Better Coal

Government steps up efforts to improve quality

Having successfully stepped up coal supplies, the next major thrust area for the government will be improving the quality of coal. To this end, a high-level workshop chaired by the power minister was organised to deliberate on coal quality issues. Starting April 1, 2017, the Ministry of Coal (MoC) and Coal India Limited (CIL) have resolved to ensure that grade slippages are minimal. “The country has achieved an important milestone of adequate quantity of coal; now it is a quest for quality and preventing of grade slippages,” said Piyush Goyal, minister of state (independent charge) for power, coal, mines and renewables, at the workshop.

In the past few years, the transformation of the country’s coal landscape has been quite dramatic, with coal stocks at thermal power plants (TPPs) rising sharply, in fact, leading to a coal-surplus situation. However, the quality issue has remained a key point of contention between public and private power producers and CIL. Given that the price of coal is based on its grade, with slippages in quality, the end-use industry pays more for a lower grade of coal. Despite multiple efforts and reassurances by coal companies on coal quality, this issue has remained unresolved so far.

The current attempt by the government to fix this issue appears to be more serious. Major changes have been proposed. A fresh study of all coal mines has been mooted by MoC, which is being seen as one of the most far-reaching initiatives to address the quality issues on a meaningful basis. “In case the grade slippage exceeds the determined cap, senior officials will be held responsible for it,” says Susheel Kumar, secretary, MoC. Further, a high-level monitoring mechanism to be overseen by the coal secretary and a whistle-blower policy to check corruption in the sector are some key steps that the government has outlined to ensure that quality is maintained. Along with CIL’s major technology focus to improve its coal quality with the addition of modern equipment to its fleet and coal washeries, these initiatives are expected to result in the production of better quality coal.

What has been done so far

The issue of poor coal quality was brought to the fore way back in 2012 when CIL and NTPC were embroiled in an ugly dispute, when the latter refrained from signing supply agreements citing poor quality of coal supplied by the miner. NTPC held back payments of nearly Rs 10 billion saying it was supplied poor quality coal during 2012-13.

The year-long dispute was resolved in July 2013, when both parties agreed to commence third-party sampling and analysis of coal. Later, in September 2014, the MoC circulated standard operating procedures for third-party sampling. However, these efforts failed to operationalise sampling in the true spirit. Power generating companies complained that samplers lacked independence and compromised on results. Besides this, there was a lack of clarity on issues pertaining to the provision of infrastructure for the preparation and storage of samples and payment of sampling charges, among other things.

Subsequently, in November 2015, the MoC issued a new mechanism for third-party coal sampling from January 2016 onwards. As per the new mechanism, CIL moved away from the current practice of having separate sampling teams at the loading points. From January, only the Central Institute for Mining and Fuel Research (CIMFR) was to conduct the sampling in the presence of officials from CIL and the respective power companies. The result of the sampling was binding on both parties.

In June 2016, additional changes were introduced. A tripartite MoU between coal miners and power developers was signed with the CIMFR. This time, the government allowed the CIMFR to appoint an independent third party for testing the grade of coal at the loading end on behalf of both the power plants and coal companies. Additionally, the agreement provided flexibility to a power producer to challenge the CIMFR’s results in four other government-owned laboratories if it did not agree with the results.

However, despite these measures, the issue of coal quality has surfaced multiple times in the past few months. Recently, it was reported that CIL’s largest subsidiary, South Eastern Coalfields Limited (SECL), received 55 complaints from power generation companies – including Mahagenco, Jindal Power Limited, NTPC and GMR Warora Energy Limited – regarding the poor quality of coal supply between April 2016 and September 2016. As per another report, in March 2017, power generator Damodar Valley Corporation (DVC) approached CIL for improved quality of coal after 78 per cent test results of third-party sampling reported grade slippage with shale and stones found in the coal.

What the government proposes to do

From April 1, 2017, the MoC has entrusted the Coal Controller’s Organisation (CCO) with issuing fresh grades of each mine and each despatch. The CCO would ascertain the energy content of the new mines and reassign grades and invoicing will be done based on the grades determined. This marks a significant departure from the current practice of the CCO certifying the grades fixed by the coal companies. As per the coal secretary, this massive exercise has been completed and 177 mines have been downgraded.

“Working for a long time as a monopoly, you become supply-centric and not consumer-centric,” says Kumar. He adds that the coal ministry has now fixed four key priorities: safety, environment, diversification into new areas using new technologies, and quality. He adds that these four parameters will be monitored personally every 15 days. Meanwhile, the third-party coal sampling at the despatch point by independent agencies is expected to continue for now. “This system can be done away with after six months if the feedback from consumers is positive,” adds Kumar.

Further, a strong public grievance system and a whistle-blower mechanism will be developed to report any grade slippages and rein in corruption. Also, all pending requests for third-party sampling from both public and private sector players are to be cleared on a priority basis. Debit notes of the past, ended financial year March 2017, are to be settled by April 15.

Longer-term solutions

While these are some of the administrative measures announced, a big technology push is already under way to address the issue through the use of surface miners. For instance, Mahanadi Coalfields Limited (MCL), a CIL subsidiary, plans to add five more surface miners to its fleet of 38, deployed in 16 opencast mines of the company. It had introduced surface miners in coal mining way back in 1999.

Surface mining is supposed to recover a higher proportion of coal deposits than underground mining, thereby ensuring consistent coal quality. In fact, in the five-year period 2011-12 to 2015-16, CIL’s output from surface miners increased at a compound annual growth rate (CAGR) of 18 per cent, against a 6 per cent CAGR registered in the overall output. The company produced 243 million tonnes (mt) of coal from surface miners in 2015-16.

Coal washeries are also a part of the larger game plan. CIL has plans to set up 15 washeries with an aggregate capacity of 112.6 million tonnes per annum (mtpa), adding to its existing capacity of 36.8 mtpa from the existing 15. Of these, MCL is constructing four coal washeries, which are expected to be operational by 2020, enabling coal supply of less than 34 per cent ash content to power plants within 500-1,000 km, which is a mandatory requirement as per environment ministry norms.

Outlook

Corrective measures for improving coal quality are aligned with the government’s strategy to reduce coal imports. Recently, state genco Tangedco agreed to substitute 3 mt of imported coal with high quality indigenous coal to be delivered by CIL’s subsidiary, Eastern Coalfields Limited (ECL), over and above the 5 mt already being sourced from it. Last year, AP Genco entered into an agreement with CIL to procure an additional 1 mt fuel of high energy value (6,100 kCal) and low-ash Ranigunj coal produced by ECL, in order to replace the import demand.

The only negative in the coal quality improvement exercise is expected to be the impact on CIL’s revenues. According to industry experts, following the CCO’s move to conduct fresh grading, around 50 per cent of the mines would be degraded, which means that these mines will now fetch lower prices and hence impact the company’s realisations. However, the cost of mining will remain unchanged or inch up due to inflation. Industry analysts say that CIL’s margins are already squeezed due to wage provisioning and lower e-auction realisations.

Meanwhile, there are also some issues which need to be resolved, according to the Association of Power Producers such as refunds of levies, taxes, and other relevant charges in case of downgrading of coal; oversized & extraneous material still being transported with coal; absence of real time or online information on third party sampling etc. Some of its recommendations in this context include shifting from a manual to automated coal sampling & analysis method, upgrading of testing laboratories to expedite sampling results, introducing a system of weighing of both empty and loaded rakes, and third party sampling for coal supplied under special forward e-auctions. “We are sure that with the support of the coal and power ministry and rigorous analysis by CIMFR, the grade slippage will become a non-issue in the near future”, says Ashok Khurana, director general, APP.

In the past few years, the government’s major preoccupation has been with increasing coal production. However, CIL has been duly increasing its production each year and meeting the 1 billion tonne production target by 2020 seems less worrisome now, more so against the backdrop of rising pithead stocks and sluggishness in coal demand by power companies. The government’s concerted efforts to address the quality issue at this point are a welcome move.

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