Commercial coal mining: What should the new policy look like?
Article by Partha S Bhattacharyya, Former Chairman, Coal India Ltd
The Ministry of Coal, has circulated a Discussion Paper on the subject seeking views from public and stake holders. The Ministry deserves compliments for recognizing and making provisions for a few key enablers for successful commercial mining. Important among these are:
1. freedom of pricing of coal produced for commercial sale,
2. not stipulating end use restriction,
3. allowing large size mines of 30 mtpa capacity to attract competent miners,
4. allowing flexibility to manage production depending on market scenario, &
5. stipulating a minimum of 25 mcm per annum of excavation & handling as eligibility criteria to keep away non serious players or those with inadequate experience.
The stated purpose for pursuing commercial mining of coal has been mentioned as the need to further augment coal production beyond the target of 1 bn tonne in 2020 set by Coal India Ltd plus the enhanced production expected from the coal blocks allotted or auctioned for captive end use. For CIL to reach 1 bn tonne in 2020 from the actual production of 554 m tonne in 2017, the CAGR required is 21.7%. The best achieved by CIL so far was 8.9% in 2015-16 and the average over the last 3 years (2015-17) is 6.3%. Also, the growth in coal production from the captive end user segment is much lower than targeted rate.
Instead of laying emphasis on coal demand, it may be appropriate to emphasize creation of a matured market place for coal with multiple producers to drive competition on one hand and best practices in mining as well as environment management on the other as the underlying purpose. Stating this as the purpose will also provide better insulation to the Government from exposure to possible legal challenges in future.
A revenue sharing model has been proposed, with the percentage share being the bid parameter. However, for computing annual revenue, the higher of actual revenue earned or the notional revenue based on 1.2 times CIL ROM price has been suggested. It implies that the commercial sale is expected to fetch a price higher than notified by CIL. The commercial miner is expected to tie up a larger component of the production through long term FSA, by offering more attractive terms than CIL and offer the smaller residual share through spot sale. Realising the grade price notified by CIL may pose a challenge. Even after dropping the factor of 1.2 the State Govt will earn the share of revenue based on CIL notified price or higher, which, by itself should be acceptable.
The coal produced and sold will in any case attract Royalty payment to State Govt at applicable rates. It is not clear whether the revenue share at the offered rate will apply over & above the Royalty or will replace the latter. Hopefully better clarity will emerge as the document is finalised.
The suggested process of bidding treats all technically eligible bidders within the consideration zone as ‘equals’. The mining & environment management practices in the country is way below the best international standards. Commercial mining should be used as an effective channel for infusing these standards. Subsequently these benchmarks may be adopted by other established miners in the country leading to the gap with international best practices being bridged in course of time.
In order to make this happen, the proposal of seeking Initial Price Offer along with the technical bid may be dropped and all technically qualified bidders be required to make quantifiable commitments on mining technology & HEMM specifications allowing higher score for use of Surface Miners wherever feasible; machine utilization; volume of coal/OB production; percentage conformity to declared coal grade; ambient air quality during mining; landscape management during and post mine closure, etc.
With the assistance of CMPDIL, the most desirable in these parameters may be prescribed and assigned the highest score in each segment. Commitments falling short of the most desirable may be given a commensurate lower score. For obvious reasons, the bidders will have to be bound to the commitments through graded penalties for non-conformity prescribed upfront in the tender document. The scores obtained by each of the technically qualified bidders may be aggregated and assigned a higher weight of 70 to 80%. The balance 30 to 20% may be assigned to the Revenue Sharing percentage offered, the highest getting the maximum score (30 or 20) & others proportionately less. The highest aggregate of scores obtained on the technical bid & financial bid should determine the preferred bidder.
The above suggestion of adopting a Quality & Cost Based System (QCBS), besides meeting the criteria of transparency, is internationally well accepted. The process will help identify the bidder with the highest probability of making Commercial Mining a success. The bidding process suggested in the discussion paper is expected to generate tangible gain in the area of adopting best practices in mining & environment management. The current practices in these areas leave sufficient scope for improvement.
Is it time to get real about India's steel plans?
By any reckoning, it will be an uphill task for India to build steel capacity of 300 million tonnes (mt) by 2030 against the current 125 mt or so. In fact, if any proof of that is needed, the confirmation came from the government itself when earlier in the year the steel policy was revised principally to give the industry an extra five years to achieve the targeted capacity.
The roadblocks to achieving the ambitious 300 mt capacity that will put India well ahead of every other major steel producing country except China are one too many.
But the main hurdle will be to find 91,000 acres of land to pack new 175 mt capacity to be built both by way of expansion of operating mills and setting up of green-field ventures. The revised policy says the steel ministry will “coordinate” with state governments where new mills are proposed for “timely availability of litigation-free lands.” The proof of effectiveness of the Centre-state coordination will be in allocation of big parcels of land in single lots for mills to be built using the blast furnace-basic oxygen furnace (BF-BOF) route.
Two examples can be cited to show that even when in possession of land, agitations by locals, often inspired by vested interests, either lead to exit of promoters or cause unconscionable delays in the project. One, South Korean Posco, which proposed to build a 12 mt steel complex in Paradip in Odisha employing Finex technology that dispenses with the use of coking coal and lump iron ore, recently told the state government to take back the 2,700 acres given to it for the project. This was another major blow to foreign direct investment (FDI) in steel. Earlier, the world’s biggest steel group, ArcelorMittal, too had abandoned its mega Odisha project citing, among other reasons, opposition from local residents holding back land acquisition.
Two, it took a decade for Tata Steel since the signing of an MoU with the Odisha government to commission the 3-mt first phase of the 8-mt mill at Kalinganagar. Delays were caused by long protests, which would often turn violent.
Taking a different route
Not many will have the patience and negotiating skills of Tata Steel to overcome the Kalinganagar kind of resistance. Capacity building by way of greenfield BF-BOF integrated steel plant (ISP) route having proved highly time consuming, “rapid growth should be beckoning secondary steel producers (SSPs) by way of installation of electric arc furnaces (EAF) and electric induction furnaces (EIF) in different parts of the country,” says Deependra Kashiva, executive director of Sponge Iron Manufacturers Association (SIMA)
The principal advantage of making steel through the secondary route is that land, and also capital requirement, is much less than what BF-BOF entails. Since there is no use of coke in secondary steelmaking, space need not be provided for coke oven batteries where metallurgical coal is converted into coke. The principal feedstock for EAFs and EIFs in India is direct reduced iron (DRI), also known as sponge iron. This intermediate material is produced by way of direct reduction of iron ore, which may come in the form of lump, fines or pellets, to iron by a reducing gas secured from natural gas or non-coking coal. India has both coal and gas-based sponge-iron-making capacity, but a lot more of the former.
The other feedstock for EAFs and EIFs is scrap. With scrap imported from the US, UAE and Europe, quality is not an issue — fluctuation in prices is. India imported an estimated 6.25 mt of scrap in 2016. But the scrap of local origin is invariably of indifferent quality with tramps such as antimony, lead, arsenic and tin found in it in unacceptable degrees. This cannot be otherwise since what is available locally is a mix of discarded automobiles, electrical machinery and factory rejects.
Tramps disturb surface quality and mechanical properties of steel products. No wonder, then, with supply of steel from local mills growing at a much higher rate than consumption, secondary producers will be at a disadvantage if they slip on quality. The steel market with supply abundance is increasingly demanding higher quality.
This then should work to the advantage of sponge iron makers who at this point are utilising less than 40 per cent capacity. Explaining why DRI, an important component of secondary steelmaking, has the potential to replace scrap, an industry official says: “Compared with scrap, DRI is virtually free from tramp elements. It is an iron source uniform in composition. Moreover, it has an associated energy value in the form of combined carbon, which boosts furnace efficiency.”
The Indian steel industry has a unique profile in terms of diversity of production routes. At the beginning of 2017, ISPs with 50 mt had a 40 per cent share of the total industry capacity, EAFs with 36 mt had a 29 per cent share and EIFs with 38 mt had a 31 per cent share. The country has about 1,400 rerolling units which make ready-for-use steel products, mainly TMT bars from semi-finished steel bought from ISPs and SSPs.
The funding constraints
The 2017 policy promises to brave out the challenges of mobilisation of natural resources, finance, infrastructure and skills to achieve the 300 mt capacity target over the next 13 years. But how will banks be enthusiastic about any further major exposure to the sector when steel remains among the biggest contributors to their non-performing assets?
Moreover, a weak market over the years has weakened the ability of public sector steelmakers to mobilise funds to support the capacity growth expected of them. Even now when global steel outlook has improved, Indian producers are finding it hard to transact business after prices are raised.
The policy has left it for further discussion as to what will be the respective share of the primary and secondary sectors in the targeted steel capacity. Policy-makers want to know for sure to what extent the HIsmelt technology, developed by Rio Tinto, and Posco’s Finex process will finally find application in India. The two technologies, which allow making of iron with iron ore fines and non-coking coal as feedstock, are ideal for India, which is becoming increasingly dependent on coking coal import to support operation of BF-BOF units, says RK Sharma, secretary general of Federation of Indian Mineral Industries.
NMDC, DMRL ink pact to tap tungsten assets
NMDC and Defence Metallurgical Research Laboratory (DMRL) on Tuesday signed an MoU to tap tungsten mineral assets in the country.
Tungsten (W) metal is of strategic importance because of its essential requirement in the manufacture of heavy alloy ammunition systems for the armed forces. Availability of tungsten in India is very limited and the mineral is not being mined as it is economically not viable.
The two PSUs will work together to prepare a Detailed Project Report for assessing the potential tungsten reserves in the country. The effort would also be to explore opportunities for acquisitions/sourcing tungsten minerals from abroad.
The agreement was signed at the NMDC corporate headquarters by PK Satpathy, Director (Production) of NMDC, and Samir V Kamat, Director on behalf of DMRL. Narendra Kumar Nanda, Director (Technical), NMDC, and SK Jha, Director (Production & Marketing), MIDHANI, were also present on the occasion.
China is the largest producer of tungsten producing more than 80 per cent of the world’s production. At present, India’s requirement of this strategic mineral is met through import
Raise iron ore mining cap in Goa, state government tells SC
The state government on Monday urged the Supreme Court to increase the iron ore capping in the state. The matter has been adjourned till July. The apex court set a 20 million tonne per year (MTPA) cap on iron ore extraction in the state.
Speaking to TOI assistant solicitor general of India Atmaram Nadkarni, who represents the state, argued that the state government wants an increase in iron ore capping.
Nadkarni also pointed out the expert appraisal committee report, which states that the earlier assessed extraction rate of 20 MTPA should be enhanced to 30 MTPA.
The government wanted to increase the mining capping so that state receives higher revenue from mining exports to repay its loans and to carry out more developmental works.
Directorate of mines and geology had urged the mining companies to exhaust the 20 million tonne iron ore extraction capping by March 31, 2017, so that state government could approach the apex court to request that the iron ore capping be increased.
Recently, mines director Prasanna Acharya informed the mining companies that the Supreme Court of India is considering enhancement of production limit in the state, which is also recommended by the expert appraisal committee appointed by the court.
NLC India Ltd has no plans to acquire coal mines overseas as the three blocks alloted to it by the government were sufficient to meet fuel requirement of its power plants, a top company official said.
"We have no plans to acquire coal mines overseas as three coal blocks alloted to us -- two in Odisha and one in Jharkhand -- were enough to meet the coal requirement of our power plants," NLC India Ltd Chairman and Managing Director S K Acharya told PTI.
The company will continue to focus on the blocks allotted to it in line with government of India's mission of 'Make in India'
Company's coal-based plants "with 1,000 mw capacity were running, while 2,000 mw (plants) were under construction and around 4,000 mw were in the planning stage," the CMD said.
Around two years back, "we had invited expression of interest...to find out commercial viability and to find out whether it would make good business sense for us to go abroad but now we are not thinking that," he said.
The main activity of NLC India is mining (coal and lignite) and power generation of thermal and renewable energy. The company's present mining capacity (lignite) is 30.6 million tonnes per annum (MTPA) and the present power generation capacity, including JVs is 3,240 mw.
At present, NLC India has four open cast lignite mines namely Mine I, Mine II, Mine IA and Barsingsar Mine.
The lignite mined out is used as fuel to the linked pit-head power stations. Also, raw lignite is being sold to small scale industries to use it as fuel in their production activities.
The company's present mining capacity (lignite) is 30.6 million tonnes per annum (MTPA) and the present power generation capacity, including JVs is 3,240 mw.
At present, NLC India has four open cast lignite mines namely Mine I, Mine II, Mine IA and Barsingsar Mine.
The lignite mined out is used as fuel to the linked pit-head power stations. Also, raw lignite is being sold to small scale industries to use it as fuel in their production activities.
Read more at:
: India’s largest power producer NTPCBSE 1.86 % Ltd is considering pooling fixed charges for all its coal and gas-based projects in a move that it claims will help maximise output from stations that generate low-cost electricity and reduce consumer tariffs.
“As a state-run company, it is NTPC’s responsibility to see that electricity from all our cheaper stations is dispatched first. NTPC will not benefit even a single paisa from the scheme. On the contrary, the entire benefit will be passed on to state power distribution companies,” a senior company executive said on condition of anonymity.
“Fixed charges of all NTPC coal and gas-based stations shall be pooled, which means all states would pay at the same rate of fixed charges,” he said. NTPC will make a formal presentation before power ministers and top power officials of all states at a two-day conference scheduled to be held in a few weeks. Industry experts said the mechanism could benefit some states to lower costs but might increase expenditure for some.
However, NTPC said the proposal will result in lower power purchase cost of all the states. Post pooling, NTPC proposes to put its lowcost stations on optimum utilisation and use its costlier power plants sparingly in ‘reserve shut down.’
Read more at:
http://economictimes.indiatimes.com/articleshow/58249011.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
India's Tata Steel plans $663 mln payout for one-time UK pension settlement under new scheme - Economic Times
Tata Steel is planning to write a cheque of 520 million pounds ($663 million ) to its UK pensioners as a one-time settlement under a new and rare scheme called the Regulated Appointment Arrangement (RAA), said multiple sources aware of the development.
The company is finalising its terms with the British regulators to clear all its pension liabilities, a move that is expected to ring fence the business and derisk it and help in future consolidation This comes after the slow progress of its negotiations with the UK government post Brexit.
RAA is overseen by the pension’s regulators (TPR) in the UK and also needs the approval of the Pension Protection Fund (PPF).
As Tata Steel UK is not insolvent, it can only detach itself from the British Steel Pension Scheme (BSPS) with the approval of the Pensions Regulator and the trustees of the BSPS. The process to carry this out is called a Regulated Apportionment Arrangement (RAA). This process is used to separate an employer from its pension scheme in circumstances where the employer would otherwise become insolvent. The Tatas have been arguing that they need to detatch their UK operations from the BSPS or else the Group will cease its support which will make the UK operations go bankrupt.
As per the rules, the PPF or the members of an amended British Steel Pension Scheme have the right to take a minority stake of 10-33% in Tata Steel UK, if it turns round sharply after the new scheme is implemented. This is called an "Anti Embarrasment Equity Stake" – a regulatory step to safeguard pensioners interests, said people in the know. The exact quantum of stake is yet to be finalised but it will be a minority stake dilution and the Tatas will continue with majority ownership.
To proceed with the new settlement, Tata Steel India last month reached out to its consortium of over 30 Indian and global lenders to waive the covenants attached to its loans and are believed to have received their consent.
The banks have security over the shares of both Tata Steel UK and Tata Steel Netherlands -- the two key entities that own the European operations -- as well as the assets of Tata Steel UK. As per the covenants, if Tata Steel raises and puts fresh equity into the business, then the lenders have a charge on that and their approval becomes mandatory.
"In this case, Tata Steel is infusing cash to pay selectively to clear the pension liabilities without paying the bank creditors, which is why the need to seek their consent arises," explains an official in the know.
On Monday, the company informed the stock exchanges that its board will be meeting on April 20th to discuss and clear a fund raising proposal. Sources said, the company could look to raise up to $1 billion dollars.
http://economictimes.indiatimes.com/news/industry/indl-goods/svs/steel/tata-steel-uk-plans-663-million-payout-to-settle-pension-dues/articleshow/58248948.cms
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