VMR Mining Update: Coal auction

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A coal price spike last year, driven by a Chinese change in regulation that capped local mining operations, has shown how easily markets can swing from oversupply to shortfall.

Many a swan song has been sung for thermal coal markets as renewable power generation and a push towards using more natural gas have gained traction. Yet a coal price spike last year, driven by a Chinese change in regulation that capped local mining operations, has shown how easily markets can swing from oversupply to shortfall. While many analysts and investors see the long-term outlook for coal as bleak due to policies and technological advances that favour cleaner natural gas and renewable in power generation, the shorter-term outlook for the industry has seen a sharp reversal of fortunes.

This year, strong demand growth in Asia’s emerging markets will create a supply shortfall for the first time in at least half a decade. Consumption could even soon rise past the 2014 peak, according to Asia’s largest commodity trading house, Noble Group. Despite coal’s high levels of pollution, utilities and governments in emerging economies, at least for now, largely prefer coal-fired power stations over other fuels including natural gas in order to meet soaring energy demand. While gas and solar prices have fallen sharply, coal remains one of the cheapest, easily available, and most easily maintained sources of electricity.

More than 10 gigawatt (GW) of coal-fired power stations were sanctioned for construction last year in Southeast Asia, where most new demand stems from, compared to just 4.6 GW of gas-fired projects, according to energy consultancy Wood Mackenzie. “New markets like the Philippines and Vietnam are starting to seek our coal,” the chief executive of Indonesian coal miner PT Bukit Asam, Arviyan Arifin, told Reuters this week. Rodrigo Echeverri, head of thermal coal analysis at Noble, believes this year’s global thermal coal market will be 13 million tonnes short of meeting 911 million tonnes of demand, compared with a broadly balanced market in the last three years.

The tightness is a result of falling output after some companies including U.S. giant Peabody Energy, filed for bankruptcy, and other miners cut output at unprofitable mines. At the same time, Chinese imports grew by 43 million tonnes as a result of restrictions on local production, while new coal-fired power plants were commissioned in countries including Vietnam, Malaysia, Philippines, Taiwan, Echeverri told a conference in South Africa this month. To meet the imminent shortfall, some miners have again begun ramping up output. Indonesia, the world’s biggest thermal coal exporter, said this month it is targeting production of 470 million tonnes in 2017, compared with its previous goal of 413 million tonnes and up more than 8 percent on last year.

There are also signs that Australian thermal coal output is picking up, with exports from Queensland hitting a record last year. Even so, the shortfall in supply could reach 28 million tonnes by 2020, meaning more new mines would need to be opened by the mid-2020s to meet demand, Echeverri said.

COAL OUTPERFORMS

Most commodities, including thermal coal, crude oil, copper or liquefied natural gas <LNG-AS>, have seen price rises since early 2016 as part of a broad-based rally. Australian thermal coal has performed best, rising 53 percent price versus 48 percent for oil, 25 percent for copper, and just 8 percent for Asian LNG. Because of this, companies focusing on seaborne coal supplies fared better than other miners or oil and gas producers.

“For pure coal players, the rise in prices from June 2016 … provided the catalyst for improved export sales margins given that many producers were actively managing their production costs,” said Patrick Markey, managing director of commodity advisory Sierra Vista Resources in Singapore. his reversal of fortune of an industry that was deeply in trouble just a year ago has been noted by investors.

Shares in thermal coal specialists like Australia’s Whitehaven Coal or Indonesia’s Adaro Energy, are far outperforming their peers in the oil and gas sector like Australia’s Woodside Petroleum, Royal Dutch Shell or Chevron. Many oil and gas firms are grappling with cost overruns and production delays at facilities such as Chevron’s Wheatstone condensate and LNG plant or Shell’s Prelude floating LNG unit.

Longer term, the rise of cheap natural gas and increasingly competitively priced renewable power generation is expected to eat away at coal’s power market share.

“We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal,” the latest outlook from International Energy Agency (IEA) says. In the meantime, producers are benefiting from Beijing’s ongoing drive to remove dirty and inefficient mines, which is keeping seaborne coal prices in a sweet spot. “Around $80 is a really, really good price for Australian mines,” said Peter O’Connor, resources analyst for brokerage Shaw and Partners in Sydney.

(Source: Financial Express, February 10, 2017)

Virginia Mining Resources bring to you last week developments and update of Coal India Limited.
please check it out below:

Coal India Ltd plans to acquire coal assets overseas

State-run CIL is exploring coking coal assets overseas as the country is faced with constraints of techno-commercially viable domestic metallurgical coal reserves, Parliament was informed today.

“CIL (Coal India Ltd) is scouting for acquiring coking coal assets abroad, as India is faced with constraints for techno-commercially viable domestic coking coal reserves,” Coal and Power Minister Piyush Goyal said in a written reply to Rajya Sabha.

“The recent spurt in global coal prices, particularly for coking coal, is expected to create an encouraging scenario for such acquisition process,” the minister said.

Since CIL, at present does not have any asset abroad, the comparative analysis between coal mines in India and coal mines abroad can not be ascertained, he added. The state-owned miner had surrendered two prospecting licences held by its subsidiary Coal India Africana Ltd in Mozambique.

CIL is looking to appoint a merchant banker to assist it in acquiring assets overseas so as to enhance the nation’s energy security.

Coal India production grows 5.5 percent in January

Coal India Ltd (CIL) on Thursday reported that its production grew by 5.5 percent to 55.99 million tonnes (mt) in January as compared to 52.86 mt in the corresponding month last fiscal, but the production during April 2016 to January 2017 remained flat.

According to provisional data, the production stood at 433.76 mt, up by a meagre 1.7 percent during the first ten months of the current fiscal (2016-17). It achieved 91 percent of the target which was set at 478.57 mt for the period.

CIL, which produces 84 percent of the country’s coal production, was targeting 61.04 mt during the last month of the current fiscal, achieving 92 percent of the target. It also reported that its off-take during this period was up by a marginal 1.3 percent at 443.13 mt as against a target of 489.71 mt. Its off-take for January stood at 51.35 mt achieving 92 per-cent of the target.

In 2015-16, the state miner produced 538.75 mt of coal against a target of 550 mt and its off-take was at 534.5 mt. During the current fiscal, the coal production target has been pegged at 598.61 mt is expected to be 660.7 mt in 2017-18.

The company envisaged production of 908.10 mt in 2019-20 with a CAGR (Compound Annual Growth Rate) of 12.98 percent with respect to 2014-15.

In its latest annual report, the coal-mining behemoth said it would invest Rs 7,765 crore as capital expenditure and Rs 5,069 crore in various other projects in 2016-17.

(Source – Assorted with inputs from PTI & IANS, 02-07, February-2017)

A CIL official told Financial Express that some plants are flush with coal while some others have neither coal supply nor power purchase agreement.

Subhasri Chaudhuri of the Coal Consumers Association of India felt that the recent upward revision of washed coking coal was linked to the prices of international coking coal.

A CIL official told Financial Express that some plants are flush with coal while some others have neither coal supply nor power purchase agreement. In some cases, they have coal supplies but do not have power purchase agreements with distribution companies. Also, some plants have the letter of assurance for coal supplies and have signed power purchase agreements but not getting the fuel. According to norms, plants with only valid power purchase agreements are entitled to get coal but in many cases plants with valid power purchase pacts are coal starved due to which they are unable to produce power and keep their supply obligation.

“We are trying to broaden the e-auction window so that it boosts demand and cuts down on the inventory cost of buyers. We will now allow lifting coal beyond one year of the purchase through e-auction, which, at the prevalent scheme, is allowed up to six months of the purchase. While this will help book larger volumes, users can lift whenever they want,” the CIL official said.

In fact, CIL was trying to improve on the demand of coal, which otherwise brought a tepid response to the e-auctions in 2016.

While the ministry didn’t agree that there was over supply of coal last year, it said the excess availability was because of the power plants operating at low PLF.

The ministry also adopted a 20% add on formula on fixing the floor price of coal above the notified price for e-auction for which there was less premium. However, the ministry cited that there was a 15% drop in imports, which saved R2,300 crore worth of foreign exchange.

According to mjunction CEO Vinay Verma, the average price gain over notified price during FY16 was 31.69%, while CIL could sell 14.81% through e-auction during the period.

CIL conducted 188 spot e-auctions, 13 forward e-auctions, 27 special forward e-auctions and 11 exclusive e-auctions as a new initiative during FY 16.

While Verma agreed that bringing about equilibrium in supplies to the power sector was important, he added that with larger availability of coal, small and non-core consumers like paper, ceramics, brick kilns and others – which were coal starved for years – got coal to their requirement. The situation would continue to remain so this year, Verma felt.

Subhasri Chaudhuri of the Coal Consumers Association of India felt that the recent upward revision of washed coking coal was linked to the prices of international coking coal.

Bharat Coking Coal hiked prices of washery 3 grade coal by 52% and washery 4 grade coal by 25%, which was directly linked to power utilities. Central Coalfields prices were linked to steel and a 99% increase – which put the price to R11,500 per tonne from R5,780 per tonne – would only encourage imports.

(Source: Financial Express, 28 January 2017)

Year End Review - Coal Mines (Special Provisions) Bill 2015 Passed; Laid Down Robust & Transparent System for Coal Mines Auctioning.

Centre Auctioned 31 Coal Mines; Another 42 Coal Mines allotted to State Entities

Potential Revenue Generation of over Rs 3.44 Lakh Crore Estimated During Life Time of Mines to the Coal Producing States

Over Rs 1395.69 Crore Transferred to Coal Bearing States

Coal Production & Off-Take by CIL grew by 8.8% & 9.8% in First 8 Months of FY 16 ; Gears up for One Billion Tonne Output by 2020

The year 2015 will be written in golden letters in the annals of history of coal sector in the country for the coal mines auction conducted in an efficient & transparent way. The success of coal block auctions carried out by the new government has proved that its decision to conduct a “fair and transparent” bidding for coal mines has benefitted the country in a big way because India has actually hit a gold mine with the recently concluded auctions.

In order to laid down robust & transparent system after the Supreme Court order, an Ordinance was promulgated to legally enable the Government to re-allocate 204 coal mines cancelled by the court and ensure smooth transfer of right, title and interests in the mine along with its land and other associated mining infrastructure to the new allocatee to be selected through an auction or allotment to Government companies, as the case may be. The Parliament passed the Coal Mines (Special Provisions) Bill 2015 on 20^th March,2015 which replaced the Ordinance. Under the provisions of the Coal Mines ( Special Provisions) Act ,2015, the Central Government has so far successfully auctioned in three tranches 31 coal mines and allotted 42 coal mines/Blocks to Central or State Government Companies .

The auction of coal mines has been universally hailed to be a success, which has not only ensured that there is no disruption in the economy in the wake of the order of the Supreme Court , but have also set new benchmark for efficiency and transparency.It is estimated that Rs 3.44 lakh crore of likely revenue to States through coal mines e-auctions & allotments over 30 years from just the three rounds of auction. The fourth round of auction of 8 coal mines ( Schedule III) for non-regulated sector has also been announced.

Out of 34 operating coal mines auctioned/ allotted, nine mines have started coal production and have registered over 5Mt output and rest all expected to begin production in next 2/3 months.

Coal Indian Ltd ( CIL)production jumped 8.8 per cent to 321.38 mt during April-November period of current fiscal while off-take soared by 9.8 percent.

In a historic decision, in order to meet the requirements of the industry, improve coal quality, promote efficiency as well as save the environment, CIL will supply 100% crushed coal to its customers from 1^st April, 2016. The Ministry has decided to ensure supply of quality fuel by supplying crushed coal from Ist January next year. CIL has also started the process of setting up 15 coal washeries to supply clean coal Grade 10 and above from October 2017.

Rationalisation of linkages has been done so far for 19 thermal coal plants resulting in annual saving of Rs 1423 crore in freight cost.

Details of Important initiatives & achievements of Ministry of Coal are as follows:

Coal Mines Auction & Allocation :

Under the provisions of the Coal Mines (Special Provisions) Act, 2015, the Central Government has so far successfully auctioned 31 coal mines and allotment of 42 coal mines/Blocks to Central or State Government Companies . The auction and allotment proceeds from 73 coal mines (31 Coal blocks through auction & 42 coal blocks through allocation) have touched over Rs 3.44 lakh crore over the life of the mine, which shall be devolving entirely to the coal producing States.

Revenue which would accrue to the coal bearing State Government concerned comprises of Upfront payment as prescribed in the tender document, Auction proceeds and Royalty on per tonne of coal production. The estimated revenue which would accrue to coal bearing state during the life of mine/lease period from the Auction of 31 Coal Mines is Rs. 1,96,698 crore. In addition, an estimated amount of Rs. 1,48,275 crore would accrue to coal bearing States from allotment of 42 coal mines to Central and State PSU’s. Further, the benefit to consumers in terms of reduction of electricity tariffs is likely to be about Rs. 69,310.97 crore.

In the first half of the budget session, both the houses of Parliament passed the Coal Mines (Special Provisions) Bill 2015 and thus the ordinance became an act of Parliament.

Key highlights of Coal Mines (Special Provisions) Act 2015 are as follows:

The new Act has provisions for allocation of coal mines through a transparent bidding process i.e. E-auction.
The E-auction of coal blocks will ensure the continuity in coal mining operations and will promote optimum utilisation of coal resources.
The new Act also facilitates E-auction of coal blocks for private companies for captive use and allots mines directly to state and central Public Sector Undertakings (PSUs).
It has provisions that propose strong measures for rehabilitation and compensation for displaced persons.
It enables sale of coal specially to small, medium and cottage industries which will increase employment & incomes in these sectors.

In the coal sector, Indian companies & Indian subsidiaries of foreign companies will be eligible for commercial mining. This provision is expected to attract global mining giants and make the sector more competitive and cost-effective.

*one coal mine is regionally explored and accordingly no estimates have been made.

Under the “Auction by Competitive bidding Rules,2012” , 10 regionally explored coal blocks have been allotted to Central/State Government Companies . In addition, 4 regionally explored lignite blocks have also been allotted to Government companies of Government of Gujarat .

An amount of Rs 1395,69,77046.25 Crore received on account of upfront & monthly payment ( up to Oct 31^st2015)has already been transferred to coal bearing States concerned.

Out of 34 Scheduled –II coal mines auctioned (17) and allotted (17), 9 coal mines have come under production. Production from these 9 coal mines up to September 2015 is 4.823 Million Tonnes (Prov.) Remaining mines are in different stages of obtaining various clearances.

Fourth round of auction, which will commence from January 2016 will auction nine Schedule- III coal mines earmarked for Non-regulated Sector i.e. Iron & Steel, Cement and Captive Power Plants.

Coal Production:

The production of raw coal during first half (April-September) of 2015-16 was 275.29 Mte compared to 264.54Mte during the corresponding period last year. The overall growth in coal production during April-September 2015 was 4.1%.

CIL records volume increase in coal production and off-take (Apr-Nov 2015)

Coal production and coal off-take by Coal India Limited (CIL), the state sector coal mining company, grew by 8.8% and 9.8% respectively during April-November 2015 on a year-on-year comparison. CIL increased its production by almost 26 Million Tonnes during April-November 2015 compared to same period previous fiscal, continuing its upward swing in production. The impetus laid on off-take also paid result as the volume increase in coal off-take during the period has been 30.44 Million Tonnes.

CIL as a whole produced 321.38 Million Tonnes of coal during April-November 2015 against 295.40 Million Tonnes last year same period the growth being 8.8%. Almost all the coal producing subsidiaries of CIL registered positive growth in production. Coal off-take was 341.13 Million Tonnes during April-November 2015 period compared to 310.70 Million Tonnes same period last year, registering a growth of 9.8%.

Facet	Apr-Nov 2015	Apr-Nov 2014	Increase in absolute terms	Growth
Production (in Million Tonnes)	321.38	295.40	25.98	8.8%
Off-take (in Million Tonnes)	341.13	310.70	30.44	9.8%

The increase in coal off-take of 30.44 Million Tonnes during April-November 2015 is two-and-a-half times more than that of 12.09 Million Tonnes achieved during same period last year.

In coal production, CIL posted a rise of 26 Million Tonnes during April-November 2015 as against 20.69 Million Tonnes in the same period previous year.

Reduction in Coal Imports:

Higher coal production has resulted in lower coal imports. The coal imports have been coming down by 4.56% since last year.

Month Wise Import of Coal during 2015-16
		(Quantity in Mte & Value in Million Rs.)
2015-16 (Provisional)			2014-15		Growth%
Month	Quantity	Value	Quantity	Value	in Qty
April	15.84	77517	16.14	84584	-1.88
May	21.35	95348	15.86	79765	34.62
June	17.26	77393	16.89	86576	2.20
July	12.82	58284	17.88	89693	-28.30
August	13.93	62763	14.17	74945	-1.69
September	12.64	60277	17.30	85989	-26.94
October	14.52	65180	15.30	78080	-5.10
April-October	108.36	496762	114	579632	-4.56
Source : DGCI&S

Coal Stocks at TPPS:

Coal stock inventory at coal fired power utilities of the country is also at comfortable levels. As of November ending 2015 there is not a single power utility in the country at super critical level and only 1 at critical level, with coal stocks at thermal power stations at a comfortable level of around 27 Million Tonnes which is 21 days coal stock.. At the same period, November ending 2014, the coal stocks at power utilities was 10.85 Million Tonnes accounting for 7 days stock. 50 Power utilities were at critical level then of which 30 were super critical.

Coal Quality:

A number of steps have been taken to ensure quality of coal produced. To address the issue of dispute between coal companies and power utilities and to improve quality of coal, new rules for Third Party Sampling have been introduced. According to the new rules, the authorized representatives of power plant and Coal Company shall jointly witness the process of sample collection as per BIS standards by Third Party Agency appointed by CIMFR. The agency needs to communicate the analysis report within 18 working days of the sample collection. Also, the Government has decided that from 1st January 2016 onwards coal will be transported after being crushed to requisite level.

Coal Washeries:

The Government has also decided to transport coal above G10 level only after being washed from 1^st October 2017. The decision is taken to tackle the quality issue of the coal produced. In order to meet the rising demand, CIL has been setting up 15 new washeries with a total capacity of 112.6 Mty. Out of these washeries, six are Coking Coal washeries with total capacity of 18.6 Mty and nine Non-Coking washeries of 94.0 Mty. Apart from these 3 washeries of 11.6 Mty are under construction.

Rationalization of Coal Linkages :

Inter-Ministerial Task Force (IMTF) was constituted in June ,2014 to review rationalisation of linkages . Based on IMTF recommendations, rationalization of coal sources for 15 Thermal Power Plants (TPPs) has been achieved under Stage I. Movement of 19 MT coal has been rationalized resulting in annual recurring saving of Rs 877 crore on transportation cost. Under Stage II proposals, transportation of 2.4 MT coal has been rationalised for 4 TPPs, resulting in potential recurring savings of Rs 563 crore per annum.

Fuel Supply Contracts by CIL:

An Inter-Ministerial Committee (IMC) has been constituted in the Ministry in January 2015 to consider various models including auctioning of coal linkages/LoAs through competitive bidding as the selection process and to recommend the optimal structure that would meet the requirements of all stakeholders.

Opening of Separate e-Auction window exclusively for Power & Non Power Sectors :

A 5MT e-auction window has been opened for Long and Medium term PPA Holders with floor price of CIL notified price plus 20 % premium. Another 5 MT e-auction window has been opened for Short term PPA or “ No PPA” holders with floor price of CIL notified price plus 40% premium.

Similarly , a separate e-auction window exclusively for non-power sector for a quantity of 4 MT is being opened by CIL wherein the present MoU non-Power consumers may also participate along with other non-power consumers. This window shall be available only for end users of non-power sector and therefore traders shall not be permitted to participate in the same.

CIL Gearing up for One Billion Tonne Coal Production Mark :

Coal India Limited (CIL), had unveiled its road map, of strategies to be adopted, to attain the one Billion Tonne (BT) coal production mark by 2019-20. With the projected coal demand of the country hovering around 1,200 Million Tonnes (MTs) by 2019-20, at an envisaged growth rate of 7 per cent, CIL is expected to chip in one BT, of which 908 MTs is the expected contribution from the indentified projects. The process of identification of projects to share the balance quantity, to top up the one BT mark, is also underway. The two CIL subsidiaries Sambalpur based Mahanadi Coalfields Limited and the Bilaspur based South Eastern Coalfields Limited are expected to play a pivotal role in CIL’s quest of attaining the one BT production with 250 MTs and 240 MTs respectively. The key issues that the coal miner is basically relying on are timely completion of three critical railway lines and timely land acquisition and green clearance.

CIL has assessed a tentative capital investment of Rs 57,000 crore for next five years to ramp-up its coal production to 908.1Mt. from production level of 494.80 Mt in 2014-15 as part of the road map for production of IBT coal by 2019-20.

WCL to open 36 mines in 36 months; Ramp up production targets to 100 mts by 2020

In order to help CIL to achieve its stupendous coal production target of one billion tonnes by FY 2020, Western Coalfields Limited is planning to enhance its coal production by 150%. It has already opened 10 mines in the last 10 months and will be opening 26 mines in next 26 months. With this planned expansion, WCL has revised its goal from 60 mt to 100 mt of coal by 2020 by enhancing its production by 150%.

NLC Ltd on Growth Path :

Neyveli Lignite Corp (NLC) has reached the 30.60 MTPA of Lignite mining capacity as on 31.10.2015 . It has enhanced its power generation capacity from 2740 MW (as on March 2015) to 4263.50 MW inclusive of 10 MWsolar and 13.5 MW wind power . NLC has set high growth target to become a 19,000 MW power company by 2025 with its own fuel security from its lignite and coal mines

MoUs with Railways & State Governments :

In order to maintain the planned growth in production and evacuation of coal , Memorandum of Understandings (MOUs) have been signed among Ministry of Railways (MoR), Ministry of Coal (MoC) and Governments of Odisha ,Jharkhand and Chhattisgarh for development of rail infrastructure through formation of a Joint Ventures (JVs) .

Coal Projects Monitoring Portal (e-CPMP) :

Coal Projects Monitoring Portal (e-CPMP) has been established in the Ministry to fast track clearances and pending issues of coal projects at State Government as well as Central Ministries .

Contribution to Swachh Bharat Abhiyaan :

The Coal Ministry in association with Ministries of Power and New & Renewable Energy were committed to construct a total of 1 lakh toilets in Government Schools within one year. CPSUs namely NTPC, REC, PGCIL, PFC, NHPC, SJVNL, THDC, NEEPCO, CIL, NLC and IREDA participated in the Swachh Bharat Abhiyaan. The three ministries collectively completed construction of more than 1.28 lakh numbers of toilets in schools across the country in short span of one year, surpassing the commitment of 1 lakh toilets. Out of these , 55,286 toilets were constructed by CIL & its subsidiaries.

RM/PS/ND

(Source: Assorted with PTI)

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