VITAL INDUSTRY UPDATES – 16/05/2015

May 16, 2015 11:20 am Published by

Coal India to invest $20 billion in five years: Goyal

State-owned miner Coal India Limited (CIL) will invest $ 20 billion (over Rs. 1.27 lakh crore) to increase production to one billion tonne over the next five years, Coal Minister Piyush Goyal said today.

“CIL has set a target to attain one billion tonne of coal production by 2019-20. This would entail a ballpark investment of $ 20 billion,” Goyal told reporters here.

Goyal said that the money would be spent in technology, equipment and upgradation of the existing facilities. “A part of it will also go towards setting up infrastructure for evacuation”.

The investment amount had been arrived at following a detailed mine-by-mine plan, he said, adding that the balance sheet of CIL was strong enough to support the capital expenditure programme.

The increase in production will be from the existing mines and also the new ones.

Exuding confidence that the target is achievable, Goyal said that in the first 43 days of the current fiscal, there had been 11.1 per cent rise in production over the similar previous period.

During 2014-15, the increase in production was 32 million tonnes, while during the four year period from 2010 to 2014, the production was lower at 31 million tonnes.

The government would support this endeavour, he said, and urged all the stakeholders, including the state governments, for a shared responsibility. “This has to be achieved expeditiously in a time bound manner,” Goyal said.

Goyal said CIL would be opening 70 to 100 mines while the state governments would be adding 39 for boosting power production in their states.

Another 70 to 80 mines would be opened by the private sector, he added.

When asked whether the country would have enough consumption capacity for one billion tonne after five years, Goyal said that 28 crore Indians do not have electricity at homes.

“India needs to double electricity production to two trillion units in five years which will necessitate higher demand for coal,” he said.

CIL will become the most valuable company after five years, Goyal said, adding that it has been able to maintain profitability without raising prices.

Asked when CIL would hike prices, he said “it is a Maharatna company and will take its own decision”.

On coal imports, he said, “We will see a declining trend in the imports of thermal coking coal. It will stop after two years. But imports of high-calorific coal will continue”.

CIL is banking on its two subsidiaries, Mahanadi Coal Fields and South Eastern Coalfields, to play a pivotal role in targeted capacity expansion.

Last fiscal, CIL production was 494 million tonnes, 3 per cent short of target.

Asked about the next round of coal block auctions, Goyal said, “We are studying the demand-supply situation, environmental issues and the readiness of the mines”.

Regarding challenges relating to land acquisition, he said there were minor issues with ‘right of way’ and were being sorted.

Stuck projects paint grim picture for steel demand

Demand for steel and cement remained muted in fiscal 2014-15 due to stalled projects in the infrastructure and real estate sectors.

Steel makers are worried that stagnant demand and rising imports are putting pressure on costs.

India’s consumption of total finished steel grew 3.1 per cent in 2014-15 at 76.35 million tonnes. This is while total availability (including imports) of steel grew 8.3 per cent at 94.37 million tonnes.

According to the Centre for Monitoring Indian Economy, as of March 31, 146 projects, with an investment of ₹82,406.7 crore, remained stalled primarily due to unfavourable market conditions and lack of promoter interest.

CMIE said the real estate sector was the worst hit with 34 projects worth ₹37,300-crore investments being stalled. Of these, 24 were housing construction projects.

“More than 30 projects pan-India have been stalled over the past year or so. The delays are because of a combination of factors, including slowing sales, mismatch between pricing and market’s affordability, rising cost of finance for the developers, and wrong product offerings,” said Anuj Puri, Chairman and Country Head, JLL India.

“The most heavily impacted sector has been residential, but retail real estate deployment has also been hit in cases where a perceptible lack of retailer activity has caused projects to stall,” he added.

“Domestic prices remain around 10 per cent higher than the landed cost. While this is expected to reduce due to the rise in price of Chinese steel, there needs to be some relief in terms of an import duty hike,” said an executive at a Mumbai-based steel firm.

“Prices rising on account of higher demand will take time as the stalled projects have to get going,” the official added.

JLL India’s Anuj Puri said that the real estate and infrastructure sectors are waiting for clarity to emerge on the Land Acquisition Bill. “The sector has welcomed several positive schemes but these now need to be implemented to ensure on-ground progress. Likewise, the engine of infrastructural development also needs to be kick-started, most large infrastructure projects are struggling with land acquisition,” he said.

Thermal coal imports will stop by 2017: Goyal

Import of thermal or steam coal used in electricity generation will start declining from this fiscal due to enhanced availability of domestic coal, Union Coal Minister Piyush Goyal said. The decline will be so sharp that imports “will stop” in end 2017, Goyal said.

“We will see the declining trend in the current year itself and in about two to two-and-a-half years’ time thermal coal import will stop while the higher calorific coal (coking coal) needed for steel plants may still continue to get imported,” Goyal told newspersons at a reception organised by Coal India at a city hotel.

The Minister was here to inaugurate CIL’s new office complex at the New Town satellite-township on the eastern fringes of Kolkata.

The Minister’s statement comes on the back of a rising trend in thermal coal imports.

While CIL extracted 32 million tonnes more coal last year recording close to seven per cent growth over the previous year, coal imports also zoomed.

According to India Coal Market Watch (ICMW) — a wing of Kolkata-headquartered mineral auctioneer metaljunction — thermal coal imports increased by nearly 38 per cent from 136.72 million tonnes (mt) in 2013-14 to 188.4 mt in 2014-15. This is nearly 40 per cent of Indonesia’s annual production. The trend continues in this fiscal.

In April, CIL produced nearly 11 per cent more coal compared to the same period last year. According to ICMW, during the period imports grew 7.3 per cent from 14.07 mt to 15.10 mt owing to soft global coal prices as well as weak sea freight.

India is currently the world’s second largest importer of thermal coal, after China. Any drop in the country’s demand would impact the world coal market, especially the prices of Indonesian coal.

Indonesia contributes to a lion’s share of the Indian import basket. The 4200 gcv (heat value) Indonesian thermal coal is available at Indian ports at approximately $38 a tonne, 15-20 per cent cheaper than last year.

The Minister’s assumptions are based on expectations of CIL enhancing production at over 15 per cent compounded annual rate for the next five years from 500 mt to one billion tonne (1,000 mt) with an investment of $20 billion.

The total availability (including captive and State government run miners), he says will treble to 1.5 bt at nearly 22 per cent CAGR — double the peak rate of coal production experienced in China between 2000 and 2010.

CIL increased production by 32 mt in the last fiscal. But nearly one-fifth of it (6 mt) was lying in the pit head due to paucity of evacuation facilities, which Goyal described as “strategic reasons”.

The Minister expects the evacuation facilities will be in place in three years. He is betting big on the completion of three railway lines in Jharkhand, Chhatishgarh and Odisha that would help evacuate nearly 300 mt of coal.

Holes in argument

Debasish Mishra, senior director of Delloite India, is clearly apprehensive of the claims on both domestic production and imports.

“The one billion tonne target on CIL is a very ambitious one,” he says adding that it would depend on “issues related to transportation and land acquisition”. Mishra is more categorical on imports.

Considering that India is adding 15-20 giga watt new electricity generation capacities over and above a backlog of 30 GW stranded capacities (either for lack of fuel or land of sales agreement with buyers); it will be a “big achievement” for the government to restrict imports at 200 mt in the coming years, he said.

 

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