Coal India buys equipment to improve productivity

The mining equipment were commissioned at Dipka and the Gevra coal mines earlier this month, which together produces about 60 million tonnes of coal.

State-owned Coal India Ltd has bought mining equipment worth Rs 2,000 crore from foreign firms, including Caterpillar and Atlas Copco, to improve productivity of its Chhattisgarh mines.

“We bought these equipment at an investment of Rs 2,000 crore from companies like Caterpillar, Bucyrus, Atlas Copco. We have commissioned these sophisticated equipment at our leading mines in Chhattisgarh for improved mining,” Coal India Chairman Partha S Bhattacharyya said.

The mining equipment were commissioned at Dipka and the Gevra coal mines earlier this month, which together produces about 60 million tonnes of coal.

“These mines will comprise 15 per cent of the production target of our current financial year,” he added. CIL has planned to produce 435 million tonnes of coal in 2009 -10.

The demand-supply gap for coal in the country is estimated at around 70 million tonnes for the current fiscal and is forecast to double in the next two years.

The coal major has also lowered its annual production target for 2011-12 to 486 million tonnes from earlier 520 million tonnes on account of delays in securing certain clearances for its expansion projects. “Such equipment will help us to remove the overburden on the mines, penetrate deep and help us to produce more,” he added.

In a major development, the Coal Ministry has asked the Finance Ministry to reduce the 5.1 per cent import duty on thermal coal and continue with the existing zero import duty on coking coal to enable larger import by power and steel sectors.

According to a coal ministry official, while the steel sector’s demand for coking coal is expected to go up by another 18-20 per cent in 2010-11, CIL, which currently meets 82 per cent of the power sector’s thermal coal demand, will not be able to keep pace with the power sector’s incremental need because of hurdles in developing new mining projects. So the ministry wants to encourage the power sector to go for larger imports, the official said.

The Ministry has asked CIL to give its opinion on the issue after which it will put forward its proposal to the Finance Ministry but CIL has not given any comments so far, the official said.

According to sources, the Australian government has requested the Coal Ministry to lobby for reducing the import duty on thermal coal and persist with the zero import duty on coking coal, since it (the Australian government) foresees an opportunity to supply more coal to India from Australia.

An Australian Trade Commission Delegation, which recently came to India, presented a paper to the Coal Ministry saying reducing the import duty of thermal coal and keeping the zero import duty on coking coal intact would not only strengthen bilateral ties but would also enhance the availability of affordable inputs for two Indian infrastructure industry-power and steel.

The trade commission pointed out that coking coal import, which was 12 million tonne in 2006-07 from Australia, would touch 18-20 mt in 2010-2011 and 25 mt by 2012, taking into account India’s steel capacity addition.

While Australia has its share only in India’s coking coal space, Indonesia commands the thermal coal space. Australia wants to make an entry into the thermal coal space, since imports of thermal coal are likely to go up, the ministry official said. The Ministry estimated that import of coking and thermal coal together would be around 62.75mt by the end of 2009-2010, of which thermal coal would be around 40 mt. In 2008-09, India’s total thermal coal imports were 37.92 mt and coking coal 21.08 mt. However, CIL had no plans to import any coal in 2009-10 but the Planning Commission has asked it to import 4mt of thermal coal in 2010- 2011 for NTPC.

CIL is yet to take a decision on the planning commission’s order. CIL chairman said that CIL required an undertaking from NTPC that it would lift the entire 4 mt, which CIL will import. Both the parties are yet to arrive at a consensus on the issue.

Investment in overseas mines

The CIL Board recently approved a plan to acquire equity interest in 15-20 coal mines in Australia, Indonesia and the US. This could cost CIL up to $2 billion (Rs 9,280 crore), according to its chairman PS Bhattacharyya.

CIL would develop some of these mines in partnership with firms such as US-based Peabody Energy Corp — the world’s largest private sector coal miner — and Massey Energy Co; others are operating mines in which CIL will buy small equity stakes in return for committed coal supplies.

“This is CIL’s first step towards achieving a global footprint… the benefits are going to be substantial,” he said.

Through competitive bidding, which started in July, CIL had identified nine investment proposals. Its board decided that CIL will pursue the two best investment proposals each in Australia, Indonesia and the US.

The six investment proposals would give CIL access to some 15-20 mines, the due diligence on which would soon begin. “Within six months, we’ll start closing deals,” he said.

“We are going to deal with highly credible partners. So the due diligence exercise should not take too long.”

Over the next 10 years, CIL expects to import from these mines at least 500 million tonnes of thermal coal, a variety used by power plants. Coal supplies from these mines are expected to begin in fiscal 2011, Bhattacharyya said.

In fiscal 2009, CIL produced 404 million tonnes of coal, of which almost 300 million was sold to power plants. In the same year, India imported around 60 million tonnes of coal, of which 36-37 million tonnes was thermal coal.

“It’s a step in the right direction,” said Sumantra Banerjee, managing director of CESC Ltd, a Kolkata-based power utility. Key to the success of this arrangement is the freight cost of importing the coal. “Even if CIL secures high quality coal, the freight cost of importing coal from many countries — Australia and South Africa for instance — is prohibitive,” he added.

CIL expects to secure supplies at a substantial discount to international spot prices. Even if the landed cost of coal imported under this arrangement is $10 a tonne less than international spot prices, the country will save $500 million a year, assuming CIL imports on an average 50 million tonnes of coal a year, Bhattacharyya said, adding, “Some of this will, of course, translate into profits for CIL.”

The real demand for imported coal could be much more than what is currently imported, according to Kameswara Rao, India leader for energy utilities and mining at consulting firm Pricewaterhouse Coopers.

It is impossible for CIL to fulfil India’s coal needs with its own domestic production, and its move to secure committed supplies from foreign mines could lead to substantial savings for Indian firms, he said. But there could be significant “supply-side constraints” even with this new arrangement, at least initially.

“For instance, managing the logistics of shipping the coal to India might not be easy — CIL could face serious bottlenecks at overseas ports, and the miners may want CIL to invest in the transport logistics, too,” Rao said.

MCL faces daunting task to meet coal target

Mahanadi Coalfields Limited (MCL), a subsidiary of CIL, faces an uphill task of meeting the coal output target for 2009-10.

The company which has been given a coal output target of 110.7 million tonnes by CIL for the current fiscal has to produce about 30 million tonnes of coal in February and March this year to meet the target.

According to MCL sources, the company has recorded a production of about 80 million tonnes from its Talcher and Ib valley coalfields by the end of January 2010 as against the target of 87.51 million tonnes.

It may be noted that the Ib valley coalfields comprising Ib valley and Basundhara coalfields has almost achieved the coal production target of 34.47 million tonnes. On the other hand, the Talcher Coalfields produced 45.92 million tonnes by the end of January 2010, falling short of the targeted 53 million tonnes.