Sustainability of Coal Supply and Demand

1. Sustainability of Coal Supply and Demand J.Goel, Chief General Manager(S&M) Coal India Limited ASSOCHAM New Delhi 24th February 2009

2. Coal & Energy sector – India & the World

3. Coal reserve – India and the World

4. Coal production in India - Highlights 30Mt in the year of independence 77 Mt prior to nationalization of coal sector 3.7% growth in pre-nationalization period Oil shock of Seventies - faster growth in coal sector prerequisite for planned growth of the Country leading to Coal sector nationalization From 78Mt in 1973-74 to 457 Mt in 2007-08 5.3% growth in post-nationalization period

5. Coal production– India and the World

6. PLANWISE PRODUCTION AND ANNUALISED GROWTH OF CIL

7. Reaching coal to consumers – CIL’s dedicated service of 35 years CIL developed extensive logistics infrastructure over the years- commensurate to growth in Production • 161 operating Railway sidings catering coal loading of 473 operating mines • CIL contributes 27% originating traffic of IR • Contributing freight revenue of 24%-- more than the combined contribution of Cement, Fertilizer, food grains and POL • Manual/CHP loading largely replaced by Mechanical loading through pay-loaders • Rake loading time reduced from 16 hours to 2.5 hours • All loading points, both rail & road, have electronic weighing facilities and quality assessment facility

8. Emerging demand of energy-- sustainability of Coal supplies • Coal provides 56% of primary energy of the Country against 29% Globally • 61% of power generation India depends on coal against 40% internationally • Sustainability of coal supplies, the single most important issue for continuing desired growth rate. • Policies on coal production and distribution need to highlight priority areas

9. Contribution of Coal in power generation – India & World

10. Shift in contribution in indigenous production

11. Policy issue – shift in contribution in indigenous production • From a level of 90% in the post-nationalization period (IV Plan), CIL’s contribution in Country’s coal production reduced to 84% in X Plan. • Coal blocks allotted for captive consumption • Production of CIL to reduce drastically to 76% in XI Plan and to 63% in XII Plan. • Negative growth in production of CIL from XIII Plan. Production to reduce to 640Mt in 2021-22 from 664Mt in 2016-17, share in indigenous production below 50% level

12. Challenges on CIL for XI Plan • CIL to produce 520.5Mt coal in 2011-12 – growth from a level of 5.4% in X Plan to 7.6% in XI Plan. • 33% of coal production to come from new projects • To accomplish the task acquisition of 50,000 Ha land required per year. • Prompt statutory approval from State and Central Statutory Authorities………….. – no instance of denial of approval • no instance of timely approval too

13. Coal distribution policy – role of CIL New Coal distribution policy (NCDP) introduced in October’07. Policy provisions: • Distinction between core & non-core sectors abolished • Coal supply through legally enforceable Fuel Supply Agreement & LOAs for new consumers • Power, including Captive Power & Fertilizer sectors to get 100% coal requirement • Other sectors to be provided with 75% coal requirement • CIL to meet entire requirement of coal of the Country, if required, even by importing coal … And at the same time, share of CIL in Indigenous production to reduce

14. Major events post October’07: changed demand scenario on CIL • 505 units cleared by SLC (LT) for issuance of letter of assurances (LOA) • 400 units already deposited Commitment Guarantee (CG) –10% of coal value • 300 units ready for coal consumption • Time limit extended by Government for depositing CG • Large numbers of fresh applications still pending with SLC (LT) for grant of further clearances for LOA/FSA • Units from different industries not covered by SLC (LT) also waiting for LOAs

15. All India Coal demand & Indigenous availability scenario – as envisaged in XI Plan (2011-12)

16. Existing Sector-wise commitment on CIL and production Plan for 2011-12 Figs. In Mt

17. Demand-supply – current scenario • Committed demand on CIL in 2011-12 already touched 749 Mt – gap between demand-availability 229Mt. • Demand to further increase to 861 Mt by 2012-13, widening the gap to 315 Mt. • Supply already committed for XI Plan exceeds CIL’s production projection of XI and XII Plans by 229Mt and 85Mt respectively

18. Impact of effective shortfall on CIL -- 100% FSA supplies to existing TPSs as in 2007-08 with trigger for compensation at 90% -- For New power projects only 77 Mt of coal left after providing FSA quantity to other consumers -- Trigger for Compensation for new consumers shall logically go down to 24% -- Additional new demand of 64Mt from non-power consumers – most of them ready to take coal immediatly -- e-auction needs to continue to meet spot market demand apart from catering 25% coal requirement of FSA holders of other than Power -- LOA policy for non-SLC (ST) consumers is in pipeline – widening of gap likely to expose CIL for large scale compensation payment

19. Imports –sustained supply – emerging issues Requirement to start with – say 200Mt Issues involved • Available Port Capacity in the Country • Hinterland coal movement possibilities • Optimization of transport capacity -- scheduling import • Blending facilities at consumption centers • International coal trade possibilities -- effect of additional demand from India

20. Port Capacity of the Country • Current coal handling capacity at Ports not exceeding 100Mt • 30Mt Coastal shipment from East to South likely to cross 50Mt by XI Plan • 25 Mt of current imports of coking coal projected to increase to 40Mt by 2011-12 • 25Mt steaming coal already being imported • Residual capacity, if any, for captive use only

21. Hinterland coal movement capacity • Only indigenous coal movement would require 300 rakes/day by 2011-12 • Rail connectivity of up-coming coalfields – Karanpura, Gopalpur, Rai-Mandgarh already identified as critical area for indigenous coal movement • 200 Mt of import would require additional movement of 150 rakes/day • East-North Dedicated freight corridor – prerequisite yet not sufficient and not likely to come up in XI Plan

22. Optimization transport capacity -- scheduling import • About 20% seasonal fluctuations in coal production – rake requirement to increase to 360 rakes/day in peak period – December-March. • Peak freight movement, including fertilizer and foodgrains, clashes with coal • Imports to be scheduled for optimum utilization of transport capacity -- corresponding flexibility at port also to be made available for handling cargo

23. Blending facilities at consumption centers • Power stations, by and large, not capable using more than 20% imported coal • Rake movement model ideally should be 4:1 for indigenous and imported coal at Power stations • Average rake movement ratio likely being 2:1, blending yards to be developed with provision for supplementing indigenous coal transportation • Blending arrangement for smaller consumers even difficult – exposure to cost increase and adulteration

24. International coal trade -- effect of additional demand from India • Ocean trade quantity for steaming coal about 700-750 Mt • Import of 200Mt by CIL/Indian Agencies – 30% surge in current demand leading to -- corresponding escalation in coal price -- constraints in availability of loading berth -- limited availability of vessels and freight hike – particularly in view of draft limitation in many of the Indian Ports

25. Conclusions • The gap between demand of coal and its availability in the Country much more than the projections of XI Plan document. • Unlike earlier plans, demands more likely to fructify due to legal enforceability • Importing to bridge the gap – not attainable as a short-term strategy for logistics mismatch • Additional demand and consequent uncertainty of international market – import only for supplementing - not a means for sustainable coal supply

26. Conclusion … contd. • Indigenous production, therefore, requires to grow at a faster rate to narrow down the gap • Issues related to curbing delay in project clearance from all statutory authorities and timely acquisition of land need policy initiative • CIL having limited scope in augmenting production, key role to be played by captive blocks • Status of CIL being shifted towards only one of the major players in coal sector, responsibility mandated by NCDP not matching with authority

27. Conclusion … contd. • Demand side management needs special consideration • Improved fuel utilization technology could be rewarded by priority coal release • Let market force determine coal supplies – likely to goad captive blocks for faster and improved project utilization • Acquiring coal properties abroad may improve sustainability of imported coal supply • Infrastructure building, particularly ports and railways including dedicated vessels and rolling stock to be considered as thrust area • Allotment of indigenous coal blocks for CIL to be attuned to meet increased demand

28. Thank you