Captive Coal Blocks in India 2011

Unveiling the Opportunities Beneath

July 2011

InfralineEnergy Business Report Series

Captive Coal Blocks in India 2011

Unveiling the Opportunities Beneath
Industry-rst analysis on
Ground realities on extractable reserves, actual productivity and efciency setbacks Captive coal demand sizing through scenario based outlook on aggregate demand and supply position by FY20 Recent trends in block allocation and production Impact analysis of the proposed competitive reserve-price tag mechanism (MMDR Act, 2010) Key issues and challenges from the perspective of owners, lenders and developers Comparative analysis on different sourcing options viz Captive, Imported and Linkage Coal Estimated investments in captive coal segment Qualitative analysis on associated risks and mitigating measures Business case analysis capital cost of coal mining projects and contracting arrangements Mapping business opportunities for stakeholders in the value-chain Feasibility of the emerging business models like trading surplus coal, merchant mining etc. The Indian coal industry faces shortage of supply akin to the gas industry a decade ago. As per Infralines estimates, the domestic shortage of coal would be around 300 MT by the end of the XII Five-Year Plan. This demand-supply mismatch is likely to widen drastically over the medium to long-term. As a result of this scenario, many Indian companies are scouting, and some have succeeded in acquiring global coal assets. While such coal imports would address the supply needs, it would still face the risks associated with prices, countrys politics, economy and associated infrastructure.

Coal Demand and Domestic Supply Outlook (FY 08-16)

MT
850 650 450 250 50 -150 -350 Total Demand (MoC) Domestic Shortfall (Estimated) Unsaturated Demand (Estimated) Total Production (MoC) Import of Non-coking Coal FY11 FY12 FY13 FY14 FY15 FY16

Even the recent proposal on pooled-pricing of coal to leverage the costlier foreign coal is not an appropriate solution, as it is likely to add huge national cost and discourage domestic mining. The bottom line is that the productivity of domestic mining companies is abysmally poor when compared globally. What India needs is reforms in opening the coal mining sector to private participation.

Comprehensive Data Points on

Details of the blocks allocated so far List of de-allocated blocks with reasons Recent status of end-use-projects Details of the blocks in Captive Mine list List of blocks identied for future allocation

The MMDR Amendment Act, 2010 in the last scal paved the way for introducing competition in coal mining. The Ministry of Coal (MoC) recently issued the draft guidelines for allocation of captive coal blocks on competitive basis. Against the earlier preference-based practice, the new blocks will be offered with reserve price tags set by MoC on the basis of the assessed resourcefulness of the blocks. Moreover, the bidders whose end-useplants are in same State as the notied block would be given a due weightage while evaluation. Successful bidders would have to explore, develop, operate, and close the mines, which would create huge business opportunities for other players in the mining industry. New entrants without deep pockets for acquiring global coal could now opt for domestic captive blocks in order to minimise their costs and risks.

Status of Captive Coal Block Allocation and Development

Total of 148 blocks were identied in Captive list by 2004 In 2006, 81 blocks having total reserves of about 20 BT were identied Besides, 27 additional blocks have also been allotted from time to time As of now, 256 blocks are available in Captive Mining list Out of 256, 208 blocks have been allocated so far Status of balance 39 blocks is 5 blocks under allotment process 4 blocks under consideration for UMPP 24 blocks are available for allotment 3 blocks - CIL proposed to retain 2 blocks have been dropped 1 block under dispute

Production Started EMP Clearance Forest Clearance Land Acquistion Mining Lease Mining Plan Exploration Completed No of Blocks Alloted

26 68 40 29 44 118 156 208

Key Questions Answered

What is the key rationale behind the supply shortfall in domestic coal industry? Will CILs CLTO Import Model sustain in long run? Its inuence on domestic production? What cost-advantages does captive coal bring to the end-use-projects? Why production from captive mines has not picked as expected? Is environmental clearance the only factor arresting the industrys growth? Will the proposed competitive mechanism pave the way for merchant mining or privatisation?

For Sales & Support

Richa Pasricha richa.pasricha@infraline.com 011 66250007 9818049679

InfralineEnergy through its second annual edition of CAPTIVE COAL BLOCKS IN INDIA 2011 investigates the captive coal space in a 360 degree perspective. The preliminary sections are contemplated to showcase the ground realities of the industry supported by updated facts and gures. Statistical models are used to forecast the demand for coal under various scenarios, assess the supply position from declared production and planned imports so as to deduce the precise demand that captive coal can address. Such demand sizing is indispensable for macrolevel business decisions and is the only thing investors would ever need. Based on recent block-wise status and developments, the further sections will trace the trends set by the allocation done so far. Though of different nature and varying quantum, captive coal similar to imported coal, faces certain unquantiable risks demanding premium-returns unless assessed and mitigated in time. In addition to the comprehensive block-wise details and trends on so far allocation, the report will bring out the primary-research outputs on end-use projects, de-allocated blocks, distressed blocks and blocks in line for future allocation. Over and above, the exclusive issue map on uncertainties and challenges, impact analysis of the proposed competitive bidding mechanism, industry opinions, comparative analysis of different sourcing options and economics of Captive Mining will altogether set an innovative path nding guide to all stakeholders

For Research & Consulting

Yashvanth Rao J yrao@infraline.com 011 47522488 9711446523

Contents and Coverage

1. The Dynamics of Indian Coal Industry Historical Trends
Contribution to Indias energy-mix Estimated and Proven Reserves Extractable Reserve Base from Geological, Technical and Economical Perspective Demand and Supply Position Production and Consumption Pattern Long-term and Short-term Prices Imports and Trading Trends Washing and Blending Trends Transportation Environment Cost, Production and Revenue Sharing Arrangements Existing Business Models EPC Model Outsourcing Joint Venture Hybrid Structure Group Captive Mining

8. Issues and Challenges in Captive Coal Block Development

Concerns in Allocation and Award Process Issues from the Perspective of Government, Lenders, Owners and Developers Land Acquisition and R&R Issues Infrastructure and Exploration Issues Environmental and Legal Issues Lack of Expertise to Develop Mines Financing Issues Lack of Appropriate Business Structure Other Intangible Issues Collated Issue-map for Captive Mining

2. Coal Demand Supply Outlook - 2020

Forecasted Aggregate Demand for Coal Planned Domestic Production Planned Imports Estimated Unmet Demand

3. Captive Coal Block The Marquee Asset

Deated Fuel Supply and Price Risks Pricing Power - Competent Cost Advantages to EUPs Captive Coal Vs Imported Coal Vs Linkage Coal A Comparative Analysis

9. Business Opportunities in the Value Chain

EPC Companies in Mining, Washing Technology Providers Equipment Manufacturers Logistics Providers Associated Mine Infrastructure Technical Consultants

4. Trends in Block Allocation & Production

Analysis on the Blocks Allocated and Development Status Year-wise State-wise Industry-wise Developer-wise Capacity-wise EUP-wise Grade-wise Current Status-wise Production-wise Mine-type wise

10. Impact of Recent Developments in Coal Mining Space

MMDR Bill - Thrust on Competition and Prot Sharing Linking 26% Prot Sharing with Mineral Value Analysis on Future Entry and Participation Impact Analysis of Competitive Bidding Guidelines Proposed Changes in Award Process Industry Opinions on Competitive Bidding Environmental Policy Changes MoEF Guidelines Impact on Recent Coal Mining Projects Current Policy Stance Planning Commissions Pooled-Pricing Mechanism Inuence on Captive Mining CILs Coal for Long Term Off-take (CLTO) Import Model Evaluating the Sustainability Inuence on Domestic Production Latest Initiatives and Strategies of MoC

5. Investments Planned and Proposed in Captive Coal Segment

Key Players Ahead in Investments Proposed Investments Financing Arrangements and Options Industry Case-studies

6. Risks Associated with Captive Mining

Risks Faced by Developers Qualitative Analysis Mitigating Techniques Best Industry Practices

7. Business Case Analysis

Enabling Policy Framework Value-chain in Captive Coal Block Development Coal Mine Life Cycle Major Milestones Sequence of Operations Time-lines Involved Capital Cost of Coal Mining Projects

11. Emerging Business Models for Private Sector Participation

Newer Technologies - UCG, CTL, CBM Development Diverting and Trading Surplus Coal On the Anvil Merchant Mining Model - New Paradigm Privatisation The Next Transition Exports

12. Key Research Findings

Business Case Studies Recent Government-to-Government Interactions FY 12 High-Value Business Deals Key Strategies Adopted Player Proles Central Sector Mining Companies (CIL, SCCL, NLC) State Mining Corporations Private Mine Developers & EPC Companies

Comprehensive Data Points Details of Blocks Allocated So Far List of De-allocated Blocks Current Status of EUPs Details of Blocks Identied for Allocation

Payment Details
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