Coal Linkage & Policy_final 20_10_2011

COAL LINKAGE & POLICY: 

COAL LINKAGE & POLICY BY Dr.Rohit Verma DD

Introduction: 

Introduction India’s energy needs average consumption 350 kgoe /year expected to cross 450 kgoe /year mark by 2010 . Coal in comparison to other fossil fuels remain at the centre stage of India's energy scene. Commercial energy consumption in India has grown from a level of about 30 to 60% of total energy requirement in the last four decades. It has grown at a rate of 7.2 percent during the last two decades as against the world average of 2.2 percent only. The increasing share of commercial energy in the total energy supply in future, and with almost doubling of the per capita projected energy consumption to about 450 kg in the next 15 years

Contd…: 

Contd… The total geological reserve of coal in India is about 206 billion tonnes , which is less than 1 percent of the global coal resources. However, the proven reserves of coal in India are about 6.6 percent of the worlds proved reserves. Total coal reserve in 27 major coal fields in india . 15 percent of these reserves are of the coking variety. Of the non-coking coal, about 12 percent is of superior variety having ash content upto 24 percent. The recoverable coal resource upto a depth of 600m is estimated to be of the order of 75 billion tonnes which will ensure its steady supply throughout the next century even at enhanced level of consumption of 650 mt per annum.

Contd…: 

Contd… From about 78 mt in 1973, the coal production rose to about 296 mt in 1997-98. Power sector, which consumes about 70 percent of coal has emerged as the single largest consumer of coal followed by steel with 13 percent. The balance 17 percent is consumed in thousands of other industries like cement, textiles, fertilizers, brick kilns, etc. Indigenous coal production meets about 96 percent of the demand. About 10 million tonnes of low ash coking coal and 3 million tonnes of steam coal are being imported annually.

Types & Composition of coal: 

Types & Composition of coal

Coal reserve in India & World: 

Coal reserve in India & World

INVENTORY OF GEOLOGICAL RESOURCES OF COAL IN INDIA  : 

INVENTORY OF GEOLOGICAL RESOURCES OF COAL IN INDIA As a result of exploration carried out up to the maximum depth of 1200m by the GSI, CMPDI, SCCL and MECL etc, a cumulative total of 285862.21 Million Tonnes of Geological Resources of Coal have so far been estimated in the country as on 1.4.2011. The details of state-wise geological resources of coal are given as under:

A) : GONDWANA COALFIELDS :-  (in Million Tonnes): 

A) : GONDWANA COALFIELDS :- (in Million Tonnes )

(B) : TERTIARY COALFIELDS :- (in Million Tonnes): 

(B) : TERTIARY COALFIELDS :- (in Million Tonnes )

CATEGORIZATION OF RESOURCES : 

CATEGORIZATION OF RESOURCES The coal resources of India are available in older Gondwana Formations of peninsular India and younger Tertiary formations of north-eastern region. Based on the results of Regional/ Promotional Exploration, where the boreholes are normally placed 1-2 Km apart, the resources are classified into ‘Indicated’ or ‘Inferred’ category. Subsequent Detailed Exploration in selected blocks, where boreholes are less than 400 meter apart, upgrades the resources into more reliable ‘Proved’ category.

Status of Coal Resources in India during Last Five Years: : 

Status of Coal Resources in India during Last Five Years :

Coal supply Issue: 

Coal supply Issue PPA & FSA are 2 key project contracts for developers. Power Price regulated, Coal Price unregulated disconnect in PPA & FSA. PPA requires meeting , normative PLF for Fixed cost with no relief for short supply from coal cost. Normative PLF 85%, but LOA for Coal 76.5 % ( 90% of 85). Terms/Tenures are different 25-30 yrs & 5 yrs for PPA & FSA. Harmonizing , PPA & FSA provisions & fuel pass through are necessary.

Contd…: 

Contd … LOA’s Provided for 76.5% PLF( 90% of 85% PLF). GCV of coal supplied much less than GCV considered for LOA Quality. Supplies to Plants Commissioned after 31.03.2011 corresponds to 55% PLF which further reduces to < 50% than lower GCV value is take in to account.

COAL LINKAGES: 

COAL LINKAGES The Linkages of coal demand is primarily done with the objective of planning of coal supplies, keeping in view indigenous coal resources as well as the need to supply fuel of appropriate quality to the consumers and at the same time making the most economic use of the available capacity for production and of coal. For thermal power stations, whether belonging to state or central generating stations coal linkage is given by Coal Ministry’s standing committee on coal linkages. The linkages are classified in two types:- Long term linkages Short term linkages

GUIDELINES FOR ALLOCATION OF CAPTIVE BLOCKS & CONDITIONS OF ALLOTMENT THROUGH THE SCREENING COMMITTEE: 

GUIDELINES FOR ALLOCATION OF CAPTIVE BLOCKS & CONDITIONS OF ALLOTMENT THROUGH THE SCREENING COMMITTEE GUIDELINES Applications for allocation of coal blocks for captive mining for the specified end uses shall be made to the Director (CA-I) in the Ministry of Coal in five copies. The application shall be accompanied by the following in addition to any other relevant documentation that the applicant may submit: Certificate of registration showing that the applicant is a company registered under Section 3 of the Indian Companies Act. This document should be duly signed and stamped by the Company Secretary of the Company. (1 copy). §

Contd…: 

Contd … Document showing the person/s who has/have been authorized to sign on behalf of the applicant company while dealing with any or all matters connected with allocation of the sought coal block/s for captive mining with the Government/its agencies. This document should be duly signed and stamped by the Company Secretary of the Company. (5 copies). Certified copy of the Memorandum and Articles of Association of the applicant Company. (5 Copies)

Contd…: 

Contd … Audited Annual Accounts/reports of last 3 years. (5 copies) . Project report in respect of the end use plant. If the report is appraised by a lender, the appraised report shall also be submitted. (5 copies) Detailed Schedule of implementation (milestones and time-line for each milestone) for the proposed end use project and the proposed coal mining development project in the form of bar charts (5 copies). However, the overall timeframe proposed should not exceed the normative time ceiling prescribed.

Contd…: 

Contd … Detailed schedule of exploration (milestones and time-line for each milestone) in respect of unexplored blocks. However, the overall timeframe proposed should not exceed the normative time ceiling prescribed. Scheme for disposal of unusable containing carbon obtained during mining of coal or at any stage thereafter including washing. This scheme must include the disposal/use to which the middlings , tailings, fines, rejects, etc. from the washery are proposed to be put. (5 copies)

Contd…: 

Contd … Demand draft for Rs.10,000/- in favour of PAO, Ministry of Coal payable at New Delhi. A Soft Copy of details, as filled in the Application Form, is also to be furnished in the specified Database Form(in MS-Excel format) in a CD along with the Application. Applications without the above accompaniments would be treated as incomplete and shall be rejected.

Allotment of Captive blocks to consortium of group of companies: 

Allotment of Captive blocks to consortium of group of companies If requirement of coal by an applicant does not match with the reserves in a natural block then clubbing of requirements may be resorted to and in case a number of applicant companies form a consortium for utilisation of a block for their captive use, the same may be considered for allocation under a legally tenable arrangement.

Contd…: 

Contd … More than one eligible and deserving companies will be allowed to do captive mining of coal by forming a joint venture coal mining company.  The constituent applicant companies would hold equity in the joint venture company in proportion to their assessed requirement of coal and the coal produced would be exclusively consumed in their respective end use projects. Distribution of coal would be in proportion to their respective assessed requirements.

Contd…: 

Contd … One or more companies (to be called leader companies) from amongst the selected, could be allowed to do mining of coal in one or more captive blocks and the other companies (to be called associate companies) would get coal from the captive block in proportion to their assessed requirements.  The local Coal India subsidiary could facilitate this arrangement by taking a nominal service charge.  Leader companies will deliver coal to associate companies at a transfer prices to be determined by the Central Government.

Mining of Coal by allottee companies   : 

Mining of Coal by allottee companies Any of the companies engaged in approved end-uses can itself mine coal from a captive coal block; or. A company engaged in any of the approved end-uses can mine coal from a captive block through a mining company supplying the coal on an exclusive basis from the captive coal block to the end-user company or to its subsidiary company, provided the end-user company has firm tie up with mining company for supply of coal, supported by legally binding and enforceable contract / agreement.

Contd…: 

Contd … An independent coal/lignite mining company can also be allocated a captive block on the condition that the entire coal/lignite so mined would be transferred to an end user company( ies ) for their captive consumption in the specified end uses; Provided that the said mining company has firm back-to-back tie up with the specified end user company( ies ), supported by legally binding and enforceable supply contract/agreement

Inter-se priority for allocation of a block among competing applicants for a captive block : 

Inter-se priority for allocation of a block among competing applicants for a captive block Status (stage) level of progress and state of preparedness of the projects; Net worth of the applicant company (or in the case of a new SP/JV, the net worth of their principals); Production capacity as proposed in the application; Maximum recoverable reserve as proposed in the application; Date of commissioning of captive mine as proposed in the application;

Contd…: 

Contd … Date of completion of detailed exploration (in respect of unexplored blocks only) as proposed in the application; Technical experience (in terms of existing capacities in coal/lignite mining and specified end use); Recommendation of the Administrative Ministry concerned; Recommendation of the State Government concerned (i.e. where the captive block is located); Track record and financial strength of the company

CONDITIONS OF ALLOTMENT: 

CONDITIONS OF ALLOTMENT Upon allocation of captive coal block by the Screening Committee the applicant would submit an affidavit in the prescribed format to the effect that all coal mined from the captive block shall exclusively be used in the proposed end use project for which the said block has been allocated and that in case of any slippage in implementation of the end use project or the captive coal mine development project, as per the schedule of implementation/bar charts submitted and agreed to by the Ministry of Coal, the said block shall be de-allocated  without any liability to the Government /its agencies, whatsoever.

Contd…: 

Contd … The normative time limit ceilings have been provided to ensure that the coal production from the captive blocks shall commence within 36 months (42 months in case the area is in forest land) of the date of issue of letter of allocation in OC mine and in 48 months (54 months in case the area fall under forest land) from the date of said letter in UG mines. in respect of an unexplored block, the allocattee company shall apply for a prospecting license within three months of the date of issue of allotment. The exploration shall be completed and geological report prepared within two years from the date of issue of prospecting license.

Contd…: 

Contd … Any slippage in meeting with the above time limits, unless previously agreed to by the Screening Committee, for special reasons to recorded in writing, may lead to forfeiture of bank guarantee, or/and cancellation of allocation, previous approval under Section 5(1) of the MMDR Act, 1957 or mining lease, as the case may be. The allocattee company shall be required to submit a bank guarantee equal to one year’s royalty amount based on mine capacity as assessed by CMPDIL or NLC, as the case may be, and the weighted average royalty within 3 months of the date of letter of allotment. Subsequently, upon approval of the mining plan the Bank Guarantee amount will be modified based on the final peak/rated capacities of the mine.

Contd…: 

Contd … 50% of the bank guarantee shall be linked to the milestones (time schedule) set for development of captive block, and the remaining 50% to the guaranteed production. The bank guarantee shall be liable to be en-cashed in the following eventuality: There shall be an annual review of progress achieved by an allocattee company. In the event of lapses, if any, in the achievements vis-à-vis the milestones set for that year, a proportionate amount shall be en-cashed and deducted from the bank guarantee. The allocattee shall ensure that the bank guarantee remains valid at all times till the mine reaches its rated capacity or till the bank guarantee is exhausted. Any lapses on this count shall lead to de-allocation/ cancellation of mining lease.

Contd…: 

Contd … Once production commences, in case of any lag in the production of coal/lignite, a percentage of the bank guarantee amount will be deducted for the year. This percentage will be equal to the percentage of deficit in production for the year with respect to the rated/peak capacity of the mine, e.g., if rated/peak capacity is 100, production as per the approved mining plan for the relevant year is 50 and actual production is 35, then (50-35)/100x100= 15% will lead to deduction of 15% of the original bank guarantee amount for that year. Upon exhaustion of the bank guarantee amount, the block shall be liable for de-allocation/cancellation of mining lease. The Company shall obtain the geological report (in respect of fully explored blocks), on payment of requisite charges, from CMPDIL, NLC or the State Government agency concerned, as the case may be, within six weeks of the date of issue of allotment letter. In respect of a fully explored block, the company shall submit a mining plan for approval by the competent authority under the Central Government within six months from the date of issue of the letter of allocation.

Contd…: 

Contd … In respect of an unexplored block, the mining plan shall be submitted for approval by the competent authority within two years and six months from the date of issue of the letter of allocation. Mine opening permission shall be considered only after financial closure for the proposed end use project is achieved. In case a captive block is offered/allocated for washing-cum-end-use all the beneficiated coal from the washery would exclusively be used in the proposed end use project of the allocatee company as approved by the Central Government and not for commercial use or otherwise.

Contd…: 

Contd … All middlings , tailings, or rejects from the washery , as the case may be, and all un- usables containing carbon obtained during the mining of coal or in any process thereafter, if any, shall be used for captive consumption only by the allocattee in his proposed end use project or as per the scheme for disposal submitted by the applicant and agreed to by the Screening Committee.  In the event that disposal is allowed by the Government, the modalities of disposal of  surplus coal/ middlings / rejects, if any, would  be as per the prevailing policy/ instructions of the Government at the relevant point in  time and  could also include handing over such surplus coal/ middlings /rejects to the  local CIL subsidiary or to any person designated by it at a transfer price to be determined by the Government.

Contd…: 

Contd … in case of coal blocks acquired under the CBA Act, the mineral rights shall be surrendered by the Government Company to the State Government. On payment of necessary compensation/ considerations by the allocatee company to the Government Company, the land shall be transferred to them and the State Government shall grant a mining lease over the area in favour of the allocatee company under the provisions of and as per the procedure prescribed under the MM(D&R) Act and MC Rules.

THE COAL MINES (NATIONALISATION) ACT, 1973 : 

THE COAL MINES (NATIONALISATION) ACT, 1973 Section 3(3)(a)(iii) (the enabling provision): A company is engaged in Production of iron and steel. Generation of Power. Washing of coal from mine. Any Other use notified by Central Government.

Contd…: 

Contd … Company Means “Company” Is defined as per section 3 of Company Act 1956. For grant of mining plan, mining lease etc., the governing provisions are contained in the Mines & Minerals Development and Regulation Act,1957 and Mineral concession Rules 1960.

LEGISLATION : 

LEGISLATION Legislative History Of Coal Mining since 1971 and latest status Coal mines were nationalized in early seventies in view of the then existing dissatisfactory mining conditions e.g. slaughter mining, violation of mine safety laws, industrial unrest, failure to make investments in mine-development, reluctance to mechanize etc. and in order to meet the long range coal requirements of the country. The 1973 Act was amended on 27.5.1976 terminating all the mining leases on coal held by the private lessees to allow captive mining by private companies

Contd…: 

Contd … Engaged in the production of iron and steel and sub-leasing to private parties of isolated small pockets not amenable to economic development and not requiring rail-transport. In 1993 the Act was further amended to allow captive coal mining in the private sector for power generation, washing of coal obtained from a mine and such other end uses as may be notified by the Central Government from time to time. Cement production was subsequently notified as a specified end-use for the purposes of captive coal mining. For details visit Captive Mining Blocks at http://coal.nic.in

COAL INDIA (REGULATION OF TRANSFERS AND VALIDATION) Act, 2000: 

COAL INDIA (REGULATION OF TRANSFERS AND VALIDATION) Act, 2000 The private coal mines of the country were nationalized in two phases during 1971-1973. In the first phase coking coal mines were nationalized. In the second phase non-coking coal mines were nationalized. Even since the nationalization of the coal industry, though the land or right in or over such land acquired under various Acts and the rights. Title and interest in relation to a coal mine or a coke over plant were directed to be vested in the Coal India Limited or its predecessor in title, its subsidiary companies were de facto managing such land, coal mines, or plants.

Contd…: 

Contd … The absence of a formal legal title to the land or the right over such land or the right, title and interest in relation to a coal mine or coke oven plant, in the subsidiary companies has exposed them to litigation and other legal infirmities. While the Companies Act, 1956 contains provisions for reconstruction and amalgamations, such reconstruction or amalgamation could be given effect to prospectively only under that Act.

Contd…: 

Contd … The absence of a formal legal title to the land or the right over such land or the right, title and interest in relation to a coal mine or coke oven plant, in the subsidiary companies has exposed them to litigation and other legal infirmities. While the Companies Act, 1956 contains provisions for reconstruction and amalgamations, such reconstruction or amalgamation could be given effect to prospectively only under that Act.

Contd…: 

Contd … It was, therefore, considered necessary to empower the Central Government to direct the transfer of land or the rights in or over such land or the right, title or interest in relation to a coal mine or coke oven plant vested in the CIL to a subsidiary company, or where such land or mine are vested in a subsidiary company, to another subsidiary company. It was also considered necessary to validate all purported transfers of land or the rights in or over such land or the right, title and interest in relation to a coal mine or coke oven plant from CIL to a subsidiary company and from one subsidiary company to another subsidiary company before the commencement of the proposed Legislation.

Contd…: 

Contd … The Bill was introduced in the Rajya Sabha on 14.2.95 and thereafter it was referred to the Standing Committee on Energy for consideration. The Committee after detailed deliberations recommended adoption of the Coal India (Regulation of Transfers and Validation) Bill, 2000 and submitted their report on 27.7.2000 in the Parliament. The Bill was passed by Parliament during the Winter Session 2000. The President has given his assent to the Bill. Thus the Act has come into force, with effect from its publication in the Gazette of India on 8.12.2000.

Amendment to the Coal Mines (Nationalization ) Act, 1973 to promote non-captive mining of coal. : 

Amendment to the Coal Mines (Nationalization ) Act, 1973 to promote non-captive mining of coal. The proposal of Ministry of Coal to amend the Coal Mines (Nationalization) Act, 1973 to allow non-captive coal mining was approved by the Cabinet on 11.2.97 and subsequently on 27.5.97 after the change of Government in April 1997. The draft Bill for the amendment was got vetted from the Legislative Department, Ministry of Law and Justice on 08.07.97. Before the Bill could be introduced in the Parliament, this Ministry received a strike notice from the trade unions demanding withdrawal of the Bill.

Contd…: 

Contd … In 1998, the matter was examined afresh and it was felt that certain standards would have to be maintained in non-captive coal mining by the private sector so that the pre-nationalization ills of the nature of unscientific mining, environmental degradation, exploitation of labour etc. observed in private coal mining do not recur. A proviso to the Bill providing for powers of the Central Government to lay down such standards for the private companies in terms of location.

Contd…: 

Contd … the coal and lignite mines having regard to the rational, coordinated and scientific development and utilization of the coal and lignite resources, was evolved. A Memorandum of Settlement has been signed between the Coal India Management and the five central trade union organizations representing the workers of the coal industry on 01.08.2002. Based on the assurance given in the said Memorandum a meeting between the representatives of the Trade Unions and the

Contd…: 

Contd … Government (Department of Coal) was held at the level of the Minister for Coal and Mines on 27.01.2003. As per another assurance given in the Memorandum of Settlement the Trade Union representatives of the workers would have a discussion with the Group of Ministers on the Bill. This can take place only after the GOM is reconstituted.

Slide 48: 

Thanks