Conclusion:

Growing urbanisation and industrial growth would drive Indian

economics vis--vis energy needs of the country. Power
generation would account the most for the increase in primary
energy demand fuelled by coal. Alongside, an increase in
consumption in other allied sectors such as cement, steel and
sponge iron is anticipated for the infrastructure boom in the
coming two decades. Transport sector also would account for
faster rate of growth due to vehicle stock increment with an
similar increase in household income. All these pointers indicate
that there will be huge demand for commercial fuel in India and in
absence of domestic resources to cater to this demand; the
consuming sector will fall back on imports. Coal demand would
reach to a staggering figure of 2 billion tonnes by 2030 with bulk
of the demand met from coal imports which is estimated to be
around 40% of the total consumption in India by 2030. The coal
import will be driven by the coastal power plants which are
located away from the pitheads and near to the port vicinity,
making it economic viable for use of imported coal.
Though the road map for coal sector is well laid out with short
term targets to long term target with milestones by the coal
ministry, a lot is dependent on the direction of the government
and the policy set out for the ministry. As evident from the earlier
trends, its all planning and no execution from the government
corridor which makes the sector vulnerable for reforms. Private
sector shy away from investment due to no clear cut policy, no
single window clearances and no incentives from the government
side to attract more investment to the sector. Reforms in coal
sector are long pending with only rhetoric about coal regulator,
competitive bidding and privatisation.
Coal is a scarce natural resource and needs to be exploited in
optimum manner. Government should formulate plan for rapid
coal mining, equitable distribution of coal to consuming sectors,
intelligent import planning and it can be only done with active
participation from the private industry. There are number of
issues that needs government intervention to sort out the matter.
As far as current scenario is concerned, CIL is struggling to sign
the FSA with the consumers with some clauses in new FSA
creating hurdles like coal price pooling, environment clearances
pending at different stages of ministry blocking the way for more
production and discussion at the final stage for introduction of
competitive bidding for captive coal block allocation.
InfraInsights through its research report Emerging Coal Demand
Supply Shortfall and import scenario by 2030 analyses every

aspect of the coal industry that would emerge from short term
scenario to long term scenario by 2030 and affects the industry
as a whole. The demand from each and every consuming sectors
are analysed taking into various factors. Each sector is analysed
and demand segregation is done by identifying industry cluster
state wise and mapping the demand contribution in India map so
that a well thought out strategy could be developed for coal
production and its logistics impediments to the coal consuming
centres. Three different scenarios are established such as
Business as Usual ( BAU), high growth scenario and low growth
scenario and demand estimates are found out. On supply side
dynamics, coal estimates are projected not only for CIL and its
subsidiaries but also for captive coal category and supply is
aggregated to find out the net shortfall. The import scenario is
evaluated basis BAU, low import scenario ( LIS) and high import
scenario ( HIS). The sector wise analysis is comprehensively
covered.
From the research, following observations are clearly emerged
out:
1. There is a need for private players in coal mining
operations and MDO provides the best opportunity
for private players in the current scenario
2. Huge investment and big push in UG mining is
inevitable for future sustainability coal mining
operations
3. Only explored coal blocks be considered for
competitive bidding for captive coal block allocation
and government should fast track the process
4. CIL needs to put all its act together for a double
digit growth in coal production, co-ordination
between ministries pose the biggest hurdle
5. Exploration offers the maximum opportunity for
private players if opened fully, Coal washing the
next big thing
6. India need to have its own sovereign wealth fund for
acquiring assets overseas and unlock the potential
7. Coal logistics and off-take poised to evolve as major
challenge, apart from scarce coal availability for
coal consuming sectors of India
8. Scarcity of coal will hit Indian power sector worse by
2020, with most of the plants based on imported
coal likely to stall operations
9. Inadequate domestic transportation will scale up
degree of coal imports from cement sector of India
10.
Australia and Mozambique will be major coal
destinations for India by 2020 for coking and
thermal coal imports

11.
Port distance and port capacity utilisation are
most relevant factors for coal end users in India
12.
Steel sector to rely on coal imports; whereas
sponge iron sector to rely on domestic coal till 2020

There is a need for private players in coal mining operations

and MDO provides the best opportunity for private players in
the current scenario
The MDO model is the gateway for private players entering into
coal mining sector in India and it paved the way for Public Private
Partnership ( PPP) in Indian coal sector. This is an unique
arrangement through which the MDO participates in coal mining
and its extraction based on certain milestones and paid
accordingly to the production level guaranteed. The ownership of
coal lies with the coal block holder.
MDO can enter through JV with coal block companies. Companies
such as NTPC, UMC and other state mining corporations prefer
this route for coal block development because of lack of ining
exertise in related field. This is a proven model in iron ore mining
and is getting underway in coal sector in India.
NTPC awarded its Pakri Barwadih coal block to Thiesss as MDO,
UCM awarded its coal bock in Odisha to Adnai Enterprises limited
for development as MDO. Other active MDO in this field is EMTA.
To sweeten the deal to MDO, companies offer lucrative
proposition to the MDO such as transfer of rejects to the power
companies owned by the MDO ( in case of UCM coa block to
Adani). Though the transfer of rejects is prohibited according to
regulations and courts controversy. This is a good model to
explore and government need to come up with a policy to enable
such type of deals where it evokes a win win proposition to both
the parties.
CIL currently expresses its desire to go in for MDO model for
speedy execution of some of the projects to cater to the demand
of the industry. CIL has given Bhubaneswari Open-cast project
(OCP) of Mahanadi Coalfields limited ( MCL) and Rajmahal OCP of
Eastern Coalfields Limited (ECL) through open tenders to third
part agencies for long term contract to maintain and develop.CIL
is in the process of finalizing document for development of 27
identified projects with a total capacity of 136.48 million tonnes
per year through outsourcing to enhance coal production
capacities during the XII five year plan. Out of these 27

Mines/Blocks, 12 are Underground mines having 14.42 MTY

Capacity and 15 are Open-cast mines having capacity of 122.06
MTY. This model needs to be backed up by some policy provisions
from government so that more number of private players enter
into this field.
Huge investment and big push in UG mining is inevitable for future
sustainability of coal mining operations
Contrary to the world wide practice of UG mining, India adopts
open cast for its coal mining operations, thus rendering huge
reserves of coal unexplored for all time. Though UG mining
requires advanced technology and costly as compared to OC
mining, the time is ripe to invest in UG mining. Currently 8% of
total coal production is coming from UG mines which needs to be
enhanced through investment from CIL and its subsidiaries. CIL
has floated global tenders for development of UG mines which is
a welcome step. It should accelerate its efforts on development of
UG mines.
Only explored coal blocks be considered for competitive bidding for
captive coal block allocation and government should fast track the
process
Crisil has submitted the report on competitive bidding process
and guidelines to the coal ministry for further discussion and
finalisation. Out of 54 coal blocks put for auction, only 12 coal
blocks are fully explored. It is recommended that only explored
blocks need to be auctioned as it would attract large number of
players and true cost of the coal block can be realised.
Unexplored blocks are full of uncertainity and private players
would not come forward for such blocks and do not want to put
time and resource for its full exploration. Government also can
not realise the full potential of such blocks.
Coal ministry is in sync with this proposal and evaluation of
pricing is under process. In addition to this, the blocks which need
to be auctioned should get all the clearances before hand so that
the developer would not face any problems in clearance delays in
execution of the coal block. This option is evaluated on the line of
UMPP auction of power projects.
Government need to fast track all the process and come out with
clear instruction as to how to auction the coal blocks with all
clearances so that it would put the blocks into auction with a
deadline for coal production from the said blocks to augment the
coal supply for future demand.

CIL needs to put all its act together for a double digit growth in coal
production, co-ordination between ministries poses the biggest hurdle
The near stagnant growth of 2011-12 as compared to 2010-11
put a question mark on the ability of CIL whether it can produce
more or not. Whatever the reasons may be for the almost zero
growth, the reputation of CIL was dented. All analysis may go
haywire if CIL is not pulling of its socks to produce to maintain at
least 5% CAGR and with an optimistic scenario to touch a growth
figure of 10%. CIL is having all the resources, expertise and man
power to execute the projects. It is facing daunting challenges
from the environment ministries where 191 coal projects are
under different stages of approval. CIL needs to show some
urgency and put all its act together to co-ordinate with
environment ministries for all necessary clearances and if
necessary take the help of PMO to convene and form a joint
committee for speedy approval process of the pending projects.
Projects which are stuck at the state level also need a similar
initiative from the coal ministry to push through.
A joint co-ordination committee involving all ministries is the
need of the hour to increase the production level of the country. It
is necessary not only for the CIL projects but also for the private
projects which are stuck in clearance hurdles at different stages.

Exploration offers the maximum opportunity for private players if

opened fully, Coal washing the next big thing
Globally, exploration business draws huge investement to all
minerals, especially to the coal sector. All major mining companies
spend heavily in exploration to secure their future business. About
USD 10.68 billion dollars was committed by major miners around
the world in 2010. The majority of the exploration expenditure was
dedicated towards coal and lignite exploration.
Exploration as an commercial business opportunities is not open to
the private players in the country. In India, GSI and CMPDIL are the
agencies, which are into drilling and exploration business. India
accounts for 0.5% of the total investment committed in the
exploration of resources worldwide. Nearly 60% of coal reserves in
India is in the Indicated and Inferred category, which needs to be
explored in detail, for converting them into Proved category for
project planning and mining. If exploration of the coal sector is
opened to the private players in line with NELP in the gas sector and
with a provision to commercial development of the mine and
outside sale with government rider, it would attract the maximum
foreign as well as domestic investment into the sector.

Unfortunately India does not allow commercial exploration to the

private sector. With demand surpassing the supply and the future
seems tight for the coal industry, government should think of all
alternatives available, exploration would give them the advantage
to draw mining majors of the world to India.
Coal washing would be the next big thing for the coal industry with
MOEF exploring options to reduce the distance of power plant from
the pit head to 500KM for only washed coal to be transported. It
would give extra fillip to the coal washing industry and private
players would make a bee line. CILs initiative to develop 22 coal
washeries in the BOOT model draws good response from the
developers. Once the competitive coal bidding would introduce, it
would give the private players a option to open up captive coal
washeries for its own use. They may go in for developing merchant
coal washery when provisions of third party sale of coal will be
allowed. Sooner or later, coal industry will see these reforms
happening. The early players who dare to venture into this segment
now would benefit in future.

India need to have its own Sovereign Wealth Fund (SWF) for acquiring
assets overseas and unlock the potential
India needs to create a sovereign wealth fund in line with other
30 countries for spur up investment abroad. The fund can be
created with the surplus cash reserves with PSUs and some part
of foreign exchange reserves. Government should look out for
generating this fund through different channels.
This type of fund gives the nation an edge to secure future
energy resources outside India through a special purpose vehicle.
There are more than 30 SWFs worldwide with Abu Dhabi the
biggest fund with USD 600 billion. China is the forefront of this
type of instrument to buy assets overseas. India enjoys very
cordial relationship with other countries and can take advantage
of this position for energy diplomacy and acquire assets through
the SWF it has. It may explore options to join hands with Indian
majors in private sector for mutual beneficial propositions.

Coal logistics and off-take poised to evolve as major challenge, apart

from scarce coal availability for coal consuming sectors of India

While the demand for coal centres is distributed across India, the supply of
domestic coal is concentrated in few pockets. Most of the Indian coal resources
have been concentrated in the eastern and southern zone in the states of
Jharkhand, West Bengal, Chhattisgarh, Orissa and Andhra Pradesh. The major
mode of coal transportation is railways while small quantity has been transported
by road. Nearly, 50 per cent of the domestic coal is transported from railways and
in lack of development of dedicated freight corridors for coal transport is leading to
considerable coal quantity loss to transportation. Moreover the imported coal
supply scenario is also a pain point in meeting the coal demand on time. For
imported coal one of the critical bottlenecks in the supply chain is the handling
infrastructure at ports. There have been congestion issues at ports. For example,
the average pre-berthing time at major ports during April to September 2011 was
12.4 hours. This is 27 per cent higher than the average pre-berthing time during
the same period in 2010. The pre-berthing time at Kandla and Tuticorin almost
doubled during the same period. Similarly, there has been increase in the average
total turnaround time.
Given no respite in the prevailing issues coal logistics in India will continue to
struggle on this front unless Government provides the desired infrastructure
support.

Scarcity of coal will hit Indian power sector worse by 2020, with most of
the plants based on imported coal likely to stall operations
India is most likely to continue with coal supply shortfall in lieu of
low production growth rate from CIL and with stringent regulatory
norms getting applicable in Indonesia. Although, some respite will
come from Mozambique with almost 45 MT of thermal coal being
imported in India by 2020. This will see Mozambique tipping
South Africa as a thermal coal supplier to India.
The plants based on imported coal may stall their further
development as the economics involved is not in favour for the
development. If the projects have to be developed then it will be
imperative to have the high variable cost to be a pass through to
the consumers, thereby decreasing the probability of regulatory
approvals.
The demand-supply coal mismatch for the sector will see
slippages of nearly 20 GW in the planned capacity additions of 88
GW by 2020.
Inadequate domestic transportation will scale up degree of coal imports
from cement sector of India
With nearly 65 MT of coal demand in FY 12 cement industry is at
large dependent on the domestic coal source as more than 90 per
cent of the coal for the cement industry is sourced locally.

However, due to improvement of efficiency in cement production

better quality coal demand is on rise from the industry and hence
the tune of imports have gone up by nearly double in last five years.
In FY 2012-13, 11 per cent of total demand of coal by cement
industry is being fulfilled through imports. There will be more
impetus to coal imports, given the issue of domestic coal
transportation in meeting timely supply. Mainly the domestic supply
to cement sector is done through roadways, hence the capacity
scale up is required from railways to reduce the pressure of
increased coal demand from the sector.
Australia and Mozambique will be major coal destinations for India by
2020 for coking and thermal coal imports
Australia will continue to suffice the rising coking coal demand of
India till 2020. The BAU scenario will see a growth of 5 per cent
on CAGR basis from the current volumes of coking coal imported
from Australia till 2020. Most of the steel companies are
attempting to acquire assets in Australia apart from the existing
sources.
Mozambique is fast gaining its popularity as next destination for
non-coking coal in India. The testimony to this lies in the fact that
the imports have grown almost 400 per cent from FY 09 to FY12.
With growing thermal coal demand and a stable policy
environment of Mozambique offers huge potential for imports.
However, the development of the internal infrastructure of
Mozambique will pose a major challenge to imports India. But
even then the huge coast line and relative stability of the
government in Mozambique will see higher imports volume in
future.
Port distance and port capacity utilisation are most relevant factors for
coal end users in India
The distance of port and the capacity utilisation of the ports will
be two most important factors for all end users of coal. These
factors become even more pivotal for sectors like power and steel
wherein the quantum of imports will see increase on year on year
basis till 2020.
Port TAT and railway handling capacity are other two important
factors which are impacting the power sector at large. The factor
of adequate road infra is laying a negative impact on cement
sector of India at large.
Steel sector to rely on coal imports; whereas sponge iron sector to rely
on domestic coal till 2020

Indian steel sector will witness higher growth volume in coking

coal imports till 2020. The major seaborne coal imports will
happen from Australia, mainly because Indias domestic coking
coal availability is less and exploration of coking coal mines in
India.
Sponge iron sector will continue to have 98 per cent of noncoking coal required to be sourced domestically. The major
supplying states will be Odisha, Chhattisgarh, Jharkhand and West
Bengal. The CIL subsidiaries like MCL and ECL will continue to
dominate supplies to the sponge iron industry of India.