The mjunction services, a joint venture e-commerce company of Tata Steel and SAIL, has offered the Coal India Ltd (CIL) end-to end support for the e-auction of coal sold by the coal major.

"We have sent a proposal to CIL to offer end-to-end service, including all back-office jobs for the coal sold on e-auction platform," mjunction Managing Director Viresh Oberoi told PTI.

"We are offering similar service to steel companies who had outsourced it to us. Now we want it to extend to coal sector," he said.

CIL also uses the mjuction platform to sell their some 10 million tonne coal through e-auction.

The service helps companies to free themselves from logistics to documentations to payment collection.

"With the knowledge we have now in this business, we are geared to handle logistics chain for the imported coal to be sold in India from our platform," Oberoi said.

"We are ready to begin selling imported coal through coaljunction and in a month we expect to sign an agreement and begin selling with two companies having coal linkages for imported coal," he added.

He said mjuction would help imported coal users reduce cost by eliminating middlemen for foreign firms, who intend to sell coal without having direct distribution system in India.

"We cannot have control on imported coal price but we can help to minimise associated costs," he said.

Coaljunction has some 10,000 registered buyers offering a ready market for imported coal sellers.