VITAL INDUSTRY UPDATES – 30/06/2015

June 30, 2015 4:20 pm Published by

Coming, future coal linkages for the power sector

After reaching a consensus to auction coal linkages for the unregulated sector, the Coal Ministry now plans to offer future coal linkages to the power sector as well.

According to the minutes of the meetings of the inter-ministerial committee looking into the issue, the Coal Ministry has sought comments from the Power Ministry on a proposed auction methodology for the sector framed by SBI Capital.

According to the proposal, coal linkages will be auctioned by the State electricity distribution utilities (discoms) and the lowest bidder in terms of tariff will win to ensure that benefit of lower coal costs are passed on to the consumers.

The linkages are proposed to be given for a period of seven to 25 years with a strong preference given to the 25-year tenure, as it would help in having a long-term mine planning, rail infrastructure and power planning. SBI Capital’s proposed methodology has suggested that a single discom or a group of discoms will invite competitive bids and transfer the linkage to the winner.

It recommended that the discoms should arrange all clearances and invite the bids on a ‘plug and play’ basis. The proposals also recommended that Coal India Ltd should earmark a coal mine and Indian Railways should ensure evacuation infrastructure to ensure more bid certainty and lower tariff.

“The competitive bid can be conducted as modified Case I bid takes place where in the power plant can be located anywhere. Therefore, competing bidders may have different transportation, transmission and washing cost. Bidders would be required to quote separate figure for variable charge and fixed charge. Based on this, a levelised tariff would be used to select bidders with the L1 (lowest bidder) getting preference and so on. The list would be different for each discom,” SBI Capital recommended in its proposed methodology.

Cabinet approval

Meanwhile, a decision on auctioning of coal linkages for the unregulated sector is expected to get a Cabinet approval by early July. A senior Coal Ministry official said that comments have been received for the draft policy put out by the Ministry earlier this month.

At the meeting of the inter-ministerial committee held on June 4, a request from the Ministry of Steel to allocate coal linkages to Government and Public Sector Units, like in the case of coal block auctions, was rejected.

At the meeting, it was pointed out that this would distort competition as private sector shall have to bid for the linkages while public sector would be allotted the linkages.

Steel companies feeling the heat as projects face hurdles

Five of the top ten private steel companies are facing sever financial stress due to delay in implementation of their projects, according to the Financial Stability Report published by RBI on Thursday.

Listing out the woes of the industry, the central bank in its half-yearly review of the economy said steel companies’ expansion projects are getting delayed due to problems with land acquisition, environmental clearances among other factors.

Challenges

Though the sector holds good long-term prospects it is currently under stress, necessitating a close watch by lenders.

The industry is also facing other challenges with respect to access to capital for investment, shortage of iron ore, low-paced mechanisation of mines, lower level of capacity-utilisation of coal washeries, dependence on imported coking coal and volatility in the currency market.

Accessing the overseas market, the report said the industry faces high domestic port charges amidst low domestic demand.

China and Brazil continue to dump steel in India due to lower customs duty on stainless steel while exports from India have fallen substantially due to subdued demand and levy of 50-55 per cent anti-dumping duty by the US on Indian SAW pipes, it said.

The depressed global steel prices have taken a toll on Indian steel companies on the pricing front in domestic market. A mismatch in steel pricing leads to large-scale imports.

“These factors have created stress in the sector in general and more particular in case of private sector companies,” the report said.

Currently, India is the third largest producer of steel in the world. 

The Centre has taken many initiatives such as increasing the import duty from 5 per cent to 15 per cent for finished and semi-finished steel, encouraging use of green technologies, improved logistics, increased emphasis on research and development, and relaxation of ECB rules, which will help redress the problems faced by the industry in the long run. 

In order to boost domestic demand, it said, the 12th Five Year Plan has envisaged an estimated investment of about $one trillion to build urban infrastructure over the next 20 years. 

Silver lining

Other factors such as estimated increase of the urban population to 600 million by 2030, emergence of the rural market for steel by-projects such as Bharat Nirman, the PraLisn Mantri Gram Sadak Yojana, the Rajiv Gandhi Awaas Yojana and the recent push for highway projects by the government, will help in raising domestic demand for steel. 

On a positive note, the report said India seems poised to become the second largest producer of steel in the world in the years to come. 

India may raise import duty on steel

India is expected to take a decision on further raising import duty on steel within a week, Minister of Heavy Industries and Public Enterprises Anant Geete said, in a bid to protect local producers from surging imports from countries such as China and Russia.

Last week, the Government raised import duty to 10 per cent from 7.5 per cent on flat steel and to 7.5 per cent from 5 per cent for long steel products, to stem the flood of imports.

Many steel companies, such as Tata Steel Ltd, JSW Steel Ltd and Kalyani Steels Ltd, have seen profits come under pressure in recent quarters due to surging imports of steel.

The heavy industries ministry will talk to Finance Minister Arun Jaitley on checking the quality of steel being imported into India, Geete told reporters at the sidelines of an industry conference in Mumbai.

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This post was written by Atlantic Admin