With fall in sales, Coal India set to offload fuel in open market
Faced with declining sales after contracted buyers from the power sector refused to take delivery of fuel, Coal India is set to offload an estimated additional 20 million tonnes of fuel in the open market this year with flexible offtake options.
At a recent board meeting, the miner decided to do away with a ceiling imposed by a 2007 policy, under which CIL was restricted from selling more than 10 per cent fuel in the spot market. To tap smaller consumers, spot e-auction norms will be relaxed to allow traders to participate.
Poor offtake
For the first time in two decades, CIL is facing a decline in offtake in the first six months of the fiscal. After nearly 9 per cent growth last year, offtake slowed down to 3 per cent in the first quarter. The growth was a little over 1 per cent in July.
But August and September were devastating, with offtake down by 9.6 per cent and over 4 per cent, respectively, relative to last year. Taken together with a mere 0.2 per cent sales growth between April and August, the first six months are likely to record negative sales growth.
Normally, CIL witnesses a pick-up in sales from September as electricity generation units start storing coal to meet the festival-season demand.
But this year has been different, owing to sluggish industrial demand, distress sale of electricity by IPPs burdened with idle capacities and supply of cheap hydro-electricity in the market. Overall, it makes for a dismal scene. While the Central Electricity Authority records 7 per cent growth in coal-based electricity generation from April to September 21, CIL is witnessing decline in sales compared to last year.
Complex dynamics
The problem has its roots in CIL's excessive dependence on contracted buyers, most of which are in the state sector.
During the fuel crisis, the government forced the company to overlook the demands of all other customers and enter into fuel supply agreements with power producers, who now account for over 90 per cent of CIL's sales. Such supplies are effected only if the generator has a firm power supply agreement with discoms. But discoms are not very interested in entering into such agreements as coal is available in the open market at half the cost, since beleaguered IPPs have resorted to distress sales.
Alarmed by the 25,000-30,000 MW idle power assets in the country, the government allowed CIL to sell fuel to such utilities through mechanisms such as forward e-auction, beginning 2015. The mechanism has been popular as stressed power plants consumed 35 million tonnes of fuel this year against 14 mt last year. On the flip side, most of them are dumping electricity in the open market merely at the recovery-of-operation cost.
Moreover, given the meltdown in global prices, imported coal-based units have also started dumping electricity at throwaway prices. There is little method in this madness except that it dragged the average tariff down to ₹2.5 in the open market. Increased hydro-electricity supplies added to the trouble. The net result is that States like Rajasthan, UP, West Bengal, Punjab, Karnataka and others preferred to shut down their own utilities and meet demand through open-market purchases. Some States such as Bihar found it profitable to turn down Central supplies by paying fixed costs and resorting to open-market buying. The State is among the top five buyers at the IEX for the past month.
Market opportunities
CIL sources see this as an opportunity to create a domestic market for fuel. According to sources, too much of regulation has spoilt CIL's market opportunities. While CIL faces a lack of demand, the country imported 2 mt more petroleum coke till September. The petroleum product having higher energy value replaces double amount of coal demand. Moreover, pet coke does not attract ₹400 a tonne clean energy cess. Thermal coal import stands at a considerable 63 mt.
Customer satisfaction
To survive the onslaught, CIL is trying to focus on customer satisfaction. Issues with grade slippage reduced. More improvement is expected from October as third-party sampling will be mandatory for the power sector. With time, this norm will be applicable to all consumers. There is some consideration to follow the footsteps of the mining sector in giving suppliers credit to boost demand
NTPC to raise $500-700 mn via masala bonds
India's largest energy conglomerate NTPC will raise $500-700 million through masala bonds from the financial markets in London, Hong Kong and Singapore from November.
"The funds raised through the bonds will be for several projects under construction," NTPC's director of finance and chief financial officer, Kulamani Biswal, said after attending the launch of Singapore Exchange (SGX) Masala Bond Hub.
He said NTPC will commence a roadshow for the new bonds in London, Hong Kong and Singapore. The bonds will be listed on SGX.
NTPC's annual capital expenditure is more than $4.5 billion for FY2016-17, most of which is raised through financial markets. It was $3.74 billion a year ago.
The company had raised more than $300 million in August through green masala bonds for solar projects. These bonds are also expected to list on SGX.
Giving an industry presentation at the SGX launch today, Biswal said NPTC expects to raise $835 million from overseas markets and $2.12 billion from India to support its $4.48 billion capital outlay in 2016-17. The company has internal resources of $1.53 billion and debt of $2.96 billion.
Power tariff for industries needs to come down: NTPC chief
On September 20, when Chairman and Managing Director of NTPC Gurdeep Singh addressed the company's shareholders, he said that on September 9 the actual energy demand met in the country was at an all-time high -- 3,539 MU and NTPC (along with group entities) contributed 866 MU. "Thus, green shoots are visible as far as upswing in power demand goes and this is in line with our long held expectations of growth," he had informed the shareholders. The challenge before Singh is not generation, but to see that the electricity reaches the end consumers – both industrial as well as individual – 24x7 and at right price. But, Singh cannot do this alone. In conversation with BusinessLine, Singh shared his views on real cost of electricity, health of the DISCOMs, and NTPC's growth prospect. Excerpts:
Today India's power sector suffers more from lack of infrastructure and demand issues than the supply problems experienced earlier. Has UDAY (Ujwal Discom Assurance Yojna) addressed the existing problem?
Our first quarter results are an answer. There was a 10 per cent increase in our power supplies. Put together with our subsidiaries, it was nearly 12 per cent. This is partly due to UDAY. The health of the DISCOMs seems to be relatively better than before and they have been able to purchase more power and paying for it. So, UDAY is showing some results.
Some States have not announced tariff orders. Isn't it distorting the market?
The regulators have to find whether the real cost of electricity is being recovered from the customers and what can be the different kind of tariffs. Some states have finalised the tariff orders, some haven't, and this could be due to several reasons.
But, one thing is clear that tariff for industrial sector needs to come down, otherwise DISCOMs will not come out of the stress. Industries need to be supplied electricity at some kind of competitive rates.
Do we need differential tariffs?
The problem is that the peak industrial tariff has gone very high. However, this is a subject which needs detailed discussion and needs to be studied -- how electricity sector is treated by the individual States.
Are solar tariffs which are around ₹4.5-5/unit suppressed ? Can projects be sustained at this price?
I don't think it is suppressed. Everyone has to see what kind of returns they expect. Many of the private sector players are trying their own financial engineering. I think any tariff around ₹5 a unit is sustainable.
Our combined generation has an average tariff of around ₹3.04 a unit. But if we put in a new thermal power plant, the capital cost itself is coming at around ₹2-2.5 a unit. Fuel cost is a function of the distance from the mine.
Talking about new projects, what is next on NTPC's radar?
Already 24,000 MW of capacity is under construction. Several projects are close to commissioning, several orders are being placed. What we are looking for is commissioning and ordering 2,000-2,500 MW annually for the next few years.
This is on the coal side. Solar and wind is separate.
The renewable side we are still drawing up the plans. The objective is 10,000 MW of renewable capacity by 2022.
We need to revisit our business plan which will be revealed very soon. The focus is on the renewable side. Along with the coal-based generation, we are finally investing into renewables and mainly solar. That is a big change.
Is it a government mandate to get into renewables or is it your own strategy? If the portfolio is divided will your mainstay be thermal or renewable will get higher weightage?
At the end, we are a power generation company. We were predominantly coal-based, but now our portfolio will see a significant jump in the renewable side. Only last year, we commissioned our hydro plant. We are also commissioning two more hydro plants, so our portfolio is going to undergo a lot of diversification.
We are lacking in wind so far. But very soon, we should be there. Perhaps, this will happen over the next year and half. In the first tranche, we are looking for 100 MW, but the overall target is around 1,000 MW for wind.
Will your power trading business get a booster?
The margin in the power trading business is a little squeezed, so the only thing to play on is the volumes. In the recent past, we started trading our URS (unrequisitioned) power, in addition to whatever we were trading already.
Most of our capacities are contracted, but some remains unrequisitioned.
This is traded. The other thing is the cross border trading. We are selling a lot of power through NVVNL (NTPC Vidyut Vitaran Nigam Ltd) to Bangladesh and Nepal.
The point is how much risk we can take because trading is predominantly dependent on the working capital. We are trying to balance out the risk. We are well equipped right now. Total trading on the exchanges is still 3 per cent. We are stable in this segment.
Where does upgradation to super-critical units stand? What is the strategy for the existing older plants? Are you still open to participating in UMPPs bids?
All the new plants are going to be super-critical.
Existing ones we are still assessing several things. One decision that we have to make soon is whether to acquire new land or expand our existing facilities and go in for brownfield expansion.
I am quite clear that we will be putting our energy towards brownfield projects expect those which have already started or those projects where land has already been acquired.
As regards UMPP, we will see if it makes commercial sense. As and when it comes, we will participate. What I am hearing is that it would come very soon.
How much money you want to raise from the market?
We are executing 24,000 MW of projects entailing ₹1.6 lakh crore.
We got shareholder approval to raise ₹15,000 crore this year. A lot of investment has already been done and every year we would need money.
This year capital expenditure requirement is ₹30,000 crore. Internal accruals will be ₹9,000 crore, but we need ₹21,000 crore in debt as well. So if we go for growth, we need to raise debt as well.
Demand for coal to be robust; imports to reduce: Anil Swarup
Anil Swarup, Secretary at Ministry of Coal is very confident of uptick in coal demand going forward because the per capital power consumption in the country is much below that of China. There is lot of demand for coal but it is not getting well articulated because of the poor condition of power discoms, said Swarup. However, going forward with the UDAY scheme coming into effect, the demand is sure to go up. India has now gone from being a shortage to surplus coal. He is also not perturbed by the expansion of solar energy impacting coal demand, adding that uptick in global prices too will boost demand for Coal India . Now the government is focused on working on import substitution strategy, said Swarup. Union Minister for Power and Coal Piyush Goyal had said that the government has drawn up an entire programme to completely eliminate import of coal by any state government or state discom in the next 3-4 months. NTPC has decided not to import any coal and their demand will be met by Coal India, said Swarup, adding that other entities will follow suit. When asked that there were doubts about quality of coal produced by CIL according to some reports, he said there are third party coal quality checks being done and the payments too are done through third party. So, as of now there have been no complaints of grid slippages due to quality. Coal India has a target of producing 598 million tonnes of coal this year.
Below is the transcript of Anil Swarup's interview to Prashant Nair, Reema Tendulkar & Nigel D'souza.
Prashant: I have been reading you have been saying that this lack of demand, weak off take, weak power demand, etc. these are all very temporary. Things will pick up. That sounds logical, but it is kind of alarming. A couple of years back, industry power sector, industry plant load factor (PLF) were as high as 75 percent. It has dropped to about 60 percent right now. Just take us through what your analysis of the situation is and where are we at now?
A: Let us first understand the fundamental demand that I keep saying that there will be increase in demand. If you look at the per capita consumption of power in India, it is at the level of late 19th and early 20th century in the US. Even today, it is much below even what goes on in China. And since we are growing anywhere between 7 percent and 8 percent and the belief is that as we grow further there would be demand. Now, let us understand that why this demand is not getting articulated if there is this demand. This demand is not getting articulated because of the poor financial health of the distribution companies (DISCOMs). They are not in a position to buy power because they are in a terrible financial state of affairs and it is in this context that the entire Ujwal DISCOM Assurance Yojana (UDAY) scheme was launched. UDAY is kicking in, as you might have read and heard. Bonds are being floated by the state governments, loans are being taken over by state governments. There would be some time before this starts impacting on the demand. When I say demand, demand is there, but it gets articulated through these DISCOMs. Once the DISCOMs' financial conditions improve, they will start demanding more. So, I have absolutely no doubt that the demand for power will increase. Once that happens, the PLF will increase and PLF can only increase by demanding for more coal. So, that is how we are looking at it.
Prashant: So, if you look at it, UDAY has only helped things along in the positive direction. If you look at the power demand from even DISCOMs before UDAY, when the financial situation was far worse, the situation is only improving now. There seems to be discrepancy. Your point seems logical, but my question is, is it only the weak DISCOM health, that is the spoilsport here - that is part number one. And part number two, the government is also focusing in a very big way on solar power now. You have got big targets out there and the cost of solar power has also come off quite a bit by about Rs 4-4.5 or so. How is that going to impact? We are talking about some big numbers on coal, some big numbers on solar and the underlying situation of power demand being weak. So, put it together for us.
A: You have to understand the overall space that is available. If I am saying that we are presently at the levels of late 19th and early 20th century US, the per capita consumption, the demand space is huge. It will not merely be fulfilled by solar or thermal. We will require a lot of energy in the future to meet our energy requirements. So, I am not very perturbed about the solar energy coming up, in fact that is how it should be. A lot of space in the demand space will be occupied by the solar energy. It is good for the country; it is good for the environment, but I do not think it is going to eat up the space of thermal power. So, in that sense, as you very correctly pointed out, the primary problem is with the DISCOMs. Even now, if you got to interior areas, there is a lot of load shedding that is happening. So on the one hand, we are sitting on a lot of power and lot of coal and on the other, there is a demand which is not being met because there is a lot of load shedding that is actually happening in a number of states. Now, if load shedding is happening, meaning that thereby, there is a demand, but the states DISCOMs are unable to supply power, that is where UDAY comes in. So, I am very clear in my mind. It is because of the financial health or poor financial health of the DISCOMs that we have this shortage of demand.
The second point we must understand is on the one hand, this demand is not getting articulated by the DISCOM, on the other hand, there has been a stupendous increase in supply of coal from something between 1 percent and 3 percent growth during the 2010-2014, you certainly had 9 percent growth last year. And we were sitting on an inventory of 56 million tonnes at the pitheads. So, the coal supply has grown so much that probably it was not anticipated that so much coal will come because that was not the historical evidence, but Coal India seems to have done very well and that is where the coal came from. I am very hopeful that the DISCOMs will recover as a consequence of a lot of effort that is put in, in the context of UDAY and once that happens, we will have demand. Now if we do not plan that way, we could be in trouble once the demand increases and certainly we will fall short of coal again. So, that is how we are preparing.
Reema: On the subject of the shortage of demand, would you then alter your FY17 production as well as off take targets because while there is latent demand, right now there is still a shortage of demand.
A: No, what we do is, in coal we prepare for that target that we put in mind. We have to be prepared. Suddenly, the demand emerges, say two months down the line, demand picks up and what do you do? You would not be prepared, so you have to remove the overburden. Therefore, what we have done is we have gone ahead with the removal of overburden. The actual mining has been kept suppressed a bit, but if there is an increase in demand, we will supply that coal. As far as the target is concerned, our target is basically ensuring that whatever is demand is available. We prepare according to a demand that we fix for 2016-2017 which we fixed at, if I remember correctly, 598 million tonnes, we are moving towards that, but no one stops us from reducing production, as we have done in the past, in case the demand does not rise to those levels. But to say that you reduce the target and do not prepare for it, would not be the correct approach because if the demand does arise, which it should arise, then we will be found wanting.
Nigel: You were talking about the state DISCOMs. Just want to get in a couple of questions. We had a comment coming in from Mr Piyush Goyal. He said that the government is working to eliminate coal import for state DISCOMs. As of now, what are the numbers we are working with? How much do they consume in terms of import, is it 30 million, 40 million because that will directly shift to Coal India, if we stop imports. And also, is there any potential that central government of India companies, could they as well totally stop importing coal?
A: Absolutely, that is what we are working on. We are working on an import substitution strategy. This strategy for public sector undertakings (PSU) has already been worked out, it's been in operation. Henceforth, no state or central PSU will import coal. All their requirements shall be met by Coal India. So, that is a space that we are trying to occupy. We are also working on a strategy for the private sector. We are trying to understand why they are importing coal when coal is available here. We know some of the reasons ourselves because some of the boilers at some of the plant cannot accommodate the quality of coal that is available. But we are doing a much detailed exercise. We are going into each of the plant that is importing coal and our strategy -- because that is the space we see so long as the DISCOMs do not articulate that demand. At least the demand that is being met through the import of coal - that is a space that Coal India could occupy. As far as the numbers are concerned, it may not be appropriate for me to say that we are targeting so much. It will all depend on the quality of coal that they are importing and the capability of the boilers to accept the Indian quality of coal that is available. Our job is primarily to see that the coal or the quality of coal that can be made available should be made available from within the country rather than enabling it to import.
: http://www.moneycontrol.com/news/economy/demand-for-coal-to-be-robust-imports-to-reduce-anil-swarup_7515901.html?utm_source=ref_article
Reconsider termination of Tokisud block, Essar Power requests coal ministry
Essar Power has requested the coal ministry to reconsider its decision to terminate the contract for development of Tokisud North coal mine in Jharkhand while agreeing to clear the dues along with penalty.
Senior company executives met coal ministry officials here on Monday, a government official said. "The coal ministry has told the company that it will examine the matter after the company makes the payment," he said. Essar Power Executive Vice-Chairman Sushil Maroo refused comment on the development.
Essar Power handed over a request in writing to the office of the nominated authority for coal auctions to withdraw the termination notice for the Tokisud block. The company has agreed to pay the final upfront payment of Rs 17.58 crore for the block it had won in an aggressive bidding along with a penalty of Rs 1.06 crore.
ET had on Saturday reported that the coal ministry has issued a termination notice to Essar Power severing contract for the Tokisud North coalmine and forfeitingRs 261 crore bank guarantee for non-payment of upfront amount for the block. If terminated, Essar Power will be barred from bidding in coal block auctions for a year as per the bidding norms. Essar Power told ET that it has invested `450 crore on the block by way of cash payment and performance guarantee.
Essar Power won the producing coal block in a bid of `1,110 per tonne, the highest for any power sector block. The company was required to pay upfront payment for the block in three instalments. It paid the first instalment of `33 crore on time but defaulted on the second and third instalments of `17.58 crore each. Essar Power earlier told ET that GVK PowerBSE 0.74 % that previously owned the mine has not handed over agreements signed with the project affected people towards resettlement and rehabilitation.
Warm Regards
Anurag Singal
Sr. Manager-Business Development
EMIL, Aditya Birla Group
+919088026252, 033-30518415
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