Coal India Ramping Up Offshore Investments

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By Steel 360 Bureau

The long-term challenge before State-owned Coal India Limited (CIL) is two-pronged: One, to reduce India’s non-coking coal import dependence, and, two, to lessen the country’s dependence on quality coking coal imports. The coal behemoth has chalked out a short-term plan to address these twin objectives.

The challenges, however, are formidable.

Despite the growing clamour in favour of renewable energy and climate concerns triggering widespread alarm at continued burning of fossil fuels, India has to depend on fossils for the next couple of decades or so to meet its ever-growing demand for power, especially thermal power. Sans thermal coal imports it is well-nigh impossible to satisfy that demand at present.

Similarly, the National Steel Policy, 2017 targets hiking crude steel production to 300 million tonnes (MnT) per annum by 2030. Unfortunately, India is heavily reliant on quality coking coal imports to sustain its huge steel industry and the scenario is unlikely to change in the foreseeable future.

However, CIL is working according to a well-knit plan and aims to address the twin challenges listed above in small, steady steps – through incremental measures over a period of time.

 

Offshore Investments

Addressing a select gathering of analysts at Coal Bhawan in Kolkata post the declaration of the PSU’s first quarter (Q1) results, CIL Chairman Anil Kumar Jha said that with a view to reducing the country’s dependence on imports for coking coal, CIL is working to develop good coking coal properties abroad. “Offshore investments in mining are inevitable to reduce the import burden. CIL’s technical director and his team are in Far East Russia at present to investigate the possibility of opening a new mine there. Our teams have also toured two locations in Australia and Canada each and we have decided to start operations at these sites in the near future,” he informed.

Lacklustre demand dampen global coking coal prices

Target: I BT By 2025
Jha said although India has resources to the tune of 320 BT, production in the last fiscal was 730 MnT of which CIL contributed 607 MnT – almost 83%. Private miners chipped in with 40-45 MnT. So there is a clear deficit of 250 MnT or so. India imported 230 MnT last year. Coking coal imports amounted to 55 MnT whereas non-coking coal imports touched 190 MnT in the last fiscal. This shows that the scenario is indeed grim. CIL is seeking to bridge this gap. CIL provided 1.5 MnT of washed coking coal last year to the domestic steel industry and targets to provide 2 MnT this year. “Our target is to produce 1 BT per annum by 2025-26. My perception is that the situation will stabilise around 2030 with demand reaching a plateau of 1.4 BT,” he said.

 

Stiff Challenges

Achieving the 2025 target implies an annual production growth of about 8.7% for the next six years. Will the coal miner be able to achieve that? CIL had initially set the 1 BT for financial year 2022-23 (FY23). However, due to production and despatch bottlenecks, such as lack of rakes availability, this has now been reset to FY25. It took the company three years to increase production from around 500 MnT in FY16 to 606 MnT in FY19. To meet its FY25 target, annual incremental production would need to be almost twice that rate at 66 MnT a year.

The company’s management has hinted at producing 660 MnT in FY20, implying an 8.9% y-o-y growth. Production in May has, however, dipped and the full-year production target appears stiff. The sluggish start was attributed to the cyclone in Odisha and the weakness in the economy, post the general elections.

Moreover, achieving 8.9% y-o-y growth could be challenging as four of the seven subsidiaries of CIL, including the biggest, South Eastern Coalfields (SECL), are lagging and evacuation infrastructure in key subsidiaries like SECL, Mahanadi Coalfields (MCL) and Central Coalfields (CCL), which contribute 70% to the additional production, are still being ramped up.

 

No ‘Critical’ Power Plants

Easing Supplies to Pull Coking Coal Down to USD 150Highlighting the challenges confronting the country’s power sector, Jha averred: “The Central Electricity Authority has revealed that per capita consumption in India is 1,100 units. At present, coal contributes around 70% towards electricity generation. However, this will decrease in the days to come with the contribution from renewables spiking at a steady pace.”

However, as Jha emphasised, the moot point is to ward off the possibility of coal shortage at power plants and CIL has achieved this commendable feat on April 1, 2019. No power plant in the country today, he said, is “critical” or “super-critical”. Of the mandated 22 days of stocks at power plants, the average stocks at plants today are 15 days of combustible coal and CIL is currently producing 11 lakh tonne per day.

 

Capex To Touch INR 10,000 Cr

Dwelling on the capital expenditures the company has undertaken, Jha said: “The focus is to increase the departmental production of CIL. We have spent INR 6,000 crore in the last fiscal to buy heavy earth moving machinery. The capex stood at INR 9,300 crore last year. This year, it should reach INR 10,000 crore. The most important point is that non-power sector despatches shot up to 4 MnT last year.”

Explaining the bottlenecks in mines development, the chairman said: “Of the 364 CIL mines in the country, only 40 are contributing more than 60% of the overall annual production. More than 300 mines jointly contribute less than 13%. However, we are a state-owned enterprise and no mine has, to date, been struck off the operations roster merely on economic grounds because it is not our sole objective to earn profits. CIL has spent more than INR 400 crore last fiscal in CSR-related activities.”

 

New Rail Networks

Responding to a query related to the vital stripping ratio, Jha said: “Contrary to reports, CIL’s stripping ratio is increasing. The amount of waste material excavated per tonne of coal mined, which is called the stripping ratio, has actually been increasing over the years,” he said.

Fielding queries related to offtake and the development of the coal transportation network in the country, Jha turned the spotlight on the new projects in the pipeline. “INR 220 crore has been channelised for the development of three major rail networks in the country,” he said. The three new lines are from Tori to Shivpuri in Jharkhand, Jharsuguda to Sardega in Odisha and the East-West Corridor in Chhattisgarh. Jha said that CIL has inked as many as 17 joint ventures for developing railway networks and is working closely with the Union Railway Ministry for increasing the provision of rakes. Around INR 600 crore has already been spent on buying 40 new rakes.

He also highlighted that 18 new coal washeries are on the anvil with capacities ranging between 4 MnT to 10 MnT.

 

Consolidated profit up 22% in Q1 to INR 4,629.87 crore

 CIL reported a 22.2% rise in consolidated profit at INR 4,629.87 crore for the quarter ended June 30, mainly on higher income. The company had posted a consolidated profit of INR 3,786.44 crore in the year-ago period. CIL’s consolidated income increased to INR 26,089.20 crore from INR 25,359.30 crore in the year-ago period.

Total expenses stood at INR 19,077.44 crore during the quarter under review as against INR 19,272.43 crore in the corresponding quarter of the previous fiscal.

 Production in the April-June quarter stood at 136.94 MnT as compared to 136.85 MnT in the year-ago period.

On a standalone basis, the coal behemoth’s profit in the April-June quarter rose to INR 83.23 crore from INR 68.21 crore in the year-ago period. Standalone income during the June quarter was INR 282.77 crore as against INR 282.65 crore in the year-ago period.