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JUL 25 2013

CIL to turn coal banker as govt moots new policy to trim import dependence

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 25th JUL 2013

Steel, power and cement companies with captive coal blocks such as ArcelorMittal, SAIL, NTPC, Jindal Power, Essar Power, CESC, Ultratech may soon be given the option to park their surplus coal with Coal India (CIL) and reclaim it when in need. If a proposal under consideration gets implemented, these firms would also get a guarantee fee from CIL, which is trying hard to comply with the fuel supply agreements (FSAs) inked with power producers.

The government, sources said, is finalising the concept of `Coal Banking' under which CIL may become the custodian of all surplus coal produced by any other company and use its vast network to disburse the fuel to consumers. This is expected to reduce the country's dependence on expensive imports while also incentivising captive coal block holders to produce more.

"The ministry has sought legal opinion on operationalising the concept of coal banking as we do not want the scheme to come in conflict with the Coal Mines (Nationalisation), Act, 1973. A committee under the chairmanship of Planning Commission member B K Chaturvedi will finalise the concept and propose a new policy amending the existing one on coal distribution, said an official in the coal ministry asking not to be named.

As per the current policy, surplus coal produced by captive developers is transferred to nearest CIL subsidiary and the price payable by CIL is lower than the cost of production and the notified price of coal declared by the PSU for the corresponding grade of coal. This policy does not incentivise surplus production so the limited captive blocks under production now have seldom used the option.

Under the proposed coal banking, surplus production could accrue if production from coal mine has started but end-use plant is not ready or there is delay is getting clearance that delays the implementaion of the identified plant. In such cases, additional coal could be routed to end-use plants that are ready, but do not have fuel. In this arrangement, the transferer of coal could get this routed to the transferee company using the CIL as coal banker with guarantee money flowing from one company to the other. Once the normal situation is restored, the coal can again be transferred back to the original entity using the same channel.

One such example could be in case of Reliance Power's Sasan UMPP and Essar's Mahan project. While Sasan captive coal block has started production, any surplus from it cannot find end-use as the company's Chitrangi project is yet to take off. If any surplus is generated, it could be transferred to Mahan that is facing issues with its own captive coal blocks. The coal can be returned back once the Mahan blocks come under production say after two years.

"This will act as a short-term measure. But in the long run, mine developer could have enough margins to produce more than their consumptive use based on the approved mine plan of the captive block on account of upward variation in estimated reserves or due to the deployment of better recovery methods.

This would aid the country in rapidly increasing domestic coal production to bridge the demand supply mismatch that is expected to be about 160 million tonne this fiscal, said the commission official.

"We have told the coal ministry that any arrangement on coal banking should endure that interests of both captive developer and CIL is protected taking into account variation in the rates of interest and inflation while deciding money value of supplied and received coal, a finance ministry official told the committee during its first meeting early this month.

Since 1993, the government has allocated 218 captive coal blocks. Out of this, 47 coal blocks have been de-allocated. Two coal blocks were allocated again, and the de-allocation in respect of 3 coal blocks has been withdrawn. Accordingly, 176 coal blocks with reserves of around 40 billion tonnes stand allocated. The production from these blocks is a mere 40 million tonne from just about 30 blocks so far though their production potential is in excess of 200 million tonne.

"We hope that government adopts the coal banking policy based on our inputs as it would go a long way in mitigating the shortage of the fuel in the domestic market. We understand that this could be undertaken without going through the complex process of amending any act, said Association of Power Producers director-general Ashok Khurana. As per estimates of the Planning Commission, domestic production of coal would grow to 770 mt by 2017 on the basis of projected annual growth of around 7% but by then the demand would shoot up to 1000 mt, requiring companies to import of over 200 mt.

The coal ministry earlier drafted a policy on surplus coal in December 2011, but it was kept in abeyance as per the directions of PMO. An EGoM on UMPP later asked coal ministry to draft a policy on surplus coal, which the ministry did for consideration of a CoS but so far this committee has never met. The issue on coal banking brings the policy on surplus coal to the table at the instance of the industry.


Steel Authority of India Ltd. Banking Calcutta Electricity Supply Company Essar Electric Power Development Corporation Limited Coal Coal India Limited Reliance Power NTPC Ltd Coal Mines SAIL ArcelorMittal Empowered Group of Ministers Ultra Mega Power Project PMO Fuel Supply Agreement Essar CIL Essar Steel Essar Oil Ltd. Planning Commission Power India Sasan Ultra Mega Power Project AIL

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