Steel sector is on a strong wicket, as the imposition of minimum import price and safeguard duty on imports has boosted industry, says Coal Secretary Anil Swarup.
Coal supplies were cut in April following slowing demand, but going forward, the key raw material will come back into the scheme of things, said Coal Secretary Anil Swarup, speaking to CNBC-TV18.
Ujwal DISCOM Assurance Yojana (UDAY) will pick up and demand will come from power sector, he said.
Under the UDAY scheme, the states can pick up 75 percent of the power distributors' debt.
Swarup is hopeful that there will be demand for coal from steel and aluminium sectors as well.
Steel sector is on a strong wicket, as the imposition of minimum import price and safeguard duty on imports has boosted local supplies.
Cement as a space has seen growth largely driven by investment in road and infrastructure, he said.
Regarding divestment and buyback in Coal India, he said there have been no formal discussions as such.
Below is the transcript of Anil Swarup's interview with CNBC-TV18's Shereen Bhan.
Q: The first year the coal sector and specifically your ministry was the best performing ministry as per CNBC-TV18 poll and that run continues for you. If I were to just take a look at the coal production numbers - up 8.5 percent in the year 2015-2016 at a record 536 million tonnes, that is 42 million tonnes more than the previous year. So, it has been a good year for you, how would you assess the performance?
A: It has been pretty satisfying. There is a lot to be done yet but pretty satisfying.
Q: You are now dealing with a different kind of a problem as opposed to shortfall you are now dealing with problem of surplus and I believe that is why you were forced to curtail production in the month of April as well and which is also why you haven’t been able to meet that target that you had earlier set out as far as 550 million tonnes of production was concerned?
A: Indeed that was the reason, the offtake was not as anticipated. So, we did have to cut down our production in the month of April, this year. But, it will pick up. We are all very hopeful that Ujwal Discom Assurance Yojna (Uday) will kick in. Once UDAY kicks in there will be an increase in demand.
Q: When do you anticipate a recovery, when do you believe that we are going to see that offtake taking off? You talked about UDAY, a lot of state governments have signed the MoUs, have come onboard as part of the UDAY scheme but when do you see a meaningful revival in the power sector which will mean a revival for you as well?
A: We would believe that in next 3-4 months it should pickup. Once the debt gets restructured I think the discoms will have a greater financial space to borrow more. Once they are able to borrow more they will be able to buy more power.
Apart from that there are so many other aspects of UDAY which have been taken care of, monitored very closely by ministry of power, they are engaging with the state governments and that gives me hope that UDAY will kick-in. Once UDAY kicks-in in a big way we will have demand for coal.
You look at it in this perspective, right now the plant load factor (PLF) is around 62 percent, this is on account of shortage of demand of power. Once UDAY kicks-in I would believe this should go up to 65-66 percent and that should be good enough for us to get our coal going out.
Q: So, what is the kind of inventory that we are currently dealing with and do you expect that to continue at least for the next couple of months till UDAY starts to transform the sector in a meaningful way?
A: The inventory is about 50 million tonnes at our pit heads and about 30 odd million tonnes at the power plants which is pretty high, but we have worked out a strategy to liquidate that. Apart from the power sector, there is a lot of demand in the steel and aluminium sector.
So we are going ahead with a lot of coal linkage auctions and coal auctions, e-auctions will happen. They start this month end and they will continue over the next few months till we are able to liquidate these stocks. In the meanwhile, we believe that as I said, UDAY will kick-in and there will be greater demand from the power sector as well.
Q: But do you believe that there will be demand even from sectors like steel and aluminium because those are sectors that have been fairly distressed as well. So, do you see successful e-auctions?
A: My reading of the situation is that steel is picking up because of the duties that have been imposed by the government on imported steel. It has already picked up in the past couple of months and my understanding is that it will pick up further. So, will the case be with aluminium and cement.
Cement will pick up because of the road sector picking up, road sector and other activities are picking up pretty fast. So, we believe these sectors will also pick up. And as the economy picks up there will be greater demand for coal in sectors other than power. Power of course will be picking up over a period of time.
Q: Do you believe you will be able to liquidate the entire amount that you are sitting with 50 million tonnes at this point in time? Also what is the outlook as far as pricing is concerned from where you sit today?
A: I am an optimist. I believed about year and a half ago that we will be able to sort out coal problems which we probably have. We believe that UDAY will kick-in and we would be able to liquidate all these stocks.
As far as pricing is concerned, this is a decision that is taken by Coal India. They will factor in all the costs that they have, they will take into account the international pricing and then fix their prices.
Q: Since we are talking about Coal India, let me ask you, I know these are of course board decisions, but let me ask you about your perspective as well on the possibility of a buy back or the possibility of an additional stake sale by the government in Coal India. Have there been any conversations on that front? And I also understand that given Coal India’s performance, you do believe that at this point, perhaps, investor interest would accrue.
A: This is a decision that is taken by the Ministry of Finance. We are consulted when that decision is taken. At this point in time, there is no such decision.
Q: Has there been any fresh consultation, any fresh conversation around either divestment or a buy back?
A: There has been a lot in the air, people have been talking about it, but we have not had any formal discussion, so to say, on either buy back or disinvestment.
Q: But informal conversations have happened.
A: There are so many informal conversations keep happening in the government. I do not have to announce that.
Q: What is your ministry’s view on both?
A: We are engaging with the department of disinvestment and you will get to know it very soon.
Q: You are saying there could be a decision on this front soon?
A: Such issues are always on the table, you keep discussing them. It is only when a decision gets taken that you get to know. I can't give a running commentary on what is going on.
Q: Do you believe that there will be investor interest in Coal India at this point in time?
A: I don't really know. We have been totally focused on production. Now we are moving towards focus on quality. Our focus is very different. We would believe as Coal India performs better there would be greater investor interest. However there is no direct approach to investors in improving their interest about Coal India, we are totally focused on improving Coal India itself.
Q: Speaking of improving Coal India and I know that this is something that you are grappling with and this is perhaps part of your unfinished agenda in terms of taking forward reforms and that is to enhance productivity and efficiency. There’s been a lot of talk and lot of opposition to the talk of outsourcing as part of Coal India on the capital expenditure (CAPEX) plans as well and what that will eventually mean, the fear of job loss and job opportunities, these views firmly being expressed by the Unions. Where do those conversations stand and how do you intend to grapple with them?
A: Let me clarify that CAPEX will not lead to reduction in jobs. When we look at 1 billion tonne production by 2020 there will be lot of capital investment and that would not necessarily mean reduction in jobs and if anything there would be more jobs that will be created.
Obviously, per unit productivity is improving if you look at the past two years, production has gone up, the labour force has come down, so obviously the productivity per labour has gone up, but in future as we acquire more and more land and is the policy of the Coal India and rightly so that for every 2 acre of land that is acquired we give employment to a member of the family, so employment is going to increase in future as well because we can’t mine without acquiring more land and as more land gets acquired, we will have more people on the rolls, so I don’t think increased capital investment will lead to reduction in jobs.
This is a wrong impression that is being going around and so I don’t think labour unions should have any major objection to our expansion plan or bringing in new technology or improving the equipment, it will all lead to improved efficiency of Coal India will help the labour as well because it makes mining much safer, it makes mining much more efficient, so all this will help the labour force. I don’t think its anti-labour or anything of that sort.
Q: That’s the point of view of the unions and I am sure that you have been trying to communicate with them. Has there been any breakthrough on this one, because even in the past whether it’s around the disinvestment time we have seen the union go on strike for a couple of days and so and so forth so to get their buy in on what you hope to do in Coal India would have assumed be important?
A: No, we are in constant dialogue with them and I don’t think this issue has been raised ever, bringing in better technology, improve technology, I don’t think any of the labour unions have opposed it at least in our discussions with them and we have been engaging with them.
I did read a couple of news items wherein someone had mentioned about it, but I don’t think that is true of the labour here, because ultimately improvement in technology will not only bring in efficiency as I said, it will make it safer for them to mine. So that I think is a primary objective that we have in mind.
Q: What kind of CAPEX plan can we expect as far as Coal India is concerned, not just for this financial year, but also going forward given the kind of expansion that you have articulated?
A: In the next 4-5 years we would be putting in more than USD 8-9 billion. It’s a huge CAPEX investment plan that we have. You can’t double your coal production without putting in money, so lot of money is going to put in for production.
Q: Let me ask you about some of the other priorities that you are now going to work on as far as the unfinished agenda is concerned. The one round of auction is over and done with. Can you give us a status on where things stand as far as the mines have already been auctioned?
A: 13 mines have started production. We have more than 12 million tonnes from them. There are some mines which the Courts have intervened. In one case the decision came yesterday, so about 4-5 mines will be added soon, so we are hopeful that out of the 31 mines in Schedule 2 that were mining, most of the mines will start mining in next 2-3 months, because the issues have been resolved and they should get moving.
As far as Schedule 3 mines are concerned, they are going as per schedule, they were not mining before, so lot of process has to be gone into there, they are going through those processes and we are hopeful that the time schedule that we kept for those mines, mining will start.
Q: What is the timeframe that you are working with?
A: For each mine its different, they have given us a mining plan, some will go into production in a year, some year and a half depending on the stage of clearances, so depending on those stage of clearances they will start mining in next 2-3 years.
As I had mentioned earlier about a year ago when we did these auctions, we are looking at around 500 million tonnes of production from non-Coal India and these mines will contribute substantially to that 500 million tonnes by 2020.
Q: And by the end of the current financial year which is FY17, how much do you think will be on stream will be part of that target?
A: We should be able to hit 40-50 million tonnes by this financial year, because that will be only Schedule 2 mines this year, next year we will start having Schedule 3 mines.
Q: Speaking of auctions now, when can we expect the next round of auctions because there has been back and forth on the timeline that you are working with?
A: We are ready with it, but last auction that we did the fourth tranche of auction it didn’t go through because there was much of a demand and we apprehend that there won’t be a much of demand now. We thanks to excellent work done by Coal India, there is so much coal around that people don’t seem to be interested in coal blocks, so we will wait for a while, we will see how the market condition is.
Q: So shelves those plans at least for the near term?
A: At least in next 2-3 months, we don’t see any auction happening.
Q: What about the linkage auction because there I understand that you are still in the process of finalising how you want to go about that and you were expected to come out with something by perhaps the month of June, is that on track?
A: Yes, let me explain that to you. For the non-regulated sector, the cabinet has already taken a decision. The first round of auction commences in the month of June, may be end May or early June dates have been finalised, so non-regulated auction will start for linkages. For regulated sector auction the decision is still to be taken by the cabinet, we are ready with the details, cabinet should decide in next 15-20 days or may be a month’s time and then those auctions will also happen.
Q: So starting June we will see the auction process take off as far as linkages are concerned?
A: Yes, as per the schedule drawn we will be able to do that.
Q: Let me also ask you about another issue which has sort of got everyone's attention at this point in time and that has to do with India's poor record when it comes to pollution and of course whether it is COP21 or any international forum we have made it very clear that our dependence on coal will continue at least in the foreseeable future. There has been a lot of talk around renewables, clean technology so on and so forth. Let me ask you specifically about the utilisation of the coal cess which has been further hiked in this Budget. Can we expect some innovative ideas on how we utilise that money or is it also going to be sort of in the abyss of the consolidated fund of India?
A: I don't think so. This cess is going to be used for improving technologies, bringing in cleaner technologies, most of these monies should go to renewable sector because they would require a lot of assistance to begin with. You are aware that we are looking at 1.75 gigawatts of renewable energy, that is quite huge. And for doing that there is a lot of innovative steps that is required. And all these monies should be used there, that is where it will be.
Q: So, do we have deliverables, do we have targets, milestones that have already been articulated on how this fund will be utilised. I mean it is almost Rs 28,000 crore in this Budget?
A: I don't have it readily with me because I am not handling that because we are giving the money, someone else is using it.
Q: I would imagine you would want to know how this money is being used or at least being put to good use?
A: I am sure it is going to be put to good use because I am sure that is going to be the need of the hour. That is why this cess was imposed. And my interaction with my counterparts in the ministry there reveal that they are working very hard at it to work out a detailed plan on how to use this money.
Q: But how do we clean up this sector and you have often spent time talking about that issue. If I were to ask you about the next steps on being able to provide cleaner coal energy. What is your ministry doing at this point in time?
A: Let me explain what we are trying to do. From January 1 this year we took this decision that we are going to set up 15 additional washeries. All these washeries will be set up by September 30, 2017. All coal that has ash content of more than 34 percent will be washed from October 1, 2017 before it goes out. That is a huge decision in terms of protecting the environment and that is the decision we have taken and we are working very hard towards it and we should be able to meet the targets that we have.
Q: What will it result into in terms of cleaner emissions so on and so forth?
A: First of all the benefit would be the ash will not fly all over the place. It will be washed, washed coal goes out and when it is actually burnt in the boilers that ash will not get displayed all over the environment. So, that washing gets done here. Secondly it saves huge amount of transportation cost. You are reducing that much amount of coal being transported.
Transpiration itself creates a lot of environmental hazards, that will get reduced. So, that is what we are doing. The rest of it will be done at the power end, power plants end where they are working on clean coal technology, they are working on super thermal power plants and all these will lead to improvement in the environment.
Q: Let me ask you about both your ministry and the power ministry and you have often said that minimalistic regulation is required to really kick-start the power sector in India. Do you believe that we are at that point in time. I mean UDAY while it is sort of heralding a new chapter or once again is trying to herald a new chapter in this ailing sector. There has been question markets raised even by the Reserve Bank of India on the UDAY scheme?
A: No, they have all been resolved, all the issue that were raised by RBI have been resolved. Let us understand what UDAY says. It is very different from previous restructuring. What has been appearing in media is more to do with debt restructuring whereas the essence of UDAY is not debt restructuring. That is an essential condition and not a sufficient condition.
What UDAY talks about is how do you reduce your transmission and distribution losses, what UDAY talks about is how do you improve your recoveries. What UDAY talks about is how do you rationalise your tariff structure to make the discoms more viable for them to continue in the long run. Right now they are states which are buying at a particular rate and selling at a lesser rate.
So, what UDAY is attempting to do is how do we reduce the cost of the power that is available at discoms. How do we improve their returns. If that happens discoms become viable and fiscal they become viable then we also stand to benefit.
The lesser demand of coal is on account of lesser demand of power and it is not that there is no basic demand of energy. There is. But the intimidation happens through these discoms who are on a very bad shape. UDAY attempts to resolve that issue and that is a very genuine effort to do that.
Q: So, do you believe that the power for all target that this government has articulated when it came to power is realistic by 2020, is achievable by 2020?
A: They are definitely moving towards that. What ultimately happens will determines what happens ultimately. As I look at the processes that are put in place we are fairly confident that we are moving in that direction. I remember when I took over as coal secretary people asked me this question coal is in a total mess, do you think it will be sorted out in two years.
It has been sorted out in less than two years. I would say the same for power. The commitment levels are pretty high and they are definitely moving in that direction. Ultimately what happens, I or anybody doesn't have any control but the processes that have been put in place including that UDAY it is definitely moving in that direction.
Q: You have also spoken about how decision making and we can call it policy paralysis or whatever, has often been a victim of what you call the 5Cs. When you were at our event a month and a half ago, you talked about the 5Cs - the CBI, the CVC, the CAG and the courts as sort of weighing down on decision making within the government. Do you believe that there has been any improvement in the ability to take tough calls, to take calls that you feel may be will be questioned tomorrow? Do you as a bureaucrat feel more comfortable today?
A: I have felt very comfortable always. I have taken decisions that I had to take. In case of coal it has been more so because of the support that I have got from all around, from everyone. There has been enormous amount of support.
I must have been arguably on the hottest seat in the country when I took over as coal secretary. I must give it to the powers that be that I did not get a single call from anybody to favour anyone. I could get away with what I wanted to do, that is the freedom that enables you to take decisions. I was given that freedom.
One of the reasons why coal happened is on account of the freedom that was given to me and the team. I am blessed with an amazing team.
Q: Do you believe that without the requisite changes or the amendments to for instance the Prevention of Corruption Act which is something that the Kelkar Committee has recommended as well when he talks about overhauling the PPP segment. Do you believe that without the requisite amendments it is going to be tough for bureaucrats to operate?
A: Certainly it would be. In my case I got all the support. There could be cases where such support may not be coming in the years to come. We have to evolve an institutional mechanism to ensure that the civil servants, such honest and efficient civil servants are protected when there are bonafide mistakes, that is imperative.
I have been lucky so far, I may not be luck in future.
Q: You said when you took over you were on the hottest seat in the country. As you stand here today, with the auctions over and done with, production at a record high, if I were to ask you what would be your key priorities or three priorities that you believe you want to sort of focus on for the remainder of this calendar year, what would those be?
A: We are focusing on quality of coal. There have been lot of complaints about the quality of coal that is supplied by Coal India. So, that is top priority for us.
We have already put a regime in place, we are now moving ahead with only supply of crushed coal which will take care of the quality, that is priority number one.
Priority number two is, we are pushing ahead with coal washeries to ensure that only coal with lesser 74 percent ash content goes out of the mines.
Third priority is to ensure that pilferages comes down. There are huge amounts of pilferages in Coal India. Some steps have already been taken. You would be surprised to know that now all our trucks are GPS tracked and we know where they are. That itself has brought down pilferage quite substantially. There are other steps in the offing and we should be able to do that during this financial year.
Q: You started the programme by talking about how you are an optimist and you believe that we are going to see a recovery across the board in the economy. How would you explain why it has taken so long for the economy to turnaround? We are growing at 7-7.5 percent, we are the fastest growing economy in the world but if you talk to people on the ground there continues to be or at least has been a crisis of confidence almost. Demand hasn’t picked up as the government would have expected or liked, what would you attribute that to? High interest rates is just one of the issues. A broken private sector in terms of debt is perhaps another issue. However what would you attribute, what has really been in a sense a crisis of confidence?
A: The ground reality is that India is a huge diverse country and there was a legacy of what was happening in the recent past. Now to come out of that and to move as fast as you would want to - I think we are moving pretty fast but we have to be faster because now that the ground work has been done I would believe it should take off and it is quite visible in the road sector, it is very visible in the railways sector. So, in a country like ours there is bound to be inertia to begin with. To break that inertia and to get into momentum it would take time.
There were huge expectations, probably as per that expectations some people would feel that the government has not performed that well, but I would say they have done pretty well because they have got the inertia out, there are sectors which are moving, coal being one of them, railways as I said, roadways, these sectors are coming and they will then trigger a greater movement in the economy.
Q: If I were to pin you down to what you believe has been the biggest achievement over the last two years, what would you say?
A: I think people have belief in themselves. When I look at coal ministry, when I look at Coal India, there is a spring in the step. When you have belief in yourself you are able to deliver. I think the biggest change has been the confidence that has come back.
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