Coal Insights, April 2022

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CONTENTS

6 | COVER STORY

12 Seaborne thermal coal offers rise in April 13 Seaborne coking coal offers remain volatile in April 14 India’s March coal imports up 1.41% y-o-y

Feeding the power plants: Coordinated move to avert crisis

15 CIL’s coal production on a new high at 623 mt in FY22

A detailed look at the ways to avert coal shortages in power sector.

16 SCCL’s coal production up 28.6% in FY22 17 RE addition needs to be tripled by 2030: IRENA 21 Half of coal mines are unprofitable: report 25 Steel cos lap up coal mines in 4th tranche auction 26 India’s March sponge iron production down 4% y-o-y

23 |

FEATURE

Coal assets at risk of being stranded before 2030: IPCC Energy transition to reduce fossil fuel trade.

34 | EVENT

27 Power capacity addition up 5% till February 30 Developed nations need to fund transition: StanChart report

Govt cos must hand over idle coal mines: Coal secy Jain

32 Cement makers tackle cost headwinds with robust demand: Ind Ratings

Coal India to float tenders for few mines soon.

36 Coal handled by major ports up 12% in FY22 37 Indian Railways’ coal handling up 21% in FY22 38 China to raise coal output to improve energy security 39 Glencore sees Asia coal demand offsetting Atlantic market fall 42 US coal production to rise by 7 percent in 2022: EIA 44 BCCL to develop Kapuria UG with longwall mining via MDO route 46 Corporate update 48 Government update 50 E-auction data 53 Port Data

4 Coal Insights, April 2022

40 | INTERNATIONAL

Global miners see geopolitical conf lict keeping coal prices strong Production suffers due to pandemic, adverse weather.

43 | CORPORATE

DVC to start 2 coal mines in FY23 Tubed mine gets environmental clearance.


COVER STORY

Feeding the power plants Coordinated move to avert crisis Sumit Maitra

6 Coal Insights, April 2022


COVER STORY

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sense of déjà vu permeates the corridors of the ministries associated with proving electricity to the

nation. As reports of power plants running out of coal stocks started hitting the headlines in March and as a heatwave started blowing across most of the central and northern regions, the alarm bells started ringing – will there be a rerun of the power crisis that we witnessed last October? Spot e-auction prices premium touches 290%

The demand for coal could be gauged from the premium it commanded in the spot e-auction market. Premium over notified prices in March touched 290 percent, double the average of 150 percent seen in the AprilMarch period of FY22. The premium jumped despite the fact that allocation in March was considerably higher at 7.89 mt compared to just 5.3 mt allocated for the spot market in the corresponding month of the preceding year. There was no allocation for spot auction aimed at coal importers, special spot auction or for exclusive auction for non-power sectors. Merchant power rate spikes

Electricity prices on India Energy Exchange had spiked to `15/kWh in the last few days of March, fueled by a 9 percent surge in power demand in that month against 3-4 percent growth seen in earlier months as peopled rushed to buy air-conditioners and coolers while higher commercial activity resumed as industries and offices started operating at full capacity post lifting of Covid restrictions. Coal availability

But while coal companies are dispatching almost 2 million tons (mt) of coal every day to the power sector through the rail and road mode, an additional 16.7 mt of coal has been offered to power generation companies with an option to lift this quantity to sufficiently stock up. As on April 23, 72.50 mt of coal was lying stocked up at various mine sites and

at washeries while 22 mt is available at the stockyards of thermal power plants. The existing stock is good to keep the power plants running for a month while stocks is getting replenished on a daily basis, claims Coal Minister Pralhad Joshi. The problem, it seems, lies elsewhere. Issue of rakes availability

According to sources, there is a significant shortage of 35-40 rakes per day. “Adequate coal production and its transportation is the real issue. This time the field reports indicate that the higher blame (for supply crunch) rests with the Indian Railways. They really need to augment their infrastructure from mines/ports to plants. This transportation congestion and bottlenecks needs to be removed,” Dr Ashok Khurana, Director General, Association of Power Producers, told Coal Insights. Inadequate addition to the stock of rakes of Indian Railways over the years coupled with recent policy tweaks where supplies to power plants closer to the mines were encouraged through realignment of linkages have created a systematic shortages of rakes in the ecosystem. Realising this early on and learning from the previous crisis, the Railways Ministry was brought into loop as the crisis emerged. On April 8, Pralhad Joshi, Minister of Coal, R K Singh, Minister of Power, Ashwini Vaishnaw, Minister of Railways along with Raosaheb Patil Danve, Minister of state for Coal brainstormed on how to raise coal supply to power plants at a time of tremendous surge in power demand. As the issued lingered on, Pramod Agrawal, Chairman, Coal India met up with Joshi, Singh and Vaishnaw, to further strategise on increasing coal offtake. The impact of these meetings is now showing. “Indian Railways is mobilising more trains and rakes to mitigate coal shortage,” Indian Railways said on April 24. While coal freight loading has gone up by 32 percent between September 2021 and March 2022, Railways authorities claim there has been an increase in freight by 10 percent in the month of April.

“Adequate coal production and its transportation is the real issue. This time the field reports indicate that the higher blame (for supply crunch) rests with the Indian Railways. They really need to augment their infrastructure from mines/ports to plants. This transportation congestion and bottlenecks needs to be removed.” Dr Ashok Khurana, Director General, Association of Power Producers Indian Railways in April-March of FY22 transported 653.36 million tons (mt) of coal, 20.5 percent more than 542.19 mt handled during April-March of FY21. “Indian Railways is committed to lifting all domestic coal that is brought to the sidings by coal companies & imported coal brought to ports by power generating companies,” the ministry said. Coal India has also maintained its output and despatches as promised by the government. It raised its supplies to thermal power stations by 14.2 percent during the first half

Coal Insights, April 2022

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FEATURE Efforts to improve profitability

Half of coal mines are unprofitable: report mines producing coal. Korba district in Chhattisgarh is the largest coal producing district – just 15 mines produce 120 million tons (mt). There are also others such as Singrauli (Madhya Pradesh) and Angul (Odisha) with 7 and 13 mines respectively producing just over 80 mt. The mines in these districts are operated by CIL’s newer subsidiaries South Eastern Coalfields Ltd (SECL), Northern Coalfields Ltd (NCL) and Mahanadi Coalfields Ltd (MCL), which are more efficient and operate large OC mines. On the other hand, Paschim Bardhaman (West Bengal) and Dhanbad (Jharkhand) districts are home to 65 and 51 mines respectively but only produce about 31 mt each. All in all, 22 districts produce over 10 mt of coal, 17 districts produce between 1 and 10 mt and 12 districts produce less than 1 mt of coal. The districts that have predominantly large OC mines have a lesser number of jobs compared to those with more UG mines. For example, Korba district, which is the highest coal producing district (over 120 mt) has nearly 30,000 less coal jobs compared to Dhanbad district which produces 30 mt.

Coal Insights Bureau

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lmost 50 percent of the mines in India are hugely unprofitable and may soon face shutdown, according to a report jointly prepared by Ernst & Young, SED Fund and FICCI. Coal India Ltd, the world’s largest coal-mining company, accounts for around 80 percent of the country’s output and has more than 350 mines in operation. Out of these, 174 mines are open cast (OC), 156 are underground (UG) and 20 are mixed mines. “The challenge is that a majority of CIL’s 350 mines either make losses, are on artificial support or make very low profits,” the report says. Underground mines are very labour intensive and have a high human resource deployed to coal production ratio, making them unprofitable to operate. “Over 45 percent of the underground mines produce less than 5 percent of the total coal and drag down the profitability of CIL,” the report states adding that closure of these mines might impact jobs. Geographical distribution of mines

Among districts, there is a large variation in coal production and the number of

Mines distribution State

Opencast

Under ground

Mixed

Grand Total

Chhattisgarh

18

28

Jharkhand

66

27

10

103

Madhya Pradesh

16

35

2

53

Maharashtra

39

13

52

Orissa

17

8

25

Uttar Pradesh

5

West Bengal

13

45

8

66

Grand Total

174

156

20

350

46

5

The Centre’s push to convert all Coal India’s mines as profit-making has resulted in the closure of underground mines across subsidiaries, the report says adding that CIL has closed more than 80 loss-making mines in the last four years. Underground mines typically employ many more workers than open-cast mines, but with much lower productivity. Most of these underground mines are in the five states – West Bengal, Madhya Pradesh, Chhattisgarh, Jharkhand, and Maharashtra. Coal to stay dominant energy source in 2030

Coal will have a major role to play in India’s power generation mix even in 2030 contributing almost 54 percent or about 1,358 billion units (BU) of energy, according to the report. The coal requirement for FY30 has been worked out to be about 892 mt considering specific coal consumption of 0.65kg/kWh and 1 percent transportation loss. Currently about 10 percent of the coal required for power generation is imported, primarily for coal power plants which are designed to run only on imported coal. With India announcing to stop all coal imports by power plants by FY 2024 it is assumed that India will have to domestically produce 892 mt of coal by 2030 just for power generation purposes. “Despite the ambitious NDC target, India’s dependence on coal is only going to increase in the coming decade owing to increase in the demand for energy,” the report said. India is the world’s largest coalproducing country, producing around 715.95 mt in 2020−21, just under 10 percent of the global share. State-owned Coal India, the world’s largest coal-mining company, accounts for around 80 percent of the country’s output and has more than 350 mines in operation. The dependence on coal is only expected to increase in the coming years.

Coal Insights, April 2022

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FEATURE

Coal assets at risk of being stranded before 2030: IPCC Coal Insights Bureau

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oal assets are projected to be at risk of being stranded before 2030, while oil and gas assets are likely to be more at risk of being stranded toward mid-century, the Intergovernmental Panel on Climate Change (IPCC) report released on April 4 says. A low-emission energy sector transition is projected to reduce international trade in fossil fuels and limiting global warming to 2°C or below will leave a substantial amount of fossil fuels unburned and could strand considerable fossil fuel infrastructure, the Working Group III contribution to the sixth assessment report of IPCC said. “The combined global discounted value of the unburned fossil fuels and stranded fossil fuel infrastructure has been projected to be around $1–4 trillion from 2015 to 2050 to limit global warming to approximately 2°C, and it will be higher if global warming is limited to approximately 1.5°C,” the 2,900 pages report says. Difficulty of shifting entirely to renewables

Electricity systems powered predominantly by renewables will be increasingly viable over the coming decades, but it will be challenging to supply the entire energy system with renewable energy, the report says. Large shares of variable solar PV and wind power can be incorporated in electricity grids through batteries, hydrogen, and other forms of storage; transmission; flexible nonrenewable generation; advanced controls; and greater demand-side responses. Because some applications (e.g., aviation) are not currently amenable to electrification, it is anticipated that 100

percent renewable energy systems will need to include alternative fuels such as hydrogen or biofuels. Economic, regulatory, social, and operational challenges increase with higher shares of renewable electricity and energy. “The ability to overcome these challenges in practice is not fully understood,” the reported stated. Transformation in energy carriers: electrification and hydrogen

To use energy, it must be “carried” from where it was produced – at a power plant, for example, or a refinery, or a coal mine – to where it is used. As countries reduce CO2 emissions, they will need to switch from gasoline and other petroleum-based fuels, natural gas, coal, and electricity produced from these fossil fuels to energy carriers with little or no carbon footprint. An important question is which new energy carriers will emerge to support lowcarbon transitions. Low-carbon energy systems are expected to rely heavily on end-use electrification, where electricity produced with low GHG emissions is used for building and industrial heating, transport and other applications that rely heavily on fossil fuels at present. But not all end-uses are expected to be commercially electrifiable in the short to medium term, and many will require low GHG liquid and gaseous fuels, i.e., hydrogen, ammonia, and biogenic and synthetic low GHG hydrocarbons made from low GHG hydrogen, oxygen and carbon sources. The future role of hydrogen and hydrogen derivatives will depend on how quickly and how far production technology improves, i.e.

“The combined global discounted value of the unburned fossil fuels and stranded fossil fuel infrastructure has been projected to be around $1–4 trillion from 2015 to 2050 to limit global warming to approximately 2°C, and it will be higher if global warming is limited to approximately 1.5°C.” from electrolysis, biogasification, and fossil fuel reforming with CCS sources. As a general rule, and across all sectors, it is more efficient to use electricity directly and avoid the progressively larger conversion

Coal Insights, April 2022

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EVENT

Govt cos must hand over idle coal mines: Coal secy Jain

Coal Insights Bureau

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oal Ministry has asked state-owned enterprises to auction abandoned and closed mines and such PSUs including Coal India are likely to float tenders for few mines soon, Coal secretary Dr A K Jain has said. “Government companies can’t sit on acerages for ages. They must quickly produce or they have to exit,” Jain said at the 9th Asian Mining Congress inaugural session on April 4. Shortly following Jain’s comments, the Cabinet Committee on Economic Affairs on April 8 approved granting one-time window to government companies to surrender nonoperational coal mines without penalty. Several coal mines with PSUs likely to be released and auctioned as per present auction policy, the government said. “Once accepted, all pending show cause notices for delays will be withdrawn and

34 Coal Insights, April 2022

Performance Security will not be levied from them,” Coal Minister Pralhad Joshi tweeted. “A three months’ time will be granted to the allottee government companies to surrender the coal mines from the date of publication of the approved surrender policy,” the government said in a release. Post cancellation of coal blocks by the Supreme Court in 2014, to prevent immediate disruption of coal supplies to thermal power plants, the government have allotted many cancelled coal blocks to state and central PSUs on allotment route. The allocation route was expeditious and it was expected that the coal requirement of State GENCOs would be met from those blocks. The revenue share payable by state/ Central PSUs is fixed on per ton basis unlike private sector companies who have to bid. Given the context of allocation of coal blocks at that point of time, conditions for times lines for operationalisation of coal blocks were very stringent and firm leaving no

wriggle room either to the successful allottee or the Nominated Authority. Penalisation for delay in operationalisation of coal mines has resulted in disputes and court cases. Till December 2021, 45 mines out of 73 coal mines allotted to Government companies, remained non-operational and due date of commencement of mining operations in case of 19 coal mines has already over. Delays were due to reasons beyond the control of allottees, for example, law and order issues; enhancement in the area of forest from what was declared earlier; resistance of land-holders against land acquisition; geological surprises in terms of availability of coal resources. “Early operationalisation of coal blocks will provide employment, boost investment, contribute to economic development of backward areas in the country, reduce litigation and promote ease of doing business leading to reduction in import of coal in the country,” the government said. With the entry of private sector in coal mining there has been a churn in the sector with growing importance of captive miners, he said. Jain expects coal output from captive mines will increase to 130 million tons in FY23 from 90 million tons achieved in FY22. “In coming days, captive or non-Coal India blocks will contribute than 25 percent of country’s coal production,” Jain said. Coal trading platform proposal to take shape by year end

The structure of the planned coal trading platform of the Coal Ministry is likely to take shape by the end of FY23 by when CRISIL, appointed by the ministry to chalk out the modalities and structure of the exchange, would submit its report to the ministry. “We want to create a robust platform for private coal mining companies to sell coal on a good marketplace where buyers and sellers can meet. We are in the process of creating a platform in the next 6-9 months. It will have regulatory oversight like a gas trading platform,” Jain said at the session.


INTERNATIONAL up 6.5 percent on the December quarter average of $371/t. The JSM SSCC FOB Australia benchmark increased in the March quarter to $275/t, up from the December quarter average of $218/t. Despite the recent surge in coal prices, coal-fired power generation remains one of the most affordable and reliable sources to meet base load energy requirements, Whitehaven said.

Global miners see geopolitical conflict keeping coal prices strong Coal Insights Bureau

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lobal coal prices are likely to stay elevated as the current geopolitical conflict has led to realignment of global coal trade forcing coal consumers to seek energy security and lock in future supplies. “Both thermal and metallurgical coal prices are expected to be well supported over CY22, and into CY23,” Whitehaven Coal said in its quarterly outlook. The recent increase in coal prices reflects the global response to Russia’s hostile actions against Ukraine, including informal and formal sanctions, said Whitehaven in its outlook. Russia’s 110 million tons (mt) of high CV seaborne coal (29 percent of the global high CV seaborne market) could potentially be excluded from its traditional seaborne markets, it said.

“Following developments in Ukraine, many importing nations are reconsidering energy security and customers have become eager to lock in supply. While uncertainty remains whether the response to Russia’s actions in Ukraine will see a temporary or sustained shift in the high CV coal market, the potential is growing for structural change to occur,” Whitehaven said. Replacement sources for Russian high CV coal supply are not readily identifiable with increasing potential for coal prices to find new highs for longer. “The metallurgical coal market is also very tight with price increases reflecting supply uncertainty flowing from the Ukraine conflict coupled with underlying supply constraints,” Whitehaven said. Premium low volatile hard coking coal (PLV HCC) FOB Australia averaged $395/t (JSM benchmark) across the March quarter,

Global miners cash in on coal price rally

Global coal miners are having the best of their times with jump in their profits in the first quarter of 2022 triggered by sustained rally in coal prices. AngloAmerican’s realisation from Hard Coking Coal rose 230 percent in Q1 of 2022 to $372 a ton from $113 a ton in the corresponding period of 2021, according to the production report announced by the company. Average realised price of $372/ton was lower than the benchmark price of $488/ton. “The price realisation decreased to 76 percent (Q1 2021: 89 percent) due to higher sales earlier in the quarter ahead of the benchmark peak as well as a lower contribution of premium hard coking coal from the underground longwall operations,” the company said.

AngloAmerican met coal output Coal, by product (tons) (1)

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Q1 2021

Q1 2022 vs. Q1 2021

Q1 2022 vs. Q4 2021

Production volumes Metallurgical Coal

2,226,400

4,372,100

4,288,500

2,968,600

3,278,500

(32)%

(49)%

Hard Coking Coal

1,753,000

2,922,400

3,567,400

2,319,500

2,511,200

(30)%

(40)%

PCI / SSCC

473,400

1,449,700

721,100

649,100

767,300

(38)%

(67)%

Export thermal coal

427,400

341,800

443,800

519,000

372,400

15 %

25 %

Metallurgical Coal

2,429,700

4,182,400

3,985,800

2,856,300

3,112,300

(22)%

(42)%

Hard Coking Coal

1,812,000

2,793,500

3,293,600

2,246,200

2,462,100

(26)%

(35)%

PCI / SSCC

617,700

1,388,900

692,200

610,100

650,200

(5)%

(56)%

Export thermal coal

337,900

483,800

560,400

572,000

492,000

(31)%

(30)%

Sales volumes

(1)Anglo American’s attributable share of production.

40 Coal Insights, April 2022


CORPORATE

DVC to start 2 coal mines in FY23 “The process is at an advanced stage at Tubed for which we very recently got forest clearances and other government approvals are going on. The way we are getting support, we are confident that in a couple of months we would be able to start mining at Tubed.” Ram Naresh Singh, Chairman, DVC, (second from right) unveiling the logo for 75th foundation day of the corporation to be celebrated on July 7.

Coal Insights Bureau

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amodar Valley Corporation (DVC) a multipurpose river valley project and thermal and hydel power generator, is reentering coal mining in the current financial year following the grant of environment clearances with respect to both the coal mines earlier allotted to the entity. “Very soon we are starting coal mining at Tubed coal mine in Jharkhand, and at Khagra Joydev in West Bengal we are expecting to start mining at the end of the year after land acquisition is completed,” Ram Naresh Singh, Chairman, DVC said while speaking at the 9th Asian Mining Congress. Tubed will have a capacity of 6 million tons per annum (mtpa) with mineable reserve of 130 mt. “The process is at an advanced stage at Tubed for which we very recently got forest clearances and other government approvals are going on. The way we are getting support, we are confident that in a couple of months we would be able to start mining at Tubed,” Singh said. DVC’s total coal requirement is 30 mt a year considering maintenance of 26 days’ stock.

Out of this requirement, 23.5 mt of coal comes from Coal India through the FSA route. Additionally, DVC has bridge linkages, which along with the FSA, have historically met the coal demand of the corporation. DVC has also asked the Coal Ministry for raising coal availability under its Fuel Supply Agreement by another 4.5 mt condering rising demand for power and relatively higher Plant Load Factor that DVC enjoys, Singh said. DVC has 6,750 MW of power capacity spread over 7 power plants in West Bengal and 5 in Jharkhand. DVC supply power to 8 states and also to Bangladesh to which it sends 300 MW. DVC in FY22 achieved a record generation of 40.7 Billion Units of power, he informed. Tubed was allotted for end-use projects – Mejia TPS Unit 7 and 8 and Chandrapura TPS Unit 8. Forest Clearance Stage-ll was issued by Ministry of Environment Forest and Climate Change on March 28. Consent To Establish was issued in September 2021 by Jharkhand State Pollution Control Board.

Ram Naresh Singh, Chairman, DVC Develecto Mining Ltd, a consortium of SICAL-AMPL-GCL, is the Mine Developer cum Operator for Tubed. Khagra Joydev has mineable reserve of 103 mt and peak coal production capacity of 3 mtpa allotted to end use projects Mejia TPS Unit 7 & 8. Request was submitted to West Bengal government for acquisition of private land in February 2020. Khagra Joydev Resources Pvt. Ltd., a consortium of GDCL-AMPL-GCL, is the Mine Developer cum Operator. Apart from these two mines, DVC also aims to work on Bermo mine where mining activity took place between 1951 and 2016, when mining lease expired and mining activity halted. DVC is in the process to start the mining operation at Bermo Mines with the help of Central Coalfields. DVC was mining coal from its own blocks - Barjora (North) and Khagra-Jaydev - through joint venture agreement with EMTA since 2005. However, following the order of the Supreme Court of India in FY15, all the coal blocks were de-allocated.

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