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Feature | February 2015

Total Recall

Finally, with the government of India kick-starting the coal auction process, well on time (thanks to the Supreme Court timeline verdict), the Centre has silenced all the critics and has opened a new chapter altogether in the ´black gold´ sector.

To usher in the much awaited reforms in the coal sector, soon after the Supreme Court judgment, the government swiftly promulgated the Coal Mines (Special Provisions) Ordinance 2014 for the management and reallocation of all the cancelled coal blocks through a transparent process.

Experts view this reallocation as an opportunity that the government was quick to sieze which is likely to rationalise the stained coal sector completely in terms of mining operations, consumption and sale. Meanwhile, the requirement of the ordinance was felt to overcome the acute shortage of coal in core sectors such as steel, cement and mainly power utilities, which are vital for the development of the nation. In order to implement the provisions of the ordinance, rules were also notified so that efficient utilisation of coal assets of the country in the national interest could be ensured. It led to a sense of certainty to the business environment and enhances credibility of the process.

Ergo, the focus of the government is clear-improve coal production to the maximum extent possible by facilitating environment & forest clearances expeditiously, helping State governments for assistance in land acquisition and coordinated efforts with the Railways for movement of coal.

Says Prakash Javadekar, Union Minister, Ministry of Environment and Forest Clearances, government of India, ¨In the near future, we expect more coal mine projects to get MoEF grant. Meanwhile, we will also be looking at coal linkage projects that are stuck on the request of the Ministry of Coal.¨

To this Yogesh Daruka, Director, Energy, Utilities & Mining, PwC suggests an alternative. According to him, investment in coal washing & power plant pollution control equipment and proper reclamation planning are essential to ensure that adverse impact of coal-based power is controlled.

Meanwhile, Coal India Limited (CIL) has been asked to ensure adequate supply of coal, and it has committed to a target of 1 billion tonnes of coal production by 2020, from the current levels of 500 million tonnes. ¨We have worked out a five-year plan for ramping up the production of CIL,¨ said Anil Swarup Secretary, Ministry of Coal, government of India in an interview with POWER TODAY.

Negative bidding in auction
The government expects fierce competition by power generation companies in the upcoming auction of coal blocks that may even lead to negative bids where the winners of the bid will pay to the government instead of charging consumers for their cost on developing the coal fields. Under current guidelines, power companies have to bid lower than the price arrived after the technical stage for coal block auctions. The final price at which a company wins a block is the cost of coal that can be passed on to electricity consumers. The company quoting the lowest charge will win. Power companies have to pay Rs 100 for every tonne of coal mined to the governments in States where the mines are located.

As power companies are desperate to ensure the supply of coal, some of them may forgo the charge that they can levy on consumers. A shortage in coal is forcing several power stations to run their power plants at below capacity or even halt generation. Captive coal block will offer the producers a lot more certainty to run their plants than depending on the supplies from CIL. The government has provided for a scenario where the bid price for a block during the auction comes to zero when the companies agree to forego the fuel costs.

According to Swarup, when the bid price for a block hits zero, bidders will be asked to quote a higher price than the fixed Rs 100 per tonne price. The bidder who agrees to pay the highest reserve price will get the block.

Where is the opportunity?
Indeed there will be ample opportunities for stakeholders in the mining business and railway industry.

As for enhancing output from existing mines a whole host of efficiency and productivity improvement initiatives, technological up-gradation and better evacuation are being executed in a mission mode. And certainly, CIL is moving on the right path as it is seeking to modernise the over 220-year-old mining exploration business with improved technology up-gradation in opencast mines with induction of high capacity equipment.

In an interview with PTI, S Bhattacharya, Chief of CIL, says, ¨In underground mines, this will be done with continuous miner technology in large scale, long-wall technology at selected mines, man riding system in major mines and use of tele-monitoring techniques.¨ Other system improvements would include e-procurement of equipment and spares, e-tender of works and services etc., he said, while adding that ultimately CIL´s aim is to meet the targets diligently.

Meanwhile, on coal linkages, Dr Pramod Deo, former Chairman, CERC feels that it was just lack of co-ordination between the Ministry of Coal and Ministry of Railways that has hampered coal evacuation and timely delivery to the power plants.

However, the Ministry of Coal has identified as many as 51 rail linkages that can solve the problem of coal evacuation issue. Confirming the development, Suresh Prabhu, Minister of Railways, government of India says, ¨Yes, we have received a letter from the Ministry of Coal in this regard and are evaluating how these lines can be developed jointly.¨ In addition, both the Ministries-Railways and Coal-are putting all their efforts to expedite laying out of three critical railway lines for coal transport in Jharkhand, Odisha and Chhattisgarh. Both the Ministries are working in tandem and monitoring the projects frequently. In addition CIL has decided to purchase 250 additional rakes worth Rs 5,000 crore to evacuate greater quantities of coal, primarily to power plants, expeditiously. The process of rationalisation of coal linkages was also to bring in efficiency and link power plants to the nearest coal mines. A policy was also announced to allow automatic transfer of old and inefficient plants (more than 25 years old) to new super-critical plants with a view to maximise power generation from minimum usage of coal.

In order to resolve the disputes regarding quality of coal supplied to the power plants, CIL has agreed to provide an option to test at third party laboratories with test data being collected at unloading points. In order to clamp down on coal pilferage, the government has proposed to establish a national coal dispatching centre and RFID tag for all coal movements.

The priority
One may ask, what could be the priority after coal auction and rail linkage projects? The answer is new coal discovery. Exploration of coal in the country is carried out in two stages. In the first stage, Geological Survey of India takes up regional exploration of coal to locate potential mineral bearing areas. Subsequently, various agencies including CMPDI, GSI, Mineral Exploration Corporation Ltd (MECL) and private parties are engaged for detailed assessment.

Ironically, India´s spending on exploration has remained very low (less than 0.5 per cent of global spend on exploration). As it stands, a sizeable gap exists between current technical systems and capacities and what is required to meet the country´s demand.

This gap can be bridged by strengthening the capability of existing agencies and outsourcing some of the work from external private companies. Further, a robust FDI and PPP framework in the sector will help attract global capabilities & investments and spur exploration growth in India. This of course will require the overall policy to be structured well to attract global players & investment.

Rahul Kamat

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