COAL

Coal Scenario in IndiaAn Overview: Rajesh Nath, Managing Director & Dipanjan Paul, Business Analyst, VDMA India

Posted on February 20, 2013

Geology and Reserves of Indian coal

Coal is the most abundant fossil fuel resource in the country. India, currently, stands eighth in terms of total World Coal Resources, whereas it is fourth from the point of view of identified reserves.

The coal occurrences in India are mainly distributed along the present day river valleys i.e. DamodarValley, Sone-MahanadiValley, Pench-KanhanValley, Wardha-Godavari Valley etc. There are 69 major coalfields located in the peninsular India besides, 17 located in the north-eastern region. The bulk of the coal reserves are confined to the south-eastern quadrant of the country in West Bengal, Jharkand, Orissa, Chattisgarh & Madhya Pradesh.

The coal reserves of India have been estimated by the Geological Survey of India at 285.8 billion tonnesup to the depth of 1200m, as on 31.03.2011.

Out of 285.8 billion tonnes (Bt) of coal reservesPrime coking coal are 5.3 Bt, Medium & Semicoking coals are 28 Bt and Non-coking coals 250.8 Bt. Most of these resources occur in Gondwanas and the balance in the Tertiary formations.

Currently, lignite reserves in the country have been estimated at around 39.7 billion tonnes, most of which, occur in Tamilnadu. Other states where lignite deposits have been located are Rajasthan, Gujarat, Kerala, Jammu and Kashmir and Union Territory of Pondicherry.

Basically, Indian coals have high mineral matter (ash) content unlike Pennsylvanian and Carboniferous coals of America and Europe respectively.

COAL RESERVES IN INDIA AS ON 31.03.2011 (IN MT)

Type of Coal Prime Coking

Proved Indicated 4614 699 0

Inferred 5313 26454 1707

Total

Medium Coking 12573 12001 1880 Semi Coking Non Coking Tertiary Coal Total Lignite 173.22.9423.14 482 1003 222

95739 123668 31488 250895 594 99 799 1493

114002 137471 34390 285862

Coal Resources:

India ranks third amongst the coal producing countries of the world in terms of annual coal production. However, in respect of coal resources, it is endowed with less than one percent of world coal resources. Of the 285.8 billion tonnes of Indian coal resources up to a depth of 1200 metres, about 105.7 billion tonnes fall under proved or confirmed category. This constitutes about five percent of the world proved coal resources.

production had come up to a level of nearly 72 million tonnes per year only. The entire coal industry in India was nationalised during 1972-73 and then on massive investments were made by the

Government of India in this basic infrastructure sector. India now ranks as the third largest coal producer of the World next only to China and USA.

Mining depths in Indian coalfields are quite shallow, barring a few mines in Jharia and Raniganj coalfields. Major share of coal resources lies at a depth of less than 300 metres. About 87 percent of coal resources lie within the depth range of 600 metres. However, in most of the coalfields, exploration work beyond 600 metres depth is yet to be taken up. It is expected that the resource figures will improve considerably, with increased depth of exploration.

Deposit characteristics vary widely from coalfield to coalfield. In some areas like Jharia and Raniganj coalfields, high concentration of super imposed seams (as much as 40 in number) pose great challenge to mining operations. Presence of a large number of thick seams, though a blessing for open cast mining, is again a major underground mining problem. Reserves in steeply inclined seams are, however, only marginal.

Geological inconsistencies like faults, folds, washouts etc, common in most of the coalfields, tend to reduce the mining potential of deposits. Intrusions such as dykes and sills often lead to operational problems and quality deterioration.

Nearly all Indian Coal seams are prone to spontaneous heating. The incubation period varies widely from 2 to 12 months. However, compared to gas emission in other parts of the world, the coal seams in India are less gassy.

Due to the very nature of deposition, Indian coals, in general, are of inferior quality owing to high ash percentage, when compared with coal available in the international trade arena. Despite this, Indian coals in general merit better environment friendly use because of:

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Low sulphur content

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Low chlorine content and

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Low toxic trace elements

Additional advantages for industrial use

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High ash fusion temperature

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Low iron content and

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Refractory nature of ash

The exploration database, created so far, is adequate for preparation of a long-term perspective plan for mining of coal in the country.

Coal deposits in India are confined to eastern, southern and central parts of the country, consisting of 27 major coalfields. The shares of overall coal resources of different States are:

Andhra Pradesh

9.59%

Bihar

14.58%

Chhattisgarh

20.81%

Jharkhand

19.44%

Madhya Pradesh

14.30%

Maharashtra

7.93%

Orissa

19.58%

Uttar Pradesh

2.64

West Bengal

4.33%

Balance share of coal reserves is distributed over Arunachal Pradesh, Assam, Meghalaya and Nagaland.

Quality wise resource is 8.27 % Coking Coal and 91.73% Non Coking Coal.

Out of Total Non Coking Coal the

superior grades A, B and C with Ash content 24% or less inferior grades with ash content between 24-45% Jharia Coalfield is the main source of prime coking coal. Superior grade non coking coals are generally available in Raniganj Coalfield of West Bengal, Central India Coalfield of Madhya Pradesh and Talcher Coalfields of Orissa.

The ash of Indian coal is of inherent nature and has high presence of near gravity material

(NGM). This makes washing of Indian coal rather difficult. Some of the positive features of Indian Coal are low sulphur, low toxic elements and high ash fusion temperature.

Coal Industry in India

Coal India is the largest public sector company, about 80.86% of the total coal production in the country comes from the collieries of Coal India Ltd (CIL). It has eight subsidiaries: Bharat Coking Coal Ltd., Central Coalfields Ltd., Eastern Coalfields Ltd., Western Coalfields Ltd., South Eastern Coalfields Ltd., Northern Coalfields Ltd., Mahanadi Coalfields Ltd., Central Mine Planning & Design Institute Ltd.

The Singareni Collieries Company Limited (SCCL) is a coal-mining company jointly owned by the Government of Andhra Pradesh and Government of India. The Singareni coal reserves stretch across

350 Kms of the Pranahita, Godavari Valley of Andhra Pradesh with a proven geological reserves aggregating to 8791 million tonnes. SCCL is currently operating 13 opencast and 37 underground mines in Andhra Pradesh.

The Coal Mines (Nationalisation) Act, 1973 was amended w.e.f. 9th June 1993 to allow coal mining by both private and public sector for captive consumption for production of iron and steel, generation of power, washing of coal obtained from a mine and other end use, which would be notified by the Government from time to time. Under the last provision, cement production was further allowed as an end use w.e.f 5th March 1996 for captive mining of coal. The restriction of captive mining does not apply to state-owned coal/mineral development undertakings like CIL, SCCL, Neyveli Lignite Corporation (NLC) etc. and Mineral Development Corporation of the State Governments.

Coal Production

Coal production achieved in the country during the year 2010-11 has been 533.07 million tonnes as compared to the production of 523.16 million tonnes achieved during the

previous year i.e. 2009-10 showing a compounded annual growth rate of 1.91%.

About 80.86% of the total coal production in the country comes from the collieries of Coal India Ltd (CIL). CIL is also the biggest supplier of coal in the country.

Anticipated Coal Production2012-13 (In million tonnes) Name of the Co. CIL SCCL58 570 Coal Production

Others125Total753

Coal production over the years

Raw Coal

2009-10

2010-11

1. Growth of Production (India)

4.42%

0.20%

Growth of Production (CIL)

2.97%

0.10%

2. Growth of Off-take (India)

4.89%

1.84%

Growth of Off-take (CIL)

3.49%

2.0%

3. Closing Stock/ (average monthly take off)

0.80%

4. Colliery Consumption/ Off-take

0.17%

0.17%

5. Stripping Ratio (OBR/RC)

2.13

2.13

6. Import growth (overall-Coal)

17%

25.58%

Coking Coal

-4.31%

13.41%

Non-Coking Coal

36.58%

31.77%

7. Avg.pit head value/ Ton Coal (Non Captive Public)

14.19

Coal Production based on Technology

In India opencast and underground mining is prevalent. Opencast mine production grew by 5.54 % to 457 mt in the year 2009-10

In the case of Underground (UG) mines, the production in 2009-10 is 58.60 mt

Production of Coal and its share by type of Mining. Type of mining OC 2008-09 Share (%) UG Total Production 433.7 58.97 492.75

Production

88.03% 11.89% 100%

2009-10 Share (%) Growth (%)

Production

457

58.60 515.6

88.63% 11.37% 100% 5.54% -0.5% 4.67%

Demand, Production & Supply

The demand of coal assessed by the Planning Commission during the year 2010-11 was 572MT

The target of coal production was 97.2% achieved by Coal India Ltd (CIL) in 2010-11 and 104% achieved by Singareni Collieries Co. Ltd (SCCL).

Demand of Power, Steel and Cement in a developing country is closely related to its economic growth. It is difficult to imagine a country slated for growth without using power, steel and cement. Global as well as Indian steel and cement production are dependent on coal. That is why distribution of coal of adequate quantity and quality to power sector followed by steel and cement manufacturing sector is considered a priority in Indian Coal Industry.

Sectoral Off-Take of raw Coal (Million Tonnes) Cos. Achieved (2010-11) Cement Others Total 7.03 (1.7) 7.3 102.9 411.3 (25.03) (100) 8.3 49.4

Power Steel CIL % SCCL %

290.7 10.7 (70.6) (2.6) 33.83 0.05 (68.4) (0.1) 8.7

(14.7) (16.8) (100) 0.7 17.3 52.3

Others 25.7 % Total

(49.1) (16.6) (1.91) (33.07) (100) 350.2 19.45 14.3 (2.79) (25) 128.5 512.4 (100)

(68.3) (3.7)

Project under Formulation

Name of Project million) PURNADIH OC CCL TAPIN OC DINESH OC CCL WCL

Company

Latest Capital (in million Rs.)

Latest Capital( In Euro

2100 2640 4960 3770 2030 4470 SECL 4470

35 44 82.66 62.83 33.83 74.5 4620 74.5 77

PENGANGA OC WCL BATURA OC PELMA OC SECL SECL

CHURCHA RO UG TALABIRA OC MCL

The expansion programme undertaken by SCCL in brownfield underground projects are in the final stage and plans are afoot to implement a few Greenfield projects as well.

Private Coal mining in India

The governments strategy to allow coal mining by standalone companies that have tie-ups with steel, cement and power companies for coal supplies will become operational within the coming

month. Coal ministry & law ministry officials confirmed that those mining companies who have supply contracts with authorized users namely steel, cement and power companies can have mining rights to those coal blocks that is reserved for confined users, even without emending the Coal Mines (Nationalization) Act, 1973. The move is likely to give further push to coal production and will play a pivotal role in meeting the countrys future demand to a large extent.

Investment opportunities in Coal Industries Public sector undertakings have been in the total command of the coal production since 1973-74 to present day, but with the liberalisation of economy since June 1991 the scenario has changed. Huge investments are required to meet the increasing demand of coal for power and other industries and at the same time Government is looking for private player to invest.

Under the present policy of free market economy, Government is removing controls on industry and trade, reducing the tariff on import and allowing private investment in companies even up to majority share holding by private / foreign sources. The Coal Mines (Nationalisation) Act, 1973 has been amended to allow private participation in coal mining as captive mines for companies engaged in opening new units for power generation, coal preparation (washing) and production of Iron & Steel and Cement. Government has already appointed a Screening Committee under the Ministry of Coal to allocate identified Coal Blocks for captive mining to above categories. Already 100 Blocks have been identified and several companies given permission to operate such blocks.

Investment opportunity in Transfer of New Technology Investment opportunity in Manufacture of Equipment / Spares Investment opportunity in Construction of Road (Both Approach and Arterial) in Coalfields Investment opportunity in Building Rail-lines Investment Opportunity in Major Repair Workshops / Spares depots Investment Opportunities in Environmental Protection Investment Opportunities in Joint Venture for Opening New Mines Investment Opportunities for Leasing of Equipment Investment Opportunities in Ancillary and Infrastructure Developments Investment Opportunities in Auxiliary Industries

Investment Opportunities in Development of Ports and for Handling Imported Coal Areas of interest for the Indian Coal Mining Companies are follows: Powered support Longwall / Shortwall Continuous miners in Room and Pillar system Roof bolting systems application of light bolting machines in Bord and Pillar development galleries Mechanised depillaring of coal seams developed on Bord and Pillar system Prediction of Strata behavior in extraction of developed pillars by caving method. Design of roof support to permit mechanised depillaring. Use of Road Haul Dumper, Continuous miner Application of mobile powered supports (Crawler mounted) in depillaring by caving method Road Headers Coal Conveyor systems Simple and cost effective men and material transport system in inclined roadways Ventilation system in mines Coal Handling arrangements high speed loading equipment Advanced geological exploration techniques to prove faults with small throw (less than 5 metres); in depth range of 20 to 300 m. Communication system in underground mines Application of Information Technology in mining activities Simple method of beneficiation of coal upgradation of coal needed for Power PlantsImproved hydraulic stowing techniques using river sand, crushed overburden, fly ash and other locally available materials FDI in Mining sector Year (April to March) 2008-09 2009-10 2010-11 2011-12 Grand total FDI in Rs. Crore FDI in Euro million

161.09 24.78 829.92 127.68 357.42 54.98 436.61 67.17 1,785.04 274.62

New coal projects in India

Lanco Infratech Ltd. setting up 1320 MW coal based power unit PNC Infratech Ltd 660 MW coal based Power unit Bharat Coking Coal Ltd setting up a 2.5 million tpa coal washery at Dugda. MaharastraState power generation Co. Ltd. set up a 1,320 MW coal based power unit on PPP basis. Era Infra Engineering Ltd plans to set up a 2640 MW coal based power unit at Rajauli. CIL offers 447 million tonnes of coal to power utilities. Regulatory Framework of Coal Industry in India Coal Industry in India is regulated largely by the provisions of: The Coal Mines (Nationalisation) Act, 1973 To nationalise the coal sector Mines & Minerals (Development & Regulation) Act, 1957 To regulate exploration and exploitation of minerals The Coal Bearing Area (Acquisition & Development) Act To facilitate acquisition of coal bearing land Environmental Protection Act, 1986 To conduct mining operations in an environmental friendly manner Liberalisation of Policy Regime: The main thrust of the policy is to liberalise the statutory and regulatory regime in order to promote investment in the coal sector.The recent policy initiatives have been in the following direction: Captive mining by Power, Steel and Cement industry allowed. Foreign Direct Investment allowed upto 100% in Power and coal mining Creating a competitive market for sale of coal Progressive reduction of custom duty on Coal and HEMM imports Introduction of Contract Mining

Bibliography

Coal Directory of India Government of India-Ministry of Coal Annual Report Report on Overview of Coal Mining sector in IndiaVDMA Information from SCCL & CIL website www.vdmaindia.org

(Reuters) - Rising Indian coal imports are the knight in shining armour for producers from the Americas through Africa to Asia -- at least that's the impression the industry is keen to give.
That India's coal imports have no option but to rise and the only matter in dispute is by how much, was the consensus of producers and consumers at the Coaltrans India conference this week in Goa.

But is the consensus based more in hope than reality?

The thing that is always striking about India's coal sector, for both domestic production and imports, is that forecasts are rarely correct.

India's coal demand was around 730 million tonnes in the 2011/12 fiscal year, with about 100 million tonnes of that met through imports.

The consensus of forecasts at the Coaltrans event is for demand to rise to about 1.1 billion tonnes by the end of the current five-year plan in 2016/17.

Some of this 370 million tonnes increase in annual demand is expected to be met by state-controlled Coal India, the world's biggest miner of the fuel.

However, there is likely to be a shortfall in the region of 200 million to 250 million tonnes, which global producers are hoping to fill.

Certainly imports have been increasing dramatically in India, with arriving cargoes jumping 29 percent to 112.8 million tonnes in the April to January period, the first nine months of the 2012-13 financial year.

Looking at the split between thermal and coking coal it's clear that imports of the lower-grade fuel for power stations are increasing at a faster rate, mainly as a result of the lower prevailing international prices and Coal India's ongoing inability to increase production sufficiently.

Demand for coking coal for steel-making is also expected to surge as India plans to nearly double steel capacity from the current 70 million tonnes to about 130 million tonnes by 2014/15.

With increasing uncertainty over the trajectory of Chinese coal imports, it would seem that India may well be the nirvana coal miners seek, offering a lifeline to U.S. producers who have been pummelled by the shale gas revolution as well as underpinning expansions and new projects in places such as Mozambique and Australia.

But while the demand for coal is likely to be fairly close to the consensus forecast, there remain serious question marks over whether this demand can actually be fulfilled, even if global supplies are plentiful.

STRUCTURAL CHALLENGES

India's coal, power and steel sectors face enormous structural challenges and most issues can be traced to the regulatory regimes that delay and stifle businesses.

In mining, India has plentiful reserves but Coal India consistently fails to meet targets.

Even when coal is produced, the rail system struggles to get it from where it was mined to where it's needed.

And when the fuel finally reaches the plant, the utility struggles to produce power it can sell profitably because controls at the state electricity boards keep prices below the cost of generation.

Poor domestic coal supply is the driver of imports, but the higher cost makes the economics even worse for power producers, with several executives of independent operators complaining that they are incurring losses and are considering shutting down plants, which would exacerbate India's power shortages.

In the steel industry, state-owned Steel Authority of India Ltd, the country's largest producer, acts as a price-setter, meaning that margins for private producers are also often negative, which inhibits the ability to boost production and hence the need for coking coal.

There is broad awareness of these issues among coal industry participants, and even a fair degree of consensus on how to solve them.

Coal India should be broken up, foreign and local mining companies should be allowed to compete for blocks and start production, and mine approvals should be streamlined from the more than 20 state and federal agencies that currently have to give the green light to projects.

Private companies should be allowed to build and operate railroads, perhaps in conjunction with the state operator.

And most importantly, electricity and steel prices must be freed up to accurately reflect the costs of production.

All of these reforms are the purview of the federal and state governments, and there's not much optimism that there is the necessary political will, or ability, to make changes.

The most likely outcome is that India continues on what I call the "bumbling along" path, whereby no major changes are made but enough is done to ensure that the deficits of coal, power and steel don't reach crisis levels.

This is likely to result in rising imports of coal, but perhaps not to the levels of 250 million tonnes a year by 2016/17 that many in the industry are hoping for.

It also means that new coal projects will only go ahead where there are strong offtake agreements in place, in other words where the buyer is a major partner in the mine.

Other producers will have to hope that Indian demand does indeed rise as forecast, but they will also have to be aware that the South Asian nation will only purchase when prices are low.

(Clyde Russell is a Reuters market analyst. The views expressed are his own)