CHAPTER 1

INTRODUCTION

Coal is the single biggest cost component for thermal power generators, typically
accounting for 60 to 70 percent of input costs. And managing coal is complex, with
players facing an array of issues across the supply chain—from sourcing to logistics
management, bulk handling, yard management, and overall quality management. In
emerging markets such as India, the addressable value loss can reach 7 to 12 percent of
the total cost of coal across the entire chain.

Where is value lost? To begin with, in coal sourcing. Many power companies, unable to
fulfill requirements from long-term standard contracts with domestic sources, are
relying on alternative routes such as spot and short-term coal contracts or imports. This
adds to logistical challenges in the form of capacity constraints (including rail and port)
and sizable quantity losses because of poor external infrastructure. In addition,
managing quality losses across the supply chain is a huge challenge, amplified by
improper quality measurement and inefficient yard and stockpile management practices.

The right suite of fuel management practices can plug the value loss. A.T. Kearney has
helped numerous power companies adopt a comprehensive set of best practices across
three dimensions: planning and sourcing, coal quality, and logistics and inventory
management. In this paper, we discuss how our fuel management framework can ensure
an adequate coal supply while minimizing total delivered costs.

1.1 Problem Definition

Resource crisis, supply & demand, inefficient supply chain, etc. highlights the need of
effective supply chain management and resource allocation for coal.

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Various modes of transport by road, railways and waterways has drastic impact on
supply.’

Supply chain issues – from sourcing to logistics management, bulk handling, yard
management, and overall quality management. Increasing cost and decreasing value of
coal are the important issues

1.2 Objectives

 To Plan and Source

 To ensure an optimal blend.
 To manage the quality.
 To improve logistic and inventory Management

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 CHAPTER 2

GLOBAL COAL SCENARIO

Globally, coal resources have been estimated at over 861 billion tonne. While India
accounts for 286 billion tonne of coal resources (as on 31 March 2011), other countries
with major chunk of resources are USA, China, Australia, Indonesia, South Africa and
Mozambique. Coal meets around 30.3% of the global primary energy needs and
generates 42% of the world’s electricity. In 2011, coal was one of the fastest growing
forms of energy after renewable sources and its share in the global primary energy
consumption increased to 30.3%-highest since 1969. Coal production in the Asia Pacific
region has grown tremendously and accounts for over 67% of the total production
globally (2011) as compared to about 27% in 1981 (in terms of energy equivalent).

Fig. 2.1 Global Production of Coal

Last year, around 6.1 billion tonne of hard coal and 1 billion tonne of brown coal were
used worldwide. Since 2000, the global consumption of coal has grown faster than any
other fuel. Currently, the five largest coal users are China, USA, India, Russia and
Germany. They account for 77% of the total global use.

India has the fifth largest coal reserves in the world. Of the total reserves, nearly 88%
are non-coking coal reserves, while tertiary coals reserves account for a meager 0.5 %
and the balance is coking coal. The Indian coal is characterised by its high ash content

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(45%) and low sulphur content. The power sector is the largest consumer of coal
followed by the iron and steel and cement segments.

Fig. 2.2 Coal Production Hubs in India

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 Fig. 2.3 Indian Coal Production and Demand

The country’s coal production has increased from~431 MT in 2006-07 to ~554 MT* in
2011-12 (an increase of 28.5%). On the other hand, the demand for coal has grown at a
CAGR of more than 7% in the last decade and has reached around 600 MT. The India
Energy Book, 2012 pegs the country’s total demand-supply gap (including coking coal)
at about 98MT. Out of this, India imports about 85 million tonne of coal.

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 CHAPTER 3

DEMAND AND SUPPLY

The overall long-term demand of coal is closely linked to the performance of the
end-use sectors. In India, the end-use sectors of coal mainly include electricity, iron
and steel and cement. Demand from the unorganized small scale sector comprising
primarily of the brick and ceramic industry is relatively large though infirm as users
switch between coal, firewood and biomass depending on their relative prices. Other
industries using coal have only a marginal impact on the long-term demand for coal.

The charts show the projected sector-wise coal consumption in India by the end of
the 12th Plan and 15th Plan.

Fig. 3.1 Sector-wise Consumption in India

The report of the Working Group of Coal and Lignite for the 12th Five Year Plan
projects the coal demand in India to grow at a CARG of 7.1% till 2016-17 and reach
980.5 MT annually under realistic demand. At a CAGR of 7.0%, the demand is expected
to reach 1,373 MT by 2021-22.

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 Fig. 3.2 Forecast of Indian Coal Consumption

3.1 Future Requirements of Coal

By 2031-32, India need total 2343 MT of coal (1659 MT for Power Generation + 684
MT for non power sector). While production may reach to 2000 MT from various
private, public and captive sources of country. Excess 343 MT need to import from
international market which need development of port infrastructure for coal handling &
movement of coal from port to hinterlands.

3.2 Cost of Coal

Like in every other commodity, the price of domestic coal is determined by the level of
supply and demand. However, the response of overall demand and supply to price
variations is slow due to the structure of the coal industry as well as the nature of the
user industries. The two government-owned companies of India, namely Coal India Ltd
and Singareni Collieries Company Ltd, working in different geographies, see their role
as one of fulfilling the production targets fixed by the government and take up plans and
projects to meet the targets, with very little surplus to serve any unanticipated or sudden
increase in demand. Domestically, coal prices in comparison to international prices are
as follows:

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 Fig. 3.3 Cost of Coal

@ Difference between arithmetic average (of Richards Bay, Newcastle and Japan
Benchmark (JFY) and Indian coal prices in USD; # Indian coal prices are for D grade
ROM coal , which is the one of the best grade coals available for Indian pithead power
generating companies, with GCV range: 5200 to 5500 kcal/kg . Conversion Rate 1 USD
= 50 INR. Source: AME and Coal India Limited.

Also, the coal price projection report of the Department of Energy and Climate Change
(DECC), UK in October 2011, incorporates the impacts of CO2 pricing on coal prices.
Further, the carbon pricing may affect the demand for coal globally. The DECC projects
coal prices in three scenarios as follows:

Fig. 3.4 Cost of Coal in Various Scenarios

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 CHAPTER 4

COAL SUPPLY CHAIN

Fig. 4.1 Supply Chain of Coal

A scheduling model based on SCM to deal with the contradiction between scale
production and customized demand on coal industry. When analyzing the coal logistics
from coal mine to end-customers, we draw an operating flow chart, from which we can
find out the relationship among the departments in coal supply chain. According to the
flow chart we can describe the input/output (I/O) constraints by algebraic expression.
The objective function minimizes the operating costs of every department in coal supply
chain, and an optimal solution can be obtained through the use of Mixed-integer linear
programming. In that way we can get a specific task timetable to guild their work and
the activities.

Fig. 4.2 Flow Chart of Supply Chain of Coal

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4.1 Major Issues Affecting Coal Production in India

 Delay in requisite clearances.

 Land acquisition.

 Rules and regulation.

 Law and order.

 Coal evacuation infrastructure from mines to plants.

4.2 Modes of Transportation

The development of new coal mines was taking place wherever transport infrastructure
for evacuation of coal and its further transportation to various designated destinations
could be managed without much of a problem. With the increased demand, more and
more new and far-flung coalfields are being taken up for development to meet the
increasing demand of coal in the country. Initially such developments can go along with
road transport. But road haulage is not easy due to lack of road infrastructure of adequate
strength. This highlights the need for development of railway facilities for all such
locations. Similarly, for handling and transportation of increasing volumes of imported
coal, integrated port and railway infrastructure has to be established.

Fig. 4.3 Coal Transport by Railways

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Railways are the main stay for the coal transportation and account for about 50% and
will be the most desirable in the future. Roadways contribute 27.06% of movement of
coal and generally used for small amount within 300 km range. The captive source like
MGR, belt and ropeways also contribute for 22%, generally used for pithead plant.

Since Coal India Ltd (CIL). accounts for more than 85% of indigenous coal production,
a reasonably fair picture of transport logistics of total indigenous coal sector may be
extrapolated from the facts and figures pertaining to CIL. Hence, we will analysis the
transportation and logistics part of coal by CIL and assure the same pattern for the rest
of coal producing company or parties.

Roads have always been the primary mode of transport in India. India has one of the
largest road networks of approximately 42.36 lakh kms. As per the Road Transport &
Highways Department around 60% of the total freight and around 87% of passenger
traffic is carried by Indian roads. Traffic is forecasted to grow at around 8-10% p.a.

Fig. 4.3 Coal Transport by Road

A large portion of railway sidings is single line and is utilized by passenger as well as
freight trains. The sharing of railway sidings amongst the passenger and freight trains
causes disruption in the smooth functioning of the trains. Long waiting times and
uncertainty of arrival are the two primary reasons for the delay in time of freight goods.

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The overall freight traffic has been continuously rising. Over the last 10 years, traffic
has grown at a CAGR of 6.27%. IR‟s available infrastructure does not have enough
capacity to cater to this traffic leading to severe network capacity constraints.

Table 4.1 Coal Transport by Various Ways

4.3 Coal Blending

Coking Coal is not available in India. Hence coal blending is done. Coal Blending is the
process of mixing coals after coal has been mined to achieve quality attributes that are
desirable for the coal’s intended application. The quality attributes that are most
important in blending will differ from one mine site to another and also depend on how
the coal seams vary quality and their final intended use. Blending may takes place in
several locations within demand chain. Blending of coal is necessary from economical
point of view by reducing the percentage of high cost, prime or hard coking coals and
replacing it with medium or soft coking coals.

4.4 Alternative Ways of Transport

Coal Slurry Pipeline (huge capital investment but very effective technique) One such
slurry pipeline is available in Odisha which runs 253 km pipeline supplying iron ore
from mines deep in hinterland to Essar’s pellets plant in Paradip, Odissa. An dedicated
freight transport line have to be consider by railways to meet demand and supply. A
well-developed waterways to minimize the transportation cost

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4.5 Harnessing Waterways

IWT currently accounts for less than 1 percent of freight transport in India, compared
with inland waterways in China (7 percent), United States (8.3 percent), Europe (7
percent) and Bangladesh (35 percent). And while India’s logistics volume is currently
skewed towards road and rail, the government is now focused on developing about 5,000
of the 14,500 kilometres of navigable waterways, six of which constitute–and are
administered by–the Inland Waterways Authority of India.

The growth of IWT in India has enormous potential, not only for reducing costs but
improving service levels, reducing transit damage, and improving turnaround times for
all modes of transport. Companies that offer value-added services will be an important
part of the new IWT equation. Expertise in areas like barge/vessel bulk freight rate
bidding and value assurance; multi-drop optimization for hinterland
aggregation/disaggregation; last-mile connectivity; assessment projects for terminal
design, optimal asset utilization, intermodal transfer facilities, process harmonisation,
metrics setting, benchmarking, and improvement roadmaps; and secondary network
design and hub modelling will all play a role in helping new IWT-enhanced networks
to succeed.

A modal shift to IWT is critical to ensure an effective logistics network to support

India’s booming growth. This dynamic becomes even more imperative as the “Make in
India” initiative that aims to make India a global manufacturing hub gathers speed. IWT
could be the game changer India has been waiting for in the decades to come, helping
to solve its ever-increasing freight-movement-related woes and a masterstroke in
revamping its notoriously slow and inefficient freight systems.

 By identifying & strengthening the perennial networks

 Building small interconnectivity railway network, expansion of ports
 Deepening of waterways near sea mouth
 Use of barges for coal transportation
 Construction of unloading system along the water ways, etc.

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Table 4.2 National Waterways in India

Fig. 4.4 Coal Proposed Solution

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4.6 Advantages of Waterways Transportation

Table 4.3 Advantages of waterways Transportation

4.7 Developing Infrastructure

 Enhanced road connectivity across mineral zones and consumers.

 Infrastructure developments driven by PPP.
 On NW-1 Farakka Barrage Dam divert water from Ganges to West Bengal
during 1 Jan to 31 May each year.
 Restructuring and/or reallocation of railway networks to connect with the coal
bearing areas.
 Doubling of railway routes at places where coal movement is higher.
 Enhancing port capacities as well as evacuation efficiency and augmenting the
existing capacities from existing ports.

4.8 Limitations of Waterways in case of Farraka Barrage

Bangladesh and India have had many debates about how the Farakka Barrage cuts off
Bangladesh's water supply and how to share the water. Right from the beginning, this
created a concern for Bangladesh as it constitutes the low-lying part of Gangotri. After

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the completion of the barrage at the end of 1975, it was agreed to run it with specified
discharges for a period of 41 days from 21 April to 31 May during the remaining period
of the dry season of 1975 under an accord announced as a joint press release on 18 April
1975. But after the assassination of Sheikh Mujibur Rahman on 15 August 1975,
relations between the two countries became greatly strained and India continued to
withdraw water even after the agreed period. The diversions led to a crisis situation in
Bangladesh in the dry season of 1976. In 1977, Bangladesh went to the United Nations
and lodged a formal protest against India with the General Assembly of The United
Nations, which adopted a consensus statement on 26 November 1976. Talks between
the two countries were resumed in December 1976. No consensus was reached.

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 CHAPTER 5

CONCLUSION

 Establishing a single window clearance process for coal mines.

 Support in land acquisition and R&R related issues to ensure timely and smooth
completion.

 Developing a waterway infrastructure through the country.

 Measures to be imposed to improve productivity of the coal mines and improve

recovery from the coal mines.

 The government may consider creating funds to support overseas acquisition to

supplement domestic resources.

 Promote research and exploration activities and modern underground mass

production technologies.

 Indian Railways, port authority and the industry need to work in close
collaboration.

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 CHAPTER 6

REFERENCES

1. Pukhraj Sethiya, Piyush Bharti, “The Indian coal sector: Challenges and future
outlook”, Indian Chamber of Commerce, pwc.com/india (2012)

2. Shriniwas Sunkewar, “Bridging the Coal Demand – Supply Gap through Imports
& Roadmap to Coal Logistics”, (2013)

3. http://www.chainalytics.com/indias-inland-waterways-transportation/
4. https://en.wikipedia.org/wiki/Farakka_Barrage

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