Coal India Limited (CIL), a Maharatna undertaking of the Government of India, has raised its FY18 production target to 660 mnt and expects to achieve its FY17 target of 575 mnt. The coal ministry is keen to achieve 1.5 billion tonne (bnt) coal production by 2020, despite the Central Electricity Authority (CEA) report suggesting that new plants based on non-renewable fuel source are not required in the country. The government is aiming to achieve the set target through 1 bnt coal production by CIL and the remaining 500 mnt by private sectors.
Amid this, off-take has not been able to pick up, casting doubts on the said target. To know more on this, Steel 360 spoke with Mr Partha S Bhattacharya, Ex-CMD, CIL. Following are the excerpts.
Q. India has embarked upon an ambitious coal production target of 1 bnt by FY20. What is your view on this production target?
A. The ambitious target of 1 bnt in 2020 was set for CIL in 2014-15. For the country as a whole the target set was 1.5 bnt. CIL produced 494 mnt in 2015. To achieve 1 bnt in 2020, CIL needed to grow at a CAGR of 15%. It achieved a growth of 9% in 2016, which, although better than all its previous records, pushed the asking rate further to 17% during the residual period. In 2017, CIL has been lagging behind the target due to lower off-take. Even if CIL manages to push up production in line with target for the residual period till March 2017, it can expect to produce around 570 mnt. This will push the asking rate further beyond CAGR of 20% during the residual 3 years till 2020, which is clearly unachievable.
In my opinion, 1 billion tonne coal production target by 2020 was neither feasible nor necessary. Such unduly lofty targets can only cause otherwise avoidable frustration and de-motivation for the team. The growth in the remaining segment of production, mainly from captive mines, is even more dismal. The thrust of the auction process focusing only on the monetary gains led to submission of unrealistic bids in many cases that became even more unrealistic with drop in imported coal prices. As a result, production from these mines suffered badly.
Q. The supply of coking coal is inadequate in the country, whereas demand is rising from the country’s steelmakers. Is there any way for India to lower coking coal imports?
A. Coking coal import is likely to rise if steel production through BF route grows. Prime coking coal deposits available only in Jharia Coalfields is mostly on fire. It is only a time bound implementation of Jharia Action Plan (JAP) that can unlock deposits of 1.5 bnt prime coking coal in a period of 10 years or so with consequential reduction in import. At USD 300/mt, the value at stake is of the order of USD 450 billion. The implementation of JAP is estimated to cost only 0.5% of this value. Hence it deserves urgent attention of all stakeholders.
Q. Volatility in coal prices in overseas markets often tends to render imported coal cheaper than the domestic coal. With that in view, do you see a market linked price mechanism will help demand for domestic coal to grow?
A. Domestic coal price compared in terms of energy units (INR/Kcal/kg) has been consistently cheaper than imported coal. All exceptions to this are essentially aberrations that must be corrected as and when detected.
In Feb 2011, CIL increased the price of higher grade coal to align with imported coal prices (IPP). For coal prices linked to IPP, there was a need to review the parity periodically and adjust the price of such coal at frequent intervals. This was perhaps not done. As a result, with softening of imported coal price, the domestic price of higher grades fell out of step with IPP. The lesson learnt is simple.
CIL must create an index of IPP for higher grade coal and reset the price of higher grades on a quarterly or half yearly basis linked to movements in the average value of this index during the reset period.
Q. India is seeing gradual prominence of renewable energy, like solar. Will it lower demand for coal in the country in the long term?
A. The thrust on solar power in particular and renewable in general will eventually have its toll on coal consumption. Based on pure economics, it is unlikely to happen soon as the variable cost of coal based power is likely to remain most affordable for quite some time and the capacity utilization of coal based power generation (PLF) have plunged to below 60% from around 80% a decade ago. Pushing the PLF up to 80% will provide additional power of 300 BU (billion units) at a low cost of below INR 2/unit. Besides, this will push up the coal demand by 200 mnt with a corresponding contribution of INR 80 billion to the clean environment fund. It is also well within the Indian commitment at COP21 of reducing CO2 emission intensity of GDP by 33% between 2005 and 2030.
Q. Low quality has always been a cause of concern for Indian coal. There have been initiatives for setting up more coal washeries in the country, aimed at improving the coal quality. Do you see any possibility of India gaining export markets like Nepal and Sri Lanka after the coal washeries improve coal quality?
A. The low quality of Indian coal has been a subject of intense deliberation between coal producers, consumers and other stakeholders. The average quality of Indian coal is intrinsically low with ash being as high as 40%. Further, except for coal produced in underground mines and by Surface Miners in opencast mines, the production process is unlikely to yield coal as per declared grade. It is only by washing that quality can be assured within a limit of tolerance.
However, washing will entail additional cost, which the consumer must be ready to bear. This is where the problem begins. The consumer comparing price of coal in INR Kcal/kg between washed and unwashed varieties ends up finding the unwashed variety cheaper. Also, the boilers are designed to burn low grade high ash coal. This leads to reluctance in accepting washed coal. Unless, the rather intangible benefits of using washed coal in terms of reducing downtime besides the lower cost of ash handling/disposal etc are worked out in depth, it may be difficult to create a buy in for washed coal. The other option of CIL deciding to sell coal only in washed form within a time bound framework may succeed provided the price of washed coal remains at or below the IPP consistently.
Source: Steel 360 Magazine Mar’17 Issue