Coal India deal with Peaboy awaiting Govt response

Coal India Ltd's plan of picking up a 15% stake in US-based firm Peabody Energy's 600 million Australian dollar mining project in Australia may get delayed, as the coal major is awaiting the government's response on certain issues pertaining to the deal.

"It (the deal) will take some time as there are certain issues -- like the company should be listed -- related to the deal, which Coal India has referred to the government. After getting a response from the government, the decision would be taken," a top official in Coal India told PTI

Both the companies are mulling the formation of a joint venture company (JVC) to implement the project at the Wilkie Creek coal mine, in Queensland, Australia, owned by Peabody.

The US-based firm will have an 85% holding in the JVC, while the rest will be owned by Coal India Ltd (CIL).

The proposal had come up for discussion in a Coal India Board meeting held last month, wherein it was decided to refer the same to the Coal Ministry for certain clarifications.
    
"The Coal Ministry had earlier said that acquisition of the property in the overseas market will be confined to listed companies so that the there is not much problem during the valuation of the deal," an official in the Coal Ministry had earlier said.
    
However, since the proposed company would not be listed, "The board had said to refer the proposal to the government seeking clarifications whether Coal India can go ahead with the deal if the principal (Peabody) is listed," the official had added.
    
Earlier, CIL had said it was likely to buy up to a 15% stake in Peabody Energy Corp's Australian assets in early 2011-12 for an estimated $100 million (about Rs 450 crore).
    
Peabody Energy is the world's largest private sector coal company, with sales of 246 million tonne (MT) in 2010. The company claims to have 9 billion tonne of reserves and manages and owns an interest in 28 mining operations in the US and Australia.

Sub standard coal being imported by power generators

It seems thats the shortage of coal is forcing the power generation companies in India to opt for lower grade of imported coal. The environmental concerns raised for mining of cola might result in usage of sub standard coal and increased pollution/emissions. The social cost of such trends need to be incorporated by teh economists and enronmentalists. India’s demand is for sub 6,000 kc/kg  standard coal is increasing. It has low calorific value (cv) and low priced coal. India is dragging in Indonesian sub-bituminous and what might be seen as mining discard from Australia. “In the last week or so a cargo of low cv coal has gone from South Africa to India and the importance of that cannot be underestimated,” sources added.

Country’s growing appetite for low-grade, low-priced coal could give South African state utility Eskom fuel supply problems, Graham Parker, director of traders Traxys Coal, said. A shipment of 4,800 kc/kg coal, significantly below the standard grade of around 5,800 kc/kg for export coal, was sold last month to an Indian buyer by one of South Africa’s biggest mining companies, Parker said at the Navigate shipping conference.Lower energy content coal, which is mined simultaneously with export grade coal in South Africa, is almost entirely burned by state utility Eskom, which generates more than 90 per cent of the country’s power. 

Coal India to do away with compulsive Fuel Supply Agreements (FSA)

The widening demand-supply gap and depleting production of Coal India Limited has compelled the coal ministry to overhaul the national coal distribution policy. If the ministry has its way then soon a new distribution policy would be in place to serve the comprehensive coal linkage needs of core and non-core sectors by introducing adequate flexibility in coal supply to meet the growing demands of these sectors and promote energy security.

After a meeting with senior officials from coal, power and other ministries today, coal minister Sriprakash Jaiswal told The Indian Express that the distribution policy, which was over three years old needed to be re-shaped as due to ever-growing demand of the mineral from the power sector, it has virtually become impossible to provide additional coal to other sectors. Due to the negative balance of coal, the Standing Committee on Linkage for steel and cement could not be convened for the past three years, he said. This was also the reason why CIL’s policy for non-SLC (LT) category of consumers could also not be notified so far.

The existing policy mandates coal companies to meet 100 per cent requirement of defence and railway sectors at notified price, while meeting 75 per cent of the quantity of normative requirements of other linked consumers through Fuel Supply Agreements (FSAs). Under it Letters of Assurances are issued and all core and non-core sectors are required to enter into FSAs with the companies. The policy mandates the states to nominate their agencies to the Centre for transparent distribution of coal to small and medium consumers, whose annual requirement is less than 4,200 tonnes.

Lanco asked to honor coal contract in Australia

West Australia Premier Colin Barnett says he has made it very clear to Indian power giant Lanco Infratech it cannot renege on a coal deal affecting 10 per cent of the state's electricity supply.

Lanco paid $750 million in December for Griffin Coal's debt-laden thermal coal mine near Collie.

The coal mine, one of the biggest in WA, supplies about two million tonnes of coal per year to the nearby Bluewaters Power Station, which generates about 10 per cent of the state's electricity.

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However, Lanco told the power station's operator last month it would halt the coal supply from June due to financial difficulties.

Mr Barnett said he has written to Lanco reminding it of the company's obligations under existing contracts.

"It seems to me now they want to walk away from the contracts they purchased as part of that deal and the obligations to supply coal," he told Fairfax Radio on Wednesday.

"I contacted them and made it very clear we expected the contracts to be honoured, and we have made it clear we expect them to behave as a good corporate citizen, and I'm sure they will do that."

The WA premier said Lanco's position had been disappointing and although it had a right to mine the coal it did not have an automatic right to export it.

He said the contracts could possibly be renegotiated, but until then Lanco needed to honour the existing deal even if it was not commercially beneficial in the long term.

"They went in eyes wide open so we expected them to do their proper due diligence on the coal, the asset and also the contracts that Griffin had," Mr Barnett said.

"We can be sensible about that and try to resolve it commercially.

"But I don't think companies can come in here into Australia, into the Australian legal system, buy an asset and suddenly think they can redo all the existing obligations. That won't work."

Mining disallowed in barren land : Coal India to take 11.5MT hit on latest green directive

Coal India's annual output would fall by 11.5 million tonnes this fiscal because of a recent order from the environment ministry that requires a company to obtain forest clearances before mining even in barren areas if another part of the coal block has a forest.

At 9:45 am, shares of Coal India were trading 0.98% up at Rs 406.95 on the Bombay Stock Exchange.

The coal ministry has urged the environment ministry to withdraw the order. Coal minister Sriprakash Jaiswal said the directive has begun to impact existing and future projects.

"We are writing to Planning Commission deputy chairman Montek Singh Ahluwalia, finance and environment ministers to exempt coal projects from the recent directive. The latest instructions of environment ministry will have an adverse impact on coal production as most of the coal bearing areas are in forests," said the coal minister

Coal India says - Rake availability is not an issue anymore

Talking about the availability of rakes for transportation of coal Mr. Jha, CMD Coal India said, "The Indian Railways have added more rakes in their fleet. They have promised us to make more rakes available. Rake availability is not an issue currently."

The company is expecting to get 190 rakes per day by June.

Below is the verbatim transcript of his interview with Mitali Mukherjee and Udayan Mukherjee of CNBC-TV18.

Q: Last we spoke, you put out a guidance of 477 million tones in terms of volume off take in 2012. But when we spoke with the coal minister, he indicated that may be nearly 15-20% shortage this year. Would you like to relook your guidance, or can you do what you indicated in your volume growth?

A: I would plan first to liquidate our stocks to maximum extent, even though our MOU target for off take is 454 million tones. We have made our internal plans through interaction with the Indian railways to dispatch around further 27 million tones. This will be around 25 million tones more than our production plan. So, that would require a growth of something like 9.5%. We are currently doing at around 6%.

The gap between demand and availability projected for the year is quite large. The domestic availability was seen to be less, because of the logistic constraints. Now since the Indian Railways have added more rakes in their fleet and they have promised us to make available more rakes. We are hopeful that large part of this cap will be mixed from our stocks.

Q: How much is the availability of rakes gone up from the railways in these last few weeks? Given that extra availability how much of the stock which is lying with you, you think can be cleared up this year?

A: The availability of rakes in March was something like 182 rakes a day. In April it became 178 rakes a day which compared to the same period previous year was 158 rakes a day. So, there was a net addition of 20 rakes per day during this fiscal in April.

There had been some shortfall in May, not because rakes were not available, but because of certain law and order problem in two states. So, the rakes could not reach or transportation could not take place.

Rake availability currently is not an issue. Whatever rake is required, is available and is getting loaded. We have discussed with the Indian Railways only two days ago and they have promised to provide us 190 rakes per day in the month of June.

Q: When we spoke with Mr Jaiswal last week, he came out in stern support of Coal India and the e-auction process and the fact that cap as well should not be relooked at, has the final resolution been reached on this e-auction issue?

A: No proposal for e-auction has come to Coal India as such or I understand even to the ministry of coal. But, there has been some proposal by our ministry is they might have saying to planning commission. But the issue is that e-auction was initiated and is being held for those sectors of consumers who do not have access to coal.

That means they do not have linkages and those who have linkages do not get coal sufficiently. For sector other than power we have signed FSA for only 70% requirement. The annual contracted quantity for all sectors other than power, is only for 70% of their requirement.

The balance 30% they must source from somewhere. E-auction is the only source which has been made available to them and also to those consumers who do not get linkages.

This is because non-core sector consumer other than power, cement, other than steel are not getting any fresh linkages for the last 10 years. So, this was the route or mode through which the coal is made available.

Now, if that e-auction is stopped hypothetically, then from where will this sector get coal also 80% of this e-auction coal goes by road to the nearby by consumers and only 20% goes by rail.

So, at the moment, that rail mode e-acution coal can move by rail, if more rakes are available. But, road mode will completely stop, because that doesn’t go to thepower sector. So if that is stopped, then that will pile up in the stock.

80% of nearly 46-47 million tones is a huge lot of coal and if that doesn’t get sold, then who is the beneficiary? Neither the power sector, nor Coal India. The coal produced pile up in stocks.

So, that is why the honorable minster has very strongly said, that they will definitely do our best to supply as much coal possible to the power sector.

Q: Given the availability of rakes that you are getting, how much of the stock that is lying with you, you think can be liquidated this year?

A: 25 million tones.

Q: You are confident about that?

A: 452 million tones which is to be produced this year, plus 25 million tones, that makes up 477 million tones.

Q: But not more than that, you don’t think more than that is possible?

A: If we get more rakes in the months of third and fourth quarter, if I get 220 rakes and it is feasible to load, we will liquidate more stocks. I am not keeping stocks for keeping my inventory up.

The stocks of coal have to be moved and the only problem is the logistics. If proper logistics are available, what is my interest in not loading them? I will get more money.

Coal Distribution Policy to be looked into

The problem of deteriorating output growth in spite of regulations in the coal sector is casting a huge shadow on the coal market of India. The problem now appears to have escalated to a level that is persuading the government to issue further regulations to ensure increasing and steady supply of coal from the industry.

Coal industry has always been a highly regulated one; however, the policies undertaken by the ministry seem to be proving inadequate even for a sector such as power, which the government has prioritised with regard to the distribution of coal. The CIL said recently that the company can only deliver 41 metric tonnes of coal out of the 306 metric tonnes mentioned in the Letter of Assurances issued to the power sector for producing 65 gigawatts of energy in an expansion scheduled during the year 2011/12. The supply from CIL will ensure production of only 12 gigawatts.

Under the current policy regime of the Indian coal ministry, captive mining is set up for players apart from Central government and other central or state owned companies such as CIL and SCCL and Mineral Development Corporations of the State governments. Companies engaged in production of iron and steel, power, washing of coal from the mines and other end-uses the government notifies are allowed to produce coal, but only for captive consumption.

The government has also facilitated sub-leasing of isolated small pockets of coal deposits that cannot be developed in a large scale for the benefit of economic development and those which do not require rail transport for other private parties.

Despite this seemingly inclusive regime, coal production is below desired levels in the country, unable to cater to industries.

The Isolated mining pockets leased out to private parties are often under developed and present with insurmountable geological challenges. Mines with infrastructure, on the other hand, is rarely leased out. Since 1993 almost 40 such mines were allocated, and that too on a joint basis, which has lead to problems such as varied economic interests of the recipients and thus time bound development get strained and delayed. Out of these 40 mines allocated, only a few of them have been developed.

The government also reported of 46 delayed projects of CIL earlier during the month of May. The supply shortfall of output has brought the state owned CIL to the verge of dishonouring Letter of Assurances (LoA) that promise delivery of 450 million tonnes.

The Indian power sector was reported of receiving only 303 million tonnes as against the expectation of 335 million, down 10 percent, during 2010-2011. The total coal production on the other hand fell 6 percent during the same time.

In addition, environmental issues, land acquisitions problems and relating snags have lead the CIL to reduce its output target to 447 million tonnes as opposed to the preliminary target set at 520 million tonnes for the 2011/12 fiscal.

The government might free the CIL from such LoAs, in search of alternative amendments to the coal distribution policy to make it more inclusive and assure prompt delivery. However, the coal industry in India is yet to emerge, with possession of 10 percent of the world’s total coal reserves.