Coal over-supply in India has prompted Coal India Limited (CIL) to explore export options. CIL, the largest miner in India, has been working on a plan to export coal to its neighbor, Bangladesh. The export plan originated primarily to dispose-off the excess stock, accumulated due to over- supply.
Coal stocks in India are on a rise due to incremental production. The Government of India has embarked upon a mission to increase coal production in the country, aimed at ensuring adequate coal supply to consumers, and at the same time lower imports.
For FY17, CIL has set a production target of 598 mnt. Besides, the state-run miner is attempting to attain 1 billion tonne of production by FY20.
Interestingly, formulation of the export plan has come at a time when the coal market in Bangladesh is turning greener. The Bangladesh government is taking on a slew of initiatives to increase power generation in the country, which will necessitate increment in imports. The Bangladesh government has also proposed easing import norms to lower import costs for consumers.
Bangladesh is an import dependent country with a meager domestic coal production. Coal is being mined domestically in Bangladesh only from the Barapukuria underground coal mine in the Dinajpur district. The mine produces approximately 1,500 tonne per day.
The nation’s coal demand is catered through imports predominantly from Indonesia. On an average, 4.5 mnt of coal is imported by Bangladesh every year, of which, more than 3 mnt is imported from Indonesia and the rest from India.
Bangladesh government is in the process of improving power generation through setting up new power plants and rejuvenating old power plants. Generation of additional 16,086 MW is being targeted by 2021.
To achieve the target, setting up of 29 power plants with a combined capacity of 7,296 MW is in progress; while, tenders for setting up another 20 power plants with a cumulative capacity of 6,681 MW have already been floated. Furthermore, setting up of 8 more power plants with the total capacity of 4,435 MW is also being planned in the country. For power generation, Bangladesh government is laying stress on usage of coal over other fuel, which is indicative of demand for coal rising in thefuture.
Chances of CIL gaining a foothold in the lucrative market seems to be positive as the Indian premier power producer, NTPC Limited, is currently setting up a 1,320 MW thermal power plant at Khulna in Bangladesh. NTPC is setting up the plant jointly with Bangladesh Power Devlopment Board (BPDB). The plant will require at least 3 mnt of coal every year. Recently, a team of CIL officials visited Bangladesh to meet power companies there for deals.
CIL exporting coal to neighboring country will mean competing directly with the Indonesian variants, most prevalent there. In this regard, CIL has the advantage of proximity to Bangladesh, which will make coal imports from India cheaper than that from Indonesia. CIL will be able to transport coal consignments from Haldia Port to various ports of Bangladesh. Quality-wise also, coal produced by North Eastern Coalfields Limited and Bharat Coking Coal Limited, subsidiaries of CIL, are of high quality and are believed to be able to compete with the Indonesian variants.
The Finance Minister of Bangladesh said in his recent budget speech for 2016-17 that zero import duty for coal imports in the country is being proposed to bring down costs of coal imports. The proposal, if it takes effect, will clearly help CIL in its planned export venture.
Moreover, CIL’s coal stocks will continue to increase as current domestic demand in India is not enough to consume the total production in the country. As seen in the recent auction of coal linkages to the sponge iron sector, CIL managed to sell only around 55% of the total allocation of 3,780,000 mt, leaving the rest unsold. In such circumstances, CIL has to look beyond the domestic market to sell-off its production.
Steel 360 Magazine July’16 Issue