NEW DELHI: The coal ministry has said captive coal blocks could not be allocated to private companies at the market price of reserves. This is despite the Comptroller and Auditor General of India (CAG) recently blaming the government for extending “undue gains” worth a whopping Rs 10.6 lakh crore to companies by not allocating the blocks at market prices.
“Since the blocks are allocated to private companies only for captive purposes and specified end-use, the question of linking the blocks to the market price of coal does not arise at all,” the ministry said in a clarification on captive block allocations to private companies between 1993 and 2009.
CAG’s final report on coal block allocation is likely to be tabled in Parliament in the current session. A draft of the report was quoted in a news report published by The Times of India on March 22. It said “undue benefits” were extended to companies through the allotment of 155 coal blocks between 2004 and 2009. Later, in a letter to Prime Minister Manmohan Singh, CAG had downplayed the draft report, saying “the details being brought out were observations under discussion at a very preliminary stage, and do not even constitute our pre-final draft.”
The CAG had arrived at the windfall gain figure by drawing an estimate of the cost of production for each block, taking into account the actual cost of production in a similar Coal India (CIL) mine for the same year. The difference between CIL’s sale price and cost of production was then multiplied by 90 per cent of the reserves in each block.
Coal Minister Sriprakash Jaiswal had said attaching the cost to a block would have raised prices of power, steel and cement.
NTPC DOUBLES INVESTMENT IN THIS FISCAL
NEW DELHI: The country’s largest power producer NTPC expects to almost double investments for expansion activities at Rs 21,000 crore in the current fiscal.
The state-run company had spent about Rs 11,000 crore in 2011-12.
‘Our investment plan for this fiscal (2012-13) is Rs 20,900 crore. Last fiscal, it was around Rs 11,000 crore,’ NTPC chairman and managing director Arup Roy Choudhury said.
NTPC, which has an installed generation capacity of 37,514 MW, is looking to increase the capacity in the coming years, especially with thermal power projects.
Against the backdrop of acute coal shortages impacting the power sector, NTPC might have reduce capacity addition target for the 12th Five-Year Plan to little more than 50,000 MW from earlier target of 65,000 MW.
Regarding the company’s long term strategy in terms of competitive bidding for power projects, Choudhury said that NTPC would always give a bid which is doable.
‘We will closely see whether all the ends are tied up. Land should be there, the clearances should be there. Nothing happens half heartedly,’ he said.
Meanwhile, NTPC is likely to import about 14 million tonnes coal this financial year. This would be much higher than 12 million tonnes imported in 2011-12.
NTPC posted nearly five per cent increase in consolidated net profit at Rs 9,814.66 crore for the year ended March 2012.
Meanwhile, State-run NTPC would provide half of the electricity generated from its proposed 14 thermal power stations to the 10 states where the plants are located.
‘The government has approved allocation of 50 per cent of power to the ‘home’ states from the 14 upcoming power projects of NTPC Ltd,’ minister of state for power K C Venugopal said. He said 15 per cent of the power from the installed capacity of these 14 projects will remain as unallocated quota at the disposal of the central government. The remaining 35 per cent of the power will be allocated to the other constituents of the region.
POWER DEFICIT WIDENS ON FALLING HYDRO GENERATION
KOLKATA/BHUBANESWAR: The state-run power trader Gridco has blamed lower hydro power generation for the widening power deficit even as large number of people, particularly in rural areas, reel under unscheduled power cuts amidst soaring temperature at different places in the state.
“Power demand has gone up this summer compared to previous years. The average demand is between 2,700 to 2,800 MW currently in the state, which is much higher than OERC (Odisha Electricity Regulatory Commission) approval of 2,635 MW,” said P K Pradhan, commercial director with Gridco.
“Meanwhile, the combined hydro power generation from all the units stands at around 210 MW these days, which is half of what we used to produce couple of years ago. All the hydro power units are operating with minimum water levels at their respective reservoirs,” he added.
Even though hydro power generation does not contribute significantly to meet the state’s power demand, cash-strapped Gridco depends on it heavily due to its low cost and easier availability.
Currently, Gridco draws about 2,600 MW power from various hydro and thermal power stations and captive power generators within the state and from its share out of the Central government sponsored power projects outside the state. However, its thermal power supply recently received a jolt, with Sterlite Energy halting production due to technical glitch and National Thermal Power Corporation’s (NTPC) Farakka plant shutting down units because of coal crisis.
Sterlite was supplying 350 MW, and Gridco was getting 65 MW from NTPC Farakka units as its share.
“Sterlite problem is a temporary one and it will take another three days to restore production. Meanwhile, we have asked Vedanta Alumina’s captive generating unit to provide 100 Mw from on Friday till the end of this crisis,” said Pradhan.
Gridco has also bought 420 Mw from the Indian Energy Exchange (IEX) to be supplied on Saturday for four hours. Besides, Indian Metals and Ferro Alloys (IMFA) and Nav Bharat steel plant have agreed to provide 30 MW and 20 MW power respectively to the state grid from their captive plants.
Pradhan said Gridco has requested extra high tension (EHT) industries to regulative their consumption for the time being.
Orissa has been grappling with power shortages since November 2011. To meet the summer power need of the state, Gridco had finalised agreements with Power Grid Corporation of India Ltd (PGCIL) to provide 200 MW energy for a month, which ended on May 1.
NTPC OFFICIAL INSPECTS POWER PROJECT SITES
ALLAHABAD: The director (project) of National Thermal Power Corporation (NTPC) Limited, B P Singh, inspected the construction sites of stage III (two units of 500 mw) of Rihand Super Thermal Power Project.
During his inspection, the director inaugurated the cooling tower switchgear 5A and B stage III.
Singh further visited project extension areas like CCR, TG area, boiler and ESP area, CHP, ash slurry pump house, cooling tower, CW pump house etc of stage III. He reviewed the overall progress of Rihand Project III.
He also held a meeting with executive director (PP&M) Kaushal Kishore Sharma, S N Ganguly, P Ramesh and other senior officials of NTPC and BHEL. Singh also instructed to all construction companies to complete the work of stage III in scheduled time.
LUKEWARM RESPONSE TO POWER SUPPLY FRANCHISE IN SAIL TOWNSHIPS
KOLKATA: Steel Authority of India Ltd’s (SAIL) initiative to appoint private electricity distribution franchisee in four integrated steel plant townships, witnessed lukewarm response from power sector majors.
Of the four townships,DurgapurinWest Bengalattracted only one bid.
Sources told Business Line that Kolkata-based CESC Ltd is the only major power distributor to have submitted proposal against a SAIL tender, which was closed in April.
The RP-Sanjiv Goenka Group flagship, catering nearly 25 lakh consumers in Kolkata, expressed interest for franchisee distribution in SAIL townships at Bokaro in Jharkhand and Bhilai in Chhatishgarh.
Apart from CESC, a Gurgaon-based smart grid technology solution provider to electricity distribution agencies submitted bids for all four townships –Durgapur, Bokaro, Bhilai andRourkela(Odisha). SAIL now distributes electricity in the townships.
The four townships have a combined population of eight-nine lakh. In addition to residual accommodation for a little over one lakh of SAIL staff members, the townships also have business and commercial establishments, large contingent of security forces, schools, hospitals and others.
Bhilai has attracted maximum of four proposals from A2Z, CESC, GTL and Shyam Prayas. Bokaro received bids from A2Z, CESC and GTL.Rourkelaattracted interest of A2Z, Shyam Prayas and Engene.
GTL was recently appointed by Maharashtra state utility as a franchisee distributor ofAurangabad.
According to a major private power distributor which decided against submitting bids, revenue risk associated with the model proposed by the public steel major acted as a major deterrent to participate in the tender.
“There are high incidences of illegal drawals from a number of such townships. Moreover as per the existing policy schools, hospitals are offered free electricity. As per the model proposed by SAIL, the franchisee will be responsible for operation, maintenance and upgrade of the power distribution system, meter reading, billing and recovery.
“However, they keep tariff on a tight lease,” a source said.
According to sources, while the franchisee is given minimum capital investment targets, SAIL will retain the right for filing tariff petitions. Moreover, the model is unclear on cost recovery in case of meeting power deficit through open purchase.
“There will not be any increase in tariff after appointment of distribution franchisee,” a SAIL official confirmed.
RPOWER ASKS CAG TO DROP OBSERVATIONS ON COAL DIVERSION
MUMBAI: Reliance Power has asked the Comptroller and Auditor General to drop references on ‘undue benefits’ to it on surplus coal diversions.
This relates to the captive coal blocks allocated to the Sasan UMPP (ultra mega power project) and Tilaiya project.
The first CAG audit report had pegged the monetary benefit derived by R Power through diversion of surplus coal at Rs 1.80 lakh crore. Subsequent audits scaled it down to about Rs 15,000 crore last year.
R Power contended that the EGoM (empowered group of ministers) had revalidated the approval for Sasan coal on April 28. Hence, CAG’s recommendation that the incremental coal permission should be reviewed had been complied with.
As the Chitrangi project was still awaiting clearances it would be premature to quantify any benefits due to sale of power using the surplus coal from Sasan, it said. Further, Tilaiya coal blocks would be governed by a new comprehensive policy on usage of surplus coal. The company maintained that this does not offer any scope for CAG to include any ‘undue benefit’ to Reliance Power from the captive blocks.
As the Tilaiya surplus coal permission will be in line with the new surplus coal policy, it was inappropriate to quantify losses to the Government on that count, R Power argued. The power tariff offered by the 4000 MW Sasan plant is Rs 1.19 a kwh and Tilaiya (also 4000 MW) Rs 1.77 a kwh.
Tata Power has filed a SLP (special leave petition) in Supreme Court challenging the coal diversion permitted to R Power.
After the EGoM accorded clearance to Sasan coal, Tata Power said it was sub judice as the case was in the Supreme Court.
Tata Power contended that the award of the contract and the post award changes in the terms/basis of the tenders invited had resulted in an arbitrary and discriminatory denial of a level-playing field to other bidders.
INDIA’S POWER MATRIX
Indiais currently undergoing an energy crisis, as we face a shortfall of more than 80,000 million units of electricity per year. Energy availability is one of the basic conditions that drive prosperity and productivity of a region. Energy availability has a direct impact on the performance of the states as industrial growth requires a reliable supply of energy, which helps in increasing the scale of production to generate more economic output.Indiahad an energy deficit of nearly 10% in 2009-10 and requires responsible investments in the transmission and distribution of electricity, and the development of advanced technologies like smart-grid is required to transform the production, delivery and usage of electricity.
India’s per capita consumption of power is estimated to be 780 units and among the lowest in the world, compared to the world average of more than 2,700 units. The highest per capita availability of power is found in Goa andDelhi, whileBiharis lowest with less than 100 units. This has raised serious concerns of social development and inclusive growth in these states.
Electricity generation inIndiais still dominated by non-renewable sources of energy, like coal, gas and diesel, which produce more than 65% of the total power in the country.India’s total coal reserve is estimated to be 285.86 billion tonnes, which is huge considering the annual consumption of coal was 590 million tonnes in 2010-11.
But only 114 billion tonnes are proven reserves and the rest are inferred or indicated reserves, which are extremely difficult to extract. According to experts, only 50-70 billion tonnes of coal can be extracted, which can last for only the next 30-40 years. The huge demand for energy/electricity raises questions about the generation of electricity. The current basket needs to be rationalised to make an optimum mix of electricity production via renewable resources to makeIndiaenergy-secure.
Dr Amit Kapoor is the honorary chairman of Institute for Competitiveness,Indiaand Professor of Strategy at MDI, Gurgaon and Anshul Pachouri is senior researcher at Institute for Competitiveness,India
TATA POWER ON THE LOOKOUT FOR WIND FARMS ON SALE
MUMBAI: After taking over an 18-Mw wind farm from a group company, Tata Power is planning to build its wind power portfolio through acquisitions. It is on the lookout for wind power assets that are on sale.
Many companies are looking to exit their wind power businesses that are not core to their earnings. Last month, wind turbine maker Suzlon Energy sold stake in its wind energy farm to raise Rs 200 crore. Tata Power, the private sector power company, was earlier also looking for such opportunities, but could not clinch a deal, as the expectations of sellers were high.
“This time around, the prices may be better,” saidS Ramakrishnan, executive director – finance of Tata Power. He did not disclose the names of wind assets that are on sale.
Tata Power has around 370 Mw of wind power capacity, and is implementing projects of another 140 Mw, for which it has already ordered equipment. It plans to add 150 Mw a year, along with 25 Mw of solar power. “This is subject to land availability,” said Ramakrishnan.
Apart from hydro power projects inBhutan, Tata Power is expanding its renewable footprint overseas. It is conducting studies on a geothermal power project inIndonesiaand scouting for wind and solar projects inSouth Africa, in partnership with local mining company Exxaro.
According to Ramakrishnan, the African country’s renewable policies offer unique advantages. The selection process lays emphasis on the preparedness of the bidder. For example, vendor support, land, transmission infrastructure commitment, in-principle sanction of loans and equity commitment. “This is apart from the tariff quoted. They do not go only for the lowest bidder. So, even though tariffs are market-driven, there is no unrealistic competition,” he said.
However, the company is not too keen on entering a new geography for renewables, as the size of opportunity is not large enough. The Tata group is already present inSouth Africa, which prompted the company to foray into the African country. InIndonesia, Tata Power owns stakes in coal mines of Bumi Resources.
“Our renewable focus remains to be inIndia,” said Ramakrishnan.
UK MPS WRITE TO SINGH AGAINST KOODANKULAM NUCLEAR PLANT
LONDON: A few British lawmakers have written to Prime Minister Manmohan Singh and Tamil Nadu chief minister Jayalalithaa protesting against the nuclear power plant at Koodankulam in a tsunami-prone area of Tamil Nadu.
In the letter, they have demanded the halting of the construction of the plant claiming that it violated the International Atomic Energy Agency (IAEA) safety guidelines as ‘‘the Koodankulam is in a tsunami and earthquake prone region which has also experienced small volcanic eruptions and is affected by water shortages’’.
In addition to the MPs who have signed, two others have expressed their concern about the way people in Koodankulam are being treated.
According to Amrit Wilson of South Asia Solidarity Group, which is one of the groups organising a protest demonstration in front of the Indian High Commission to theUKtoday, Henry Smith MP is writing to the British foreign secretary and Jean Lambert, member of the European Parliament is herself writing to Manmohan Singh separately.
And Keith Taylor in a separate statement said ‘‘people have a right to protest against the construction of this nuclear power plant and I am concerned at the way they’re being treated’’.
Organisations representing South Asians inBritainand anti-nuclear groups including campaign for nuclear disarmament (CND) planned to join the protest slated for later this evening.
SUZLON SEEKS MORE TIME FOR FCCB REPAYMENT
MUMBAI: Suzlon Energy on Friday said it had sought up to 45 days more for the repayment of foreign currency convertible bonds (FCCB), due on June 17.
The total repayment, including interest, is around $359 million (Rs 1,967 crore). This is for the FCCBs raised in 2008, with an issue size of $300 million (Rs 1,664 crore).
The company said it was in advanced stages of raising up to $300 million from new facilities for refinancing its FCCB obligations. The repayment is a huge concern for shareholders, who fear the company could default. “To ensure that there is adequate time for the necessary requisite approvals and administrative documentation, we have asked our bondholders for an extension,” said Kirti Vagadia, chief financial officer of Suzlon group.
While it is yet to be known if bondholders will agree to extend the deadline, the company said it was engaging with them. “A very significant portion of bondholders is supportive,” Vikas Rathee, head of corporate finance of Suzlon Energy, told Business Standard.
Rathee said the company had been working on the plan to repay FCCBs since September last year. The company’s stock went up one per cent in on Friday’s trade to close at Rs 20 per share. Last month, Suzlon sold stake in its wind farm for Rs 200 crore to fulfil its FCCB obligation.
Suzlon is raising the loan to repay FCCBs in foreign currencies. This loan has been secured from the international subsidiaries of the current 18 lenders to Suzlon. Most of the banks in the consortium are Indian banks.
“With this $300 million, the interest cost will reduce slightly. But in the next 12 months, we plan to convert a major part of the loans into foreign debt, and significantly reduce interest costs,” said Rathee.
COAL BLOCKS GIVEN TO PVT COS IN NATIONAL INTEREST: GOVT
NEW DELHI: Coal blocks given to private companies, estimated to be worth Rs. 10.7 lakh crore in the national auditor’s draft report, were allocated impartially and in the interest of economic growth, the government said as it sought to limit the damage from a potentially adverse audit report.
The draft report, leaked in March, caused an uproar in Parliament as it said the allocation of 155 blocks between 2004 and 2009 give companies “undue benefits” of Rs. 10.7 lakh crore.
The government quickly reacted and said the Comptroller and Auditor General (CAG) had written to Prime Minister’s Office saying the draft report contained only preliminary observations. The final audit report is expected shortly.
The coal ministry says the value of these blocks should not be estimated on the basis of open market prices. “Since the blocks are allocated to private companies only for captive purposes for the specified end-use the question of linking the blocks to the market price of coal does not arise at all,” the coal ministry said.
It said the blocks were given to companies at a time when demand was weak and there was hardly any pressure for allocations but several sectors needed captive mines to spur growth.
“To put the country on a path of higher growth, capacities in power, steel, cement sectors were required to be added expeditiously. This was one of the main reasons for continuation of allocation of the captive coal blocks,” the coal ministry said.
“If the coal blocks were not made available, it would have resulted in higher imports causing outflow of foreign exchange or no large investments in these crucial sectors. Allocation of coal blocks has resulted in investment in these sectors which was the need of the times,” it said.
Allocation of coal blocks began in 1993. The government made guidelines for allocations in 2003, and two years later it started issuing advertisement and involved the state governments in the allocation process. “Equal opportunity was given to all prospective applicants. Fair and transparent procedure was followed which was devoid of any bias,” the ministry said.
Earlier this month, Reliance Power wrote to the CAG requesting the auditor to remove the reference to “undue advantage” the company received from surplus coal in blocks attached to its ultra mega power projects (UMPPs) at Sasan and Tilaiya.
It said the Empowered Group of Ministers (EGoM) had reviewed and endorsed the decision to allow the company to use surplus coal at Sasan for another project.
Also, the EGoM had decided that future projects, including the one at Tilaiya, would be governed by a new policy that has not yet been prepared.
REVIEW ON GREEN NOD TO CHHATRASAL, MAHAN COAL BLOCKS
NEW DELHI: A Group of Ministers (GoM) on Coal headed by the Finance Minister, Mr Pranab Mukherjee, is expected to meet on May 30 to re-look at environmental clearances for eight blocks that were earlier put on hold. The list of blocks to be reviewed by GoM, include Chhatrasal coal block in Madhya Pradesh awarded to Reliance Power and Mahan block given to Hindalco and Essar joint venture, among others. “The Environment Ministry has re-looked at their earlier decision on holding back these blocks to undergo any mining activities. The Ministry will place its view to GoM that will take the final call,” said a Government official. The Mahan coal block located at Singrauli in Madhya Pradesh was awarded to a joint venture between Essar Power and Hindalco for captive use for the planned 1,200 megawatt and 900 megawatt projects, respectively. Similarly, Chhatrasal coal block in Madhya Pradesh was awarded to Reliance Power. All these blocks were denied clearance for mining as they are categorised as ‘good quality’ forest areas. Indications are that the Ministerial panel may also consider the Coal Regulatory Bill, 2012.
NO CHANGES IN NEW FSA: CIL
KOLKATA: CoalIndiais in no mood to make any changes to its new fuel supply agreement because it has not received any such direction from the coal ministry.
The company is yet to receive any directive or communication from the coal ministry for changing the fuel supply agreements to make it acceptable to power producers, CoalIndiachairman S Narsing Rao told ET.
Companies such as NTPC, Reliance Power and Tata Power, however, want to sign the old fuel supply agreement with 80% trigger level and have refrained from approaching CIL for signing FSAs.
The move assumes significance as power producers do not want to sign the agreement in the present form and have approached various government departments as well as the Prime Minister’s Office requesting changes in new draft agreement.
Earlier, CIL had prepared a set of fuel supply agreements for plants that had come up between April 2009 and December 2011. The power generators are not keen on signing the agreement because they find it heavily skewed in favour of the coal producer. Coal minister Sriprakash Jaiswal had reportedly said CoalIndiahad been asked to examine the reference received from NTPC and representation from Association of Power Producers for taking appropriate steps.
CIL’S STANDALONE Q4 PROFIT DOWN 12% TO R1,223 CRORE
NEW DELHI: State-run CoalIndia(CIL) on Friday posted a 11.7% dip in standalone net profit at R1,223.5 crore for the quarter ended March 31, 2012.
The company had reported a net profit of R1,385.7 crore in the January-March quarter of 2010-11, the company said in a filing to the Bombay Stock Exchange. However, the company’s standalone net profit went up to R8,065 crore for the year ended March 2012 compared to R4,696 crore a year ago.
“The increase in the net profit (for the year) can be attributed to an increase in dividend paid by the subsidiary companies and interest income,” said CMD, CoalIndia, Narsing Rao.
Rao, however, refused to comment on the reasons for the dip in the net profit for the fourth quarter, stating that standalone “was not performance based result”.
CIL’s tax expense during the fourth quarter was R258.8 crore compared to over R122.7 crore in the same period in FY11, the filing said.
The standalone income from operations of the public sector firm for the quarter also came down to R154 crore against R157 crore for the same period in the year-ago period.
The CMD also expressed the hope that the company would achieve the production target of 468 million tonne for the current fiscal. “Surely, the target would be achieved. All steps whatever are required would be taken to achieve 468 mt,” he said.
CIL MAY EXIT INTERNATIONAL COAL VENTURES
NEW DELHI: Coal India Ltd may exit International Coal Ventures Ltd (ICVL) over a ‘conflict of interest’.
The much-talked about ICVL, formed as a joint venture by five cash-rich public sector companies to acquire overseas coal assets, is turning out to be ‘no-one’s baby’.
Earlier, NTPC had also put up its application with the Power Ministry to allow it to exit ICVL. “There is no clarity on the agenda and no one wants to take a risk.
“On one hand, companies like NTPC and CoalIndiawant thermal coal, while others want to buy coking coal assets,” said a senior Coal Ministry official. “It has turned out to be no-one’s baby,” the official added.
When contacted, the Coal India Chairman, Mr S. Narsingh Rao, said the company board would take a decision on the issue ‘soon’.
The public sector miner will have to seek its nodal Coal Ministry’s permission to finally exit the venture.
In 2009, five companies — SAIL, CoalIndia, RINL, NMDC and NTPC — formed ICVL. Its board, currently headed by Mr C.S. Verma, Chairman of SAIL, is empowered to make investments up to Rs 1,500 crore. However, the joint venture failed to make any significant progress till now.
According to unconfirmed reports, ICVL discussed acquiring Washpool’s hard coking coal project with Aquila Resources Limited.
The Steel Ministry had proposed to make ICVL a subsidiary of steel-maker SAIL. This would have been on the lines of ONGC’s overseas subsidiary, ONGC Videsh Ltd.
“No decision has been taken with regard to this proposal. Maybe after the exit of NTPC and CoalIndia, it is going to happen,” the Coal Ministry official said.
ADANI CO’S ODISHA MINING PACT RAISES EYEBROWS
MUMBAI: An agreement between three stateowned companies and Adani Enterprises over the terms of supply as well as the price of an inferior variety of coal slated to be used to fire a power plant being set up by the Ahmedabadbased group has been criticised by industry experts and may have prompted a recent policy change. In 2010, a consortium led by Adani Enterprises was awarded what is called the mine developer & operator (MDO) contract by UCM Coal, a three-way joint venture formed for developing coal blocks allotted to it in Odisha. UCM Coal’s three shareholders are Uttar Pradesh Rajya Vidyut Utpadan Nigam, Chhattisgarh Mineral Development Corp and Maharashtra State Power Generation, or MahaGenco. The agreement had a clause stipulating that ‘coal rejects’, or coal of inferior grade — which usually refer to the residue left after washing — will be given to Adani for use in a power plant to be set up nearby. This will be free of cost, the agreement said, a provision that was later changed to a price of Rs. 21 per tonne. Coal industry officials and experts point to two possible problems with the agreement. First, government rules don’t allow coal rejects to be sold by a mine developer directly to a third party. The rejects have to be first sold back to the mine owner, in this case CoalIndia, which has allotted the mines to UCM Coal. Second, and more importantly, they say, the policy framework in place stipulates that coal rejects cannot be sold at just any price. The average market price for the same grades, sold through CoalIndiasubsidiaries, is about Rs. 1,100 a tonne. Coal industry officials say a proper mechanism exists for determining their price and sale. Large Amount of Coal at Stake
“This is not the right kind of MDO (agreement). It contains more than what is usually put in such agreements. The sale of coal rejects, whatever it is, should go back to CoalIndia. Let CoalIndiadecide what needs to be done with the rejects. Why give it to the MDO? Why not sell the rejects though a global tender? Scrap is also sold through tenders globally,” a senior executive of another mining company told ET on condition of anonymity, as he is not authorised to speak on transactions involving other firms.
At stake is a large amount of coal. Since a third of the coal washed ends up as reject, the mines will produce 12 million tonnes of coal rejects annually. The market value for this is estimated at Rs. 1,200 crore a year, or Rs. 36,000 crore for 30 years, which is the life of the mine.
Agreeing to sell the commodity at a lower price appears to confer a substantial price advantage on the buyer, in this case Adani Enterprises, or group company Adani Power, which will probably set up the power plant, the people quoted above said. Fuel makes up 70-80% of a thermal power plant’s costs and Adani, once the power plant is up and running, will enjoy a big cost advantage.
Subrat Ratho, managing director of MahaGenco, one of the shareholders in UCM Coal and a member on the board of the power company’s JV, said the low price cannot benefit Adanis as the business house is not selling the coal in open market. It’s merely an input in power production.
“If there were a case where the coal mined or the rejects were given to the MDO to be sold commercially then there can be a case of undue benefit. That is not the case here,” he told ET over phone.
A senior Adani official also defended the terms on similar grounds. “The price of fuel is passed through as actuals,” he said. The coal rejects, he added, were originally supposed to be given free, before the price of Rs. 21 per tonne was fixed — a fact borne out in the ET investigation.
However, some experts contend that pass-through is not the issue here, the price is. A power company using coal bought at Rs. 21 per tonne will have an advantage over others using coal purchased at over Rs. 1,100 per tonne.
“This is completely against the terms of the allotment letter issued by the coal ministry. Why was UCM Coal giving coal rejects to the MDO? Why not back to the government?” wondered a second coal industry executive, who is based inDelhi.
Both Adani and UCM Coal executives defended the transaction and said everything was above board. They argued that coal, transported over 500 km, needs to be washed to protect the environment. Coal rejects are leftovers obtained after the mineral is washed. Washed coal is of higher calorific value while rejects contain ash and have lower calorific value. Both categories are used in power plants. “The transfer of coal rejects can be done at any price as it would eventually be a pass-through. UCM Coal had to include the price for accounting purposes,” said a senior Adani Group executive, who asked not to be named. The contract to supply coal rejects is not the only issue. The shareholding of the power company changed during the bidding process with the stake held by UCM Coal coming down.
On July 27, 2009, UCM issued a request for qualification for the power plant and the MDO contract. These showed the power plant will be jointly owned, with UCM holding 26% stake and the Adanis owning the remaining 74%.
Two months later, on September 27, revised documents were released. Papers available with ET show the stake of UCM Coal was reduced to 11% while the Adanis’ holding rose to 89%. This is critical as the change leaves UCM powerless to defend its interests and those of the government in case of a dispute. Under Indian corporate laws, shareholders with 26% stake have the power to block special resolutions. A senior Adani group executive said the bid documents were revised to make the project more attractive.
The coal ministry official said they are studying the issue and would not be able to comment. But he said the ministry is aware of the issue.
In March 2012, the ministry wrote to all coal users, informing them that third-party use of coal rejects will be restricted. “Any attempt to sell coal along with middlings and rejects shall amount to breach of law as well as terms and conditions of allocation/ mining lease/FSA and the company attempting to do shall invite penal action, including cancellation of allocation and/or termination of the mining lease/FSA,” the letter said.
Last month, the ministry went a step further, putting on hold an initiative of the Odisha government for 33% free power from coal reject-based power plants. The idea of building power plants based on byproducts of washed coal has been approved, though this will have to be implemented through CoalIndia. Recently, Mahanadi Coalfields, a subsidiary of CoalIndia, signed an agreement with Orissa Power Generation Company to build a plant based on coal rejects.
An MDO, such as Adani, is an operator with technical expertise who develops a mine for a fee, unlike an owner, who gets the profit from sale of the mineral. Many mine owners in coal and other minerals sub-contract production to third-party operators. It is also a common practice among iron ore miners.
“We enter into contracts with contractors for coal extraction. The agreement includes setting definite targets during a certain period, which ranges between a year to five years. If they manage to achieve the target, they are paid the rate stipulated in the contract. However, if they miss the target, they pay a penalty. In case they overachieve, they receive an incentive on the extent of the overachievement,” said Niladri Roy, technical secretary to the chairman of Eastern Coalfields. Eastern Coalfields is a subsidiary of CoalIndia.
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