Monday, March 31, 2014

Concept of Coal Banking System: Utilization of surplus coal from captive mines

Coal plays a significant role in Indian economy by contributing over half of country’s commercial energy and it is expected to remain the mainstay of India’s energy sector. Hence it is important that coal reserve of the country need to be utilized optimally. As per Working Group on coal and Lignite, for twelfth plan production of coal is projected at 795 Million Tonnes whereas demand during same plan is expected to be 980 Million Tonnes. This envisages a need to enhance the domestic coal production as there exists a demand-supply gap of 185 Million Tonnes.

A committee was formulated by government to analyze existing coal distribution policy and suggest option to enhance production from captive coal mines to augment domestic production. The Committee considers economical benefits from surplus coal of captive coal mines to be brought in the domestic market.

The objective of the Coal banking system is to utilize the surplus coal available with captive coal miners for the economy, specifically with plants with approved end-use. However, the coal thus provided need to be returned to the original producer. In this system it is assumed the coal surpluses may be initially available with some companies while others may have deficit at that point of time. At a subsequent date, the other set of companies may have surpluses which they would be in a position to return the original company doing the coal banking. Hence, the objective of the system is for smoothening of the demand-supply curve. 

Thus the concept of Coal banking assumes banking of coal with Coal India Limited/other user in same sector and refunds the same consequently in installments. It also analysis advantages of banking the coal to the surplus coal producer. The firm producing surplus coal has two options of disposing coal with either the nearest Coal India (CIL) subsidiary or other firms in the same sector facing shortage in linkage coal from CIL.

Under current legal provisions of Coal Mines (Nationalisation) Act, 1973 and MMDR Act, 1957 and Colliery Control Rules, 2004, there is no provision of sale of coal from the captive coal blocks allotted. However Government can issue directions for surplus coal disposal under the Colliery Control Rules, 2004. Such directions can provide for its transfer or sale to CIL or any other unit with approved end-use.  It requires a specific policy to be formulated which stipulates the terms of disposal and pricing.

The pricing of surplus coal is proposed to be the price of corresponding grade of coal being charged by CIL from domestic customers. It also proposed by committee that it should be applicable for a period of three years, after which a review may be undertaken and such amendments as may be considered appropriate made.


A report on coal banking is prepared by B.K Chaturvedi committee which is approved by Prime Minister Office and forwarded to Ministry of Coal to formulate suitable policy in this regard.

                          
            Infraline Energy Coal Research Team

Tuesday, March 25, 2014

Shift to utilisation of Low Grade Iron Ore inevitable for Indian Steel Industry

Steel will probably remain the world’s one of the most important engineering materials for a long time to come. With strong backward and forward linkages, steel industry is an engine of economic growth and a symbol of economic prosperity. Moreover, steel is vital to the nation’s economic security as it is extensively used in strategic areas such as defence, power, atomic energy, and in creation of social and economic infrastructure of the country. Given the importance of steel, the Iron and Steel industry in India has also grown exponentially during the last decade. On the basis of growth witnessed, India has set itself a target of achieving production capacity of 300 MT of Steel by 2025 and the required quantity of Iron ore is projected at 480 MT.

Over the next few years, demand for Indian Iron ore is expected to rise by more than 500 million tons per year to meet the internal demand and export. As per United Nations Framework Classification (UNFC) of mineral resources, total resources of iron ore in the country is around 28.52 BT (National Mineral Inventory) as on 1st April 2010. Out of this total, 18.88 BT is haematite consisting of 8.09 BT under reserve category and remaining 9.79 under resource category. Remaining 10.64 BT is magnetite consisting of merely 0.02 BT under reserve category and remaining 10.62 BT under resource category. Hence, it is evident that India has vast deposits of superior quality hematite ore, categorised as direct shipping ore, which just needs crushing and sizing to be used as metallurgical feed. However, such deposits are depleting at faster rate. For the projected steel production, existing reserves of hematite will not last beyond 15 – 20 years. Hence additional domestic resources have to be used on priority basis.

The country has huge amount of low-grade iron ore but exploration and mining efforts to utilise low-grade iron ores have not been sufficient. This includes banded iron formations like Banded Hematite Quartzite (BHQ), Banded Hematite Jasper (BHJ) etc. Such ores invariably have low iron content, less than the cut-off grade of 45 percent. Given the current stage of economic development, it is not only required to explore new deposits but also to make use of low-grade ores, such as these.
Extensive R&D work is being carried out at various laboratories in India such as National Mineral Development Corporation Research and Development Centre, Hyderabad and Ore Dressing Laboratory at Indian Bureau of Mines on the utilisation of low-grade iron ore for steel production. The flow sheets developed on almost all types of ores reflect the possibility of producing concentrate suitable for sinter and pellet making.

With regard to BHQ - a low-grade iron ore with iron content ranging between 37 percent and 44 percent as well as liberation size of 100–150 microns - direct grinding of BHQ to -150μ size and then treating with Wet High Intensity Magnetic Separators (WHIMS) can improve the quality of the product to iron content ranging between 55 to 57 percent. This final concentrate coupled with suitable agglomeration technique can be used in blast furnace for steel production. NMDC plans to set up the first BHQ beneficiation plant with a capacity of three hundred thousand tonnes a year at an estimated cost of INR 150 crores, which will demonstrate the commercial viability of the technology for BHQ beneficiation.

In the light of prevailing Indian scenario it may be concluded that value addition of low grade iron ore is crucial. The process of beneficiation followed by agglomeration will not only conserve the limited high grade lumpy iron ore but will also stimulate optimum utilisation of low grade ores.

                           
                Infraline Energy Metals & Mining Research Team



Thursday, March 20, 2014

Tapping Unconventional Hydrocarbon Resources: Indian Scenario

Indigenous endowments of primary and renewable energy resources play an important role in determining any country’s energy policy. Natural gas is currently the most promising source for providing sustainable, affordable and low-carbon energy for the economic development of the world. In the near future, unconventional resources like shale, CBM, gas hydrates would play an increasingly important part in maintaining the gas supply balance. Recent assessments indicate that the potential of unconventional gas resources could not only exceed the current conventional reserves, but that they are also spread widely throughout the world, making them more readily accessible to the consuming markets.

With the development of shale gas resources around the world, improved energy security and economic prosperity is becoming a reality for many countries. While US is the leader in terms of commercialisation and development of the shale gas sector, other countries are clearly keen to be part of the shale gas revolution. Following the leads of US, China has become the second-largest global producer of unconventional gas. In countries, such as Poland, significant exploration has already taken place. In other countries, such as India, the resources are certainly present but much needs to be done in terms of infrastructure and investment before full exploitation is viable. It is somewhat evident that replicating USA experience in other countries will take more time than expected.

US shale gas success can be attributed to several factors such as advanced technology, efficient and large service sector, availability of gas infrastructure to enable quick monetization, support of US government, laws and regulations, and deep engagement with communities to address issues related to water management and hydro fracturing (seismic impact).

The Indian gas market is characterized by strong demand driven by a large population and energy intensive industries. Depletion of conventional resources, and increasing demand for clean energy, forces India to hunt for alternatives to conventional energy resources. Intense importance has been given for finding out more and more energy resources; specifically non-conventional ones like CBM, shale gas & gas hydrates, as gas is less polluting compared to oil or coal.

India has followed various models to facilitate exploration in its vast sedimentary areas and this includes nominated blocks for national oil companies, award of discovered fields on competitive bidding basis, and award of large number of blocks under the New Exploration Licensing Policy (NELP) launched towards the end of nineties. India began awarding coal bed methane (CBM) blocks for exploration in 2001; and in the four rounds of bidding 33 blocks have been awarded predominantly to NOC’s and Indian private companies.

Ministry of Petroleum and Natural Gas (MoPNG) has finalised policy guidelines on exploration and exploitation of shale gas and oil by national oil companies under the ‘nomination regime’. Based on this, Oil and Natural Gas Corporation (ONGC) would take up 175 blocks and Oil India Ltd (OIL) another 15 blocks, in three assessment phases.

To encourage the allocation of huge amounts of capital, services, equipment and human resources to unconventional gas developments, (Government of India) GoI will have to enact regulatory frameworks that include: fiscal and contractual stability, appropriate and rigorously enforced health, safety and environment regulations, steady and predictable offerings of acreage in bid rounds, and concession or leasing terms that provide investors with sufficient time for the delimitation and development of the productive acreage.

The key to unlocking gas shales, tight gas sands and coal-bed methane (CBM) has been and continues to be collaboration and advanced technology, which enables solutions to be identified, developed and deployed reducing the risks and costs of production and minimise the environmental footprint of developing these vital resources.

                                             
                 Infraline Energy Oil & Gas Research Team

Monday, March 10, 2014

Hydro projects essential for the health of the grid

Hydro power generation constitutes only 16 percent of the total installed power capacity in India and the current hydro-thermal mix stands at 20:80 which is a far cry from the ideal ratio of 40:60. Of the 1, 45,320 mw of hydro potential, India produces only25 per cent at 39,893.4 mw. Around 76,439.5 mw hydro capacity is underway, of which 20 per cent is under construction.Higher capital cost and longer gestation periods have been a deterrent in attracting investments in hydro sector when compared to the thermal sector. The cost of a hydro power station is typically Rs 6 to 7 crore per megawatt compared to Rs 4 to 5 crore per megawatt for a thermal power station.Most hydro projects take four to five years to complete while thermal power stations can be completed in three to four years.

Plan Period
Installed capacity at the end of Plan (mw)
Hydro Power Installed Capacity
Total Installed Capacity including other R.E.S.
Hydro Power Share as % of Total Installed Capacity (in %)
8th Plan (1992-97)
21,644.8
85,019.31
25.46
9th Plan (1997-02)
26,261.23
1,03,410.04
25.4
10th Plan (2002-07)
34,653.77
1,32,329.21
26.19
11th Plan (2007-12)
38,990.4
1,99,627.03
19.53
2012-13
39,491.4
2,23,343.6
17.68
2013-14* (Apr-Nov13)
39,893.4
2,46,077
16.3


Hydro power development is essential to maintain grid stability in a country like India where power generation is predominately thermal. Hydro power stations, unlike thermal stations, have versatile operating characteristics such as instantaneous starting, stopping, and operating at various loads etc. which aid in maintaining power stability. The inability of thermal power stations to back down in off peak periods can result in dangerously high frequencies resulting in a grid collapse as well damage to plant equipment. Inadequate hydro power stations reduce the operating plant load factor (PLF) of thermal power plants thereby affecting the efficiency of the power station and reducing its plant life.

Realising the need for hydro power development, in 2003, the government of India embarked on an ambitious programme to increase hydro power capacity in the country. The initiative was to install 50,000 mw of hydro power generation capability in the country. The Central Electricity Authority (CEA) was responsible for preparation of pre-feasibility report for the scheme and accordingly Preliminary Feasibility Reports (PFR) of 162 new hydro-electric schemes totalling over 50,000 mw were prepared. However, we have managed to add only about 13,000 mw in the past decade. The slow pace of capacity additions is further corroborated by the fact that even though around 37,081 mw of hydro-electric schemes were concurred by CEA since 2002-03, 68 percent of these projects are yet to start construction. For the past few years the government has been trying to fast-track hydro projects but too little avail.

Hydro Power Development Scenario in India (till November 2013)


The slow pace of growth in the hydro sector can be attributed to both manmade and natural factors. A large number of projects have failed to take off on account of environment and forest clearances and agitation against development of the plant by people affected by the project.

Factors plaguing development of hydro power
·         Difficult/in-accessible potential sites
·         Land acquisition problems
·         Environment &forest clearances
·         Resettlement &rehabilitation problems
·         Law &order problem
·         Paucity of funds
·         Longer gestation period
·         Geological surprises
·         Inter-state aspects
·         Consensus on apportionment of project cost among various beneficiaries
·         Excessive burden on account of net present value
·         Natural calamities

Inter-ministerial meetings have been held in the past one year on various clearance and policy related issues to improve the investment climate for the sector. The ministry of environment and forest (MoEF) is particularly looking into streamlining the process with regards to environment clearance (EC) and forest clearance (FC) which are normally examined by the EAC (Expert Appraisal Committee) and FAC (Forest Advisory Committee), respectively, to avoid duplication of efforts by the two committees as well as multiple scrutinies. Further, EC and FC are two different processes wherein applications for EC are directly dealt by MoEF while FC applications are initially processed through various levels in the state government. MoEF is expected to modify the earlier en-bloc timeline-based forest clearance to a milestone-based timeline both at the Centre and state level.

On the policy front, the government is likely to exempt hydro projects from competitive bidding upto March 31, 2022.The graded reduction in permissible merchant sale of hydro power is to be limited to delays arising from the developers’ side and not on account of force-majeure like floods, cloud bursts etc.  Both these amendments to be made in the tariff policy, proposed by the Cabinet, are likely to attract investments in the hydro sector. The government is also looking to make purchase of hydro power by electricity distribution companies mandatory and for those states that are unable to meet the proposed obligation would be expected to purchase tradable certificates. All these initiatives would not only attract investments but also contribute to the viability of hydro electric schemes particularly in the north-eastern region.

The pros and cons of developing hydro electric power stations are almost equally numbered and cannot be ignored. Large hydro power stations require huge investments, have long gestation periods, displace people, submerge land areas and in some cases face severe opposition from lobbyists. Despite the cons, the power sector, fraught with issues of acute coal and gas shortage and peaking shortages as high as 12,159mw during 2012-13, mandates tapping of hydro resources to maintain the right balance in our power management systems. However, environmental concerns should go hand in hand with development. This calls for standards, protocols and safeguards to be put in place for sustainable development of our power sector.

                                       
                    Infraline Energy Power Research Team

Friday, March 7, 2014

Roads Construction Data of NHAI : Far From Reality

The Indian road sector continued to face multiple challenges in this financial year in the form of high interest rates, sluggishness in award of road contracts, reduced availability of funds, execution slowdown, and increased competitive intensity. However, execution on many of the projects awarded over the last one year remained slow primarily because of delays in land acquisition, clearances, and financial closure. Projects that had the requisite approvals and funding reported healthy execution.

While both developers and contractors are going through a rough phase over the last one and a half years, the challenges were higher in the case of companies that had recently entered the project development space. While developers with a portfolio of operational toll road projects were partly hedged from high interest rates due to inflation-linked toll rates, those with projects in the developmental phase faced challenges in achieving financial closure due to weakened project viability owing to high interest rates besides delays in land acquisition and approvals. 

With NHAI increasingly awarding projects under the public-private partnership (PPP) model, engineering, procurement and construction (EPC) contractors have struggled to maintain their order-book growth. The equity requirement for BOT projects, along with the weak capital markets that have made raising capital difficult, has increased their dependence on external borrowings. Further, many of these companies have raised debt at the parent or holding company level to meet the equity requirement in BOT projects thus significantly increasing the indebtedness at the group level.

The details of allocation and expenditure for development / construction of NHs are as under:


Year
Allocation

Expenditure
2007-08
14,193.74
12,337.06
2008-09
17,522.26
14,670.86
2009-10
19,080.92
14,660.20
2010-11
25,526.80
19,617.34
2011-12
31,862.19
29,605.00
2012-13
29,438.05
19,499.76
2013-14#
34989.49
2864.48
# Expenditure up to June, 2013

NHAI awarded only 3,857 km during 2012-13 period. The comparatively lower quantum of award in previous years affected the completion rate. The targeted and completed length under various schemes including Special Accelerated Road Development Programme in North East (SARDP-NE) and Left Wing Extremism (LWE) during the last three years and the current year are as under:


Year
Target
(Length in km)
Achievement (Length in km)
Length Constructed per day
2009-10
5830
5164
14.15
2010-11
5534
4334
11.87
2011-12
5824
5013
13.73
2012-13*
6092
3857
12.60

The progress of construction of National Highways has been slow due to several problems such as land acquisition, shifting of utilities, environmental and forest clearance, approval for rail over bridges as well as shortage of skilled/semi-skilled manpower and economic slowdown. In order to expedite implementation of the Projects, Regional Offices have been set up by National Highways Authority of India (NHAI) headed by Chief General Manager. Powers have been delegated to the Chief General Manager who is involved in expediting forest / environmental clearances and monitor land acquisition matters as well as implementation of Projects. Special land acquisition units are also set up to expedite land acquisition. Chief Secretaries of State Government have also been nominated as Nodal officers to expedite Highway Projects. Projects are also closely and periodically reviewed at Headquarter as well as field units.


Recently, the issues of de-linking environmental clearance from forest clearance and exempting linear stretches from the requirement of NOC from Gram Sabha have been resolved. Reserve Bank of India has given dispensation to treat the debt due to lenders, to the extent assured by Project Authorities in terms of concession agreement, as secured loan. Disinvestment of 100% equity to other willing buyers has been allowed after completion of the construction and also substitution of concessionaire allowed after achievement of financial closure to salvage the languishing projects. The NHAI has also constituted Negotiation / Reconciliation Settlement Committees and also High Level Expert Settlement Advisory Committee to settle the claims / disputes. Further, Government has decided to award contracts on Engineering Procurement and Contract (EPC) basis also.

                                                  
                    Infraline Energy Roads Knowledgebase Team