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Chief Editor Rakesh Dubey, Tel: +91 91633 48159, Email: rakesh.dubey@mjunction.in Executive Editor Arindam Bandyopadhyay, Tel: +91 91633 48016 Email: arindam.bandyopadhyay@mjunction.in Editorial Board Alok Srivastava, General Manager, MMTC Ltd Amitabh Panda, Group Director (Shipping & Logistics Operations), Tata Steel Group Anirudha Gupta, Mining & Metals Professional and former Director of P&H Joy Mining Equipment India Ltd Ashok Jain, Managing Director, Saumya Mining Ltd Deepak Bhattacharyya, Chief - Horizon 1 businesses, mjunction services ltd Ganesan Natarajan, WT Director, President & CEO, Ennore Coke Ltd Lawrence Metzroth, Vice President – Analysis & Strategy, Arch Coal Inc M K Palanivel, President – All India Bulk, Samsara Group P S Bhattacharyya, Executive Director, Deepak Fertilisers and Petrochemicals Corporation Ltd S N Choubey, Head – Commercial, ABG Cement Ltd Sandeep Kumar, EIC (Secondary Products), Tata Steel Ltd Shyamji Agrawal, AVP-Central Procurement Cell, Ultratech Cement Ltd Suresh Thawani, Former Managing Director, Tata Sponge Iron Ltd Advertising Soumitra Bose, Tel: +91 92310 00232, Email: soumitra.bose@mjunction.in Sumit Jalan, Tel: +91 91633 48243, Email: sumit.jalan@mjunction.in Subscription Rachita Das, Tel: +91 91633 48045, Email: rachita.das@mjunction.in Toll Free No.: 1800 4192 000 1. Press 8 for publication Email: publication.tbss@mjunction.in Design Debal Ray, Sobhan Jas For suggestions, feedback and queries, please write to coalinsights@mjunction.in

EDITORIAL

Dear Readers, As if a prolonged industrial slowdown was not enough, a sharp depreciation in rupee battered the economy in the last few weeks. While there was a hullabaloo in the media, what struck the common man most was the timid response of the government, pretty much like its reactions in the case of escalating tensions at the borders. The most frequently asked questions, on the streets, are why there was a sudden plunge in rupee’s value and why did the monetary authorities fail to arrest the fall? The short term reason was, of course, that billions of dollars were pulled out of the Indian debt market by foreign institutional investors (FIIs). Only in June-July, more than $10 billion was pulled out of the Indian bourses. This exodus was triggered by expectations of the US Federal Reserve tapering its quantitative easing programme. The Reserve Bank of India (RBI) announced a slew of measures including putting restriction on Indian firms investing abroad and also on outward remittances by resident Indians. However, these measures came to little use in arresting the free fall of rupee in the face of unbridled outflow of dollar from the economic system. In the hindsight, there could be very many complex analyses made on the genesis of the crisis and the likely fall out. Jargons like current account deficit, capital control regime and the likes could be discussed threadbare to put blame on the government policies. However, what seems to be more important, at this juncture, is to understand that the root of all ills in a country resides in its citizens – you and me. This is as true for politics as for economics. Just think when did you last buy a lock that is made in India?

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No wonder that industry’s share in Indian GDP dropped substantially over the last decade. When you stop producing in your country, what can you possibly export? What could happen to a country of more than one billion people that survives on services and increasingly depends on foreign sources for consumption – food, energy, durables alike? Coming to the coal sector, the depreciation in rupee is going to put pressure on imports as well as the mining projects in the country. Here again, we pay the price for not building the manufacturing base for mining machineries, especially the large and complex ones. Amid all these, the government is going to disinvest its shares in Coal India Ltd (CIL), expectedly drawing the ire of the trade unions who have announced a three-day strike in September. While disinvestment is a normal way of raising funds, the government needs to keep in mind the nuances of manhandling the energy sector in a country that has no significant fuel source other than coal. We only hope the ensuing conflict between the government and the unions does not percolate to the ground level and impact coal production to any significant extent. Happy reading,

(Rakesh Dubey)

Coal Insights, August 2013

3


Contents 26 Imported steam coal prices remain flat in August

6  |  Cover Story

28 Spot coking coal prices firm up in August

CIL’s disinvestment: Lots at stake!

30 Coal block auction for private sector to start soon

The government, unions at loggerheads while analysts fear and industry rejoices.

32 Coal imports surge 23% in first quarter 34 Lack of clearances delay CIL’s washery plans 35 Coal India trying its hand at demand management? 37 MoEF urged to keep cement units out of new guidelines on CPP 38 Cement sector continues to suffer slowdown

18  |  INTERVIEW

Aging mines not a problem CIL will overcome the loss of 200 mt of coal production from its aging mines, says N Kumar.

39 Alternate fuels concrete options for cement sector

45  |  International

41 India’s power generation falls 9.6% in June m-o-m

Come 2014, Indonesian coal sector may get a shake-up

42 CIL Q1 profit slips on higher supply to power at lower cost 44 US coal consumption expected to rise to 952.3 MMst in 2013 48 Ripple effect of strikes in global coal industry may reach Indian shores 50 Industry awaits its regulator 58 Traffic handling by major ports up 0.47% in April-July 60 Railways’ coal handling up 0.07% in July m-o-m 62 CIL’s June coal allotment via spot e-auction up 27% m-o-m 64 e-auction data 66 Port data 68 Annexure

Indian traders fear the worst as Indonesia goes to Presidential poll next year.

51  |  EXPERT SPEAK

The curious case of CIL’s stagnation Five factors are pulling down CIL’s production growth, but there are hopes.

55  |  LOGISTICS

KoPT to hike coal handling capacity to 16 mt by FY17 The oldest major port in India undertakes a modernisation drive.

Call 9163348243 for more details

4 Coal Insights, August 2013


Cover Story

CIL’s disinvestment

Lots at stake! Arindam Bandyopadhyay

W

hen the initial public offer (IPO) of Coal India Ltd (CIL) sent the market into a tizzy in late 2010, little could one anticipate that a followon offer would stir up such widespread apprehensions! As the Indian government goes ahead with its disinvestment in CIL, braving a strike call by the trade unions, there is a clear division in the market. The stock market is “not excited”, the workers are “angry” and the trade unions are mortally “scared”. The only group that welcomes the move is the coal consumers who are waiting in the wings to see CIL’s monopoly get diluted, little by little! While the government argues that a five percent stake dilution has little to do with changing the public sector character of the company, the detractors point to the recent utterances by the Planning Commission which favoured opening up of the coal sector, and to the immense pressure from the industry to this end. Also, the recent initiative by the coal ministry to appoint a consultant for restructuring CIL by splitting its large subsidiaries is seen as a threat that complements the divestment move. Strike it hard

Come September and there would be a coal strike here again. A three-day strike from September 23-25 at Coal India Ltd would cost the world’s largest miner a production loss of at least 5-6 million tons (mt), according to union sources. And they seem to be the least unhappy about it. A strike should leave some impact, shouldn’t it?

6 Coal Insights, August 2013


Cover Story So, after a gap of three years, the CIL employees, around 350,000 of them, are bracing for some industrial action (actually inaction). All the five unions – Indian National Mines Workers Federation (affiliated to Intuc), Hind Khadan Mazdoor Federation (HMS), Akhil Bharatiya Khadan Mazdoor Sangh (BMS), Indian Mines Workers Federation (AITUC) and the All-India Coal Workers Federation (Citu) – have pledged to show unprecedented unity. And the leaders are confident that this time no “inducement” would work in breaking their solidarity. The message has spread far and wide across the country’s 35 coal-bearing districts. “All this,” said the sources, “despite there being no pecuniary interests involved”. That sounds altruistic, of course, only if you stop right there. But a deeper probe brings out a much greater concern – an existential crisis – for the unions themselves as well as for the CIL board! A token strike and a production loss is nothing in comparison to that “potential catastrophe”. The issue at hand

CIL, the state-owned miner, came into being in 1975. Coal Mines Authority Limited was incorporated on June 14, 1973 under the Coal Mines (Nationalisation) Act. The company was merged with Bharat Coking Coal Ltd (BCCL), now a subsidiary of CIL, in November 1975 and was renamed Coal India Ltd. The objective was to produce and market the planned quantity of coal and coal products “efficiently and economically” with due regard to conservation of resources and safety and quality of life of the workforce. The authorised capital of CIL is

`8,904.18 crore (`904.18 crore of noncumulative 10 percent redeemable preference shares plus `8,000 crore of equity shares) of which the issued and subscribed equity capital as of March 31, 2012 was `6,316.36 crore. The Government of India (GoI) holds 90 percent of the equity capital of the company. CIL was listed on stock exchanges on November 4, 2010 and made it to the 30-stock Sensex in August 2011 in a short span of 11 months since its listing. Nearly three years after the IPO, GoI intends to divest a further five percent paid-up equity capital (315,818,220) shares (each of face value `10) of CIL out of its shareholding of 90 percent through an offer for sale (OFS) of shares by promoters through the stock exchanges method as per the Securities and Exchange Board of India (Sebi) rules and regulations. Despite opposition from CIL unions to the OFS, the Department of Disinvestment (DoD) in the Ministry of Finance has gone ahead in making preparations for engaging merchant bankers and selling brokers for the above-mentioned sale. The government aims to select and appoint up to seven merchant bankers with requisite experience in public offerings, who will form a team and be the lead managers to the issue which is expected to hit the market in September. “Liar, liar!”

That the government would be disinvesting its shares in CIL through an OFS is a case of “public deception”, allege the unions. “In 2010, at the time of the IPO, the same (UPA) government had promised the unions in writing that there would be no further

Coal India Ltd shareholding pattern (%)

90 Government Institutions Bodies corporate 7.65

0.08

1.26

1.01

For detailed break-up of CIL’s shareholding, refer to annexure on Pg 68

8 Coal Insights, August 2013

Individuals Others*

dilution of government stake in the company. Based on such assurance, some of the unions showed leniency at that time. But it took less than three years for the government to do a volte face,” claimed a front-ranking leader of the Left-backed All-India Coal Workers Federation (AICWF). When the unions met the government to denounce the disinvestment move – initially intended at 10 percent – and the two parties held their final parleys, there was a strange miscommunication, he said. The minister, while coming out of the meeting, claimed that a compromise solution has been agreed upon and that the unions have given nod to a five percent dilution of government stake. In fact, Coal Minister Sriprakash Jaiswal reiterated this (during his visit to Kolkata) on August 7 and claimed that all the unions, except for the CITU-affiliated one, have approved the programme. “How and when was that agreement reached?” asked one of the representatives present at the meeting. “This could be the ministry’s stand, or its wish, but at no point did the unions agree to that.” Subsequently, the ministry came down from its earlier stance of divesting 10 percent stake, but the unions stuck to their demand for withdrawal of the divestment proposal altogether. At the same time, they decided to go for a three-day strike. On August 19, the five unions served a three-day strike notice. Govt’s compulsion

On the face of it, the government’s stated motive looks pretty innocuous. To go by the Union finance ministry, the sole purpose of the disinvestment is to raise funds to reduce the fiscal deficit. According to data published by the Controller General of Accounts (CGA), the fiscal deficit during the first two months (April-May) of 2013-14 stood at `181,000 crore (around $28.3 billion). This is about one-third of the annual target of `542,000 crore ($84.7 billion). The government aims to reduce the fiscal deficit to 4.8 percent (of GDP) in 2013-14 from 4.9 per cent last year. This is necessary to evade a possible ratings downgrade for the country. While the government continues to claim that it would stick to the targeted deficit figure very strictly, it is quite apparent


Tear along the dotted line

70 Coal Insights, August 2013 Tear along the dotted line


Coal insights Aug 2013