Coal India to target output of 510 mt in 2015: Coal Secy

Commenting on the upcoming e-auctions, the coal secretary said the government was looking to sell 101 coal blocks by the end of this financial year (March 31, 2015) while the remaining 103 mines will be auctioned next fiscal year (2015-16).

Last year, the Supreme Court had cancelled allocation of 204 mines handed over to companies with coal end-use terming the process of allocation “arbitrary and illegal”.

In the recent coal ordinance that paved the way for the auctions, the government had included a clause that it may allow for commercial mining of coal in future (allowing bidding winners to sell coal in the open market) even though winners of the first phase auction (101 mines) will necessarily have to either use coal for their end purposes or sell excess production back to Coal India.

Swarup said that once the government concludes the first phase of auction by March, it will later decide whether to fully open up the sector.

Also read: Open up coal sector to enhance production: Advisory Group

Below is the transcript of Anil Swarup’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: For starters the news that one of the headlines overnight has been that JSPL and its subsidiary have deposited about Rs 3000 crore as additional levy with the government. I think the condition is that unless those who have to pay a levy pay their money you will not allow them to bid, so have all those or most of those paid up? How many are pending and how much time do they have?

A: I think they have time before they put in their bids so they probably will pay up; most of them will. However, I thought the headline was not this, as much as the increase in production by Coal India.

Latha: The fact that coal production grew by 16.5 percent in October and 14.5 percent in November is this a rate that we can expect, even month-on-month (MoM) it was a 10 percent rise in coal output November over October. Can we expect this for the rest of the year?

A: Yes my hunch is that we should be moving in that direction now that we have a full time Chairman Coal India as well. The government is putting a lot of effort to ensure that the production does increase.

Latha: When we last spoke you promised us that you will give us a yearly breakup of the growth in Coal India’s targets. The minister has given us a five year target that coal output will be doubled in five years, what is the target for FY16 itself for Coal India?

A: We are ready with the five year plan which has the annual targets. It will be formally released over a period of time. This has been finalised in discussion with the new incumbent Chairman Coal India. We discussed it day before yesterday and it has been finalised. However, it will be formally released maybe next week or 10 days down the line. We are already working towards a plan for ensuring that we reach the target of 1 billion tonne by Coal India because as I had mentioned earlier we will require about 1.5-1.6 billion tonne by 2020 and so we are looking at about a billion tonne from Coal India and rest of it from the private sector.

Latha: For this year itself can you give us something?

A: This year we should reach about 507-510 million tonne so that is the target that we are looking at. However, more importantly what will happen is we will be in the next financial year and thereafter because as I had mentioned earlier that problem that we have apart from coal production was that of evacuation and we are working very hard with the railway ministries to ensure that the critical railway lines that are presently under construction, they are completed within the timelines that we have set for them.

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Sonia: Coming back to the coal auction process, there are some power companies that may not get mines allotted in this particular auction. Can you give us a sense of what happens to those companies in the sense will they be eligible for a Coal India linkage and by when if you can give us any sense of a timeline?

A: Let me tell you first that in the beginning we have started with auction or allocation about 42 mines. Week, 10 days down the line we will have another 32 blocks for auction or allocation. Thereafter with another 10 days down the line we have another 27.

So, in all 101 mines will be either allocated or allotted within this financial year; the process will commence. Thereafter during the next financial year we will take up the remaining 103 blocks. So, we have in all 204 blocks which is quite a substantial number and that has a capacity of around Rs 380-400 million tonne.

So, that being so, most of such companies or industrial units or power generating units that require coal we should be able to meet them. Once we are through with them then we will take a call as to what we do with regard to linkage. Right now we are not even talking about providing linkages to such industries because we feel that most of them will in any case if they bid appropriately they will be able to get a block or two.

Sonia: Can you tell us how will the surplus coal that is mined by bidders, I am assuming there will be quite a bit how will that be treated in the sense what price will the surplus coal be given to Coal India?

A: We have worked out a formulation for that. The surplus coal will be given at the bid price in terms of the price that they have bid for the reverse auctions incase of power industries. Incase of forward auction they will have to give the coal to the Coal India price and this coal will go to Coal India.

Latha: Coal goes to Coal India at the reserve price for those who are bidding through the power purchase agreement (PPA) mode?

A: In the reverse bid they bid a price of coal it is not reserve price. Reserve price is only Rs 100 but they will bid at a particular price in the reverse auction. Whatever they bid as the price for coal there will be the price at which they will give the surplus coal to Coal India.

Incase of forward auction it will be the notified price of Coal India for that particular grid that they will give the Coal India the coal.

Latha: How will you work the distance from the mine? I mean who pays for the logistics of transporting. Will that be worked into; will it be the problem of the miner or will it be Coal India who will bear the burden?

A: What will happen is the coal need not be transported to any place in Coal India. Coal India then can provide linkage for that coal to another industry and that industry will pick up the travel. There is no point in taking this coal to a central pool of Coal India and then transporting it as well.

Sonia: One positive for the bidders is that the reserve price of Rs 100 per tonne payable will be included in the energy charge. So the fuel cost that is passed on will include the reserve price and the actual rate. Do you think this could translate into bidders being willing to bid more aggressively in the auction process?

A: We do believe that they would.

Latha: Coming back to the penalties question, how many have paid up and how much time do they have to be eligible for the first 42?

A: I do not have the exact number of people who have already paid up because there are paying to the coal controller. We are not really keeping a track of it. We will at point in time when the auction commences and when they have to submit their bids that is a condition given. So, anyone who wants to bid will have to pay that amount. We are hopeful that almost everyone who has to pay and who wants to bid will pay up and then bid.

Latha: Is there any ballpark number you have in mind, how much might the government make on account of this?

A: I have not worked out any number with regard to the amount of money that they will pay. However, we have worked out other numbers in terms of the benefits that will flow to the state government subsequent to auctions. However, this is something which was determined by the Supreme Court and accordingly they have to pay up.

Latha: This Rs 3000 crore is the property of the Consolidated Fund of India, the central government?

A: Yes.

Sonia: Just to get a timeline, I don’t know if you have discussed that but the existing power plants that don’t have PPAs will be eligible to bid for the coal blocks as well, what will be the deadline for such capacities to enter into the PPAs?

A: As such we have not kept any timeline for them to enter into PPA but the fact is that they will not be able to generate power because they can sell only 15 percent of power as commercial power. Apart from that it has to go through the PPA route. So, they will not be able to generate power and if they are unable to generate power what will they do with the coal? So, there is an inbuilt mechanist for them to get into a PPA at the earliest because otherwise they will not be able to supply power anywhere.

Latha: Can you just tell us the timeline for the second phase; the first phase ends with March 31, what is the timeline for the second phase?

A: The first phase itself there are three tranches of auctions and allotment. As I mentioned to you we have started with 42, the next would be in next week to 10 days; that would be another 32 blocks – that would be in total 74 blocks. This would be followed by another 27 blocks that have been transferred schedule 1 to schedule 3. So, we will have 101 blocks starting the process within March 31.

The first part that is the one that we have already announced will be completed by March 31. This was important in the context of the decision of the Supreme Court because we do need to have some one to takeover these mines once the previous owners do not mind after March 31. So, the 42 part will be over before March 31. The additional 32 and 27 may go into bit of April and May but doesn’t matter because they are not covered by the March 31 deadline. Once we are through with these 101 we are parallely working on the auction or allotment of the remaining 103 of 204 mines. Our timeline is that before March 31 2016 we should have taken care of all these 204 mines.

Latha: Your timeline for that 42 was very clearly because that was got directed. I just wanted to know timeline for that 32 and 27? Will we see it before June 30 th the first quarter?

A: Both these will be before June 30 th 2015. However, exact timelines we should be able to give you within a week’s time when we release the tender document for the 32 mines. The additional 27 mines that have been transferred from schedule one to schedule three we should be able to give you timelines within 20 days.

Sonia: You gave us a sense of what the Coal India production targets could be. Can you give us an indication of what the dispatch targets could be as well? What is the plan to dispatch the higher coal production and say by the end of this year what could the targets look like?

A: When I say 507 million tonne I am looking at because just production does not make much of a sense we are hopeful that we should be able to dispatch that much amount. However, you have hit the nail on the head, the critical point not only this year but in the following year as we talk of one billion metric tonne is in terms of ensuring evacuation of coal that is a huge challenge that we have.

I would like to inform you that we are trying to workout mine wise plan and mine wise evacuation plan in terms of what it takes to evacuate the coal that we are planning to produce. So, that is what we are going to engage with the railways now. Sit with them and see how do we workout a detail plan whether we have to setup joint ventures (JV) or special purpose vehicles (SPVs) for strengthening the existing railway network or setting up new railway lines. We have whole set of railway lines which have been listed out in the plan that we have worked out for the next five years. I have already written to the chairman of Railway board and we will have a discussion with them.

When we have an informal discussion with their own board Coal India has the requisite money, the railways has the requisite manpower and the capacity to do it and we jointly will be able to workout a solution in this regard.

Latha: The JV is between Coal India and Ministry of railways not private sector?

A: It could be private sector as well. Fortunately, railway has opened up for 100 percent FDI. There could be investment coming from within the country, from outside the country. These are things that we are going to discuss at length in the months to follow. Now that we have clearly outline the railway lines that we require for evacuation which is the key factor in terms of reaching this coal to the destinations that we want them to go.

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Latha: Just to finish that railways linkages argument this 507 to 510 million tonne that you are expecting will be produced in the current year for that do we have rail linkages?

A: We do have rail linkages for this amount of coal. There are a couple of problems here and there which we are, as I said we are in touch with the railway ministry and we should be able to sort it out. The real problem will come when the production goes from the levels of Rs 500 million tonne to a billion tonne and we are concerned about it.

For that as I said we worked out a detail plan mine wise to see what sort of evacuation plan could be there. What are the railway lines that are required and we are now engaging with the railway ministry to see how we could put in place either that strengthen railways infrastructure or otherwise.

Latha: We have very clear indications from a lot of the power companies that states are not signing PPAs with them simply because the state electricity boards (SEBs) financial position is extremely fragile. So how do you answer, people will be there without PPAs and they will still want coal because a lot of capacity is put in and there is danger of bad loans to banks, it is a national problem? How will you address that?

A: Let us understand that there is indeed demand for power. There are indeed problems at the state level with regard to the financial condition of some of the public sector utilities in this regard. That is something which the power ministry is already looking in to; they are working out papers on that. There are looking at how such restructuring can happen so that their financial health could improve.

As far as the coal sector is concerned we are ensuring that power generation does not get impacted on account of the want of coal that is the objective of the coal ministry and it is working towards it.

Sonia: You were talking earlier about the fact that in the forward auction coal will be transferred at the Coal India notified price and in the power sector the surplus coal will be at a bid price. Clearly there is a price differential between the two sectors. It is a norm that coal will be sold at different prices for different sectors but is there any way to address that price differential?

A: No, we must understand the difference between the regulated and the unregulated sector. Coal is a regulated sector and that is why the coal that is being given to the coal sector is at the price different from the coal in the unregulated sector. So wherever there is a forward pricing we are talking in terms of coal to steel sector to cement sector which is actually unregulated sector and that is why the difference is.

Latha: Ultimately we have to move away from this isn’t it? I mean historically governments have never been able to administer where there are various prices for various sectors. It is an invitation for black marketing.

A: This is a conscious decision to keep a lid on the tariffs. You keep the coal prices low this is a conscious decision. If that decision gets changed then it is a different world altogether. In the power sector not now for times, for decades together we have controlled the price of coal to be delivered to the power sector to keep a tab on the tariff.

Imagine a scenario if the coal prices go through the roof so will the tariff and you and I will be impacted. So, as a conscious decision it has been kept there. Whereas in the unregulated sectors and the price of steel is not regulated since the price of cements have not regulated obviously the input which is coal can not be regulated.

So in power you cannot compare the two, you can argue that even the power sector should be opened up. However, that is the larger debate. We can enter in to a discussion and see whether it is advisable in the present scenario or not.

Latha: This distinction between private and state sector will this change at least in subsequent auctions. Are we going to see a little more equality between the two sectors?

A: There is no great inequality so to say.

Latha: Why can’t they bid? What is done for this sector is over and done with for the first 42 mines? However, as you get in to the auction process, will at some point this state sector will also be asked to bid at all or that is a done deal you are not going to allow state sector to bid?

A: Apart from the minimal allocation of coal blocks state sector requires much more than that and they are also going to bid. Some of them are getting allocated there is no doubt about it but the entire requirement will not be met through allocation. A lot of it they will come on to the auction and bid for it.

In a regulated sector like coal we have been through that and we are going through that. Over a period of time probably it will improve. At this point in time there is this policy of allocating certain coal mines to the state sector but I can assure you that will not suffice for the need of the state sector. Some of them will be biding under the usual biding process.

So whereas we are meeting some of the requirements of these state entities in terms of allocation of coal blocks and these will primarily be those coal blocks which had earlier being allocated to them on the basis of which they have made lot of investments.

There is a level playing field in terms of even allocation because even the state entities will have to demonstrate that they had already made investment to the tune of 80 percent incase of 42 block and another 60 percent incase of the remaining blocks. So there is a level playing field but still they have already made that investment in that segment on the understanding of allocation of coal block we are allocating those coal block. However, as I said in many other ways there will be competing in the open bid.

Latha: Is there any timeline at all on commercial coal mining?

A: As I said you will have to wait till March 31 st. Let us get through this whole process of auctioning and then we will sit down and discuss how and when commercial mining could happen.

Latha: It could happen what in the first half of FY16 itself?

A: I can not fix a timeline for that. There is a lot of ground work to be done in that and we should not jump into decision without the necessary ground work.