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6th Coal Summit & Expo 2016

6th & 7th September, 2016 - Hotel Le Meridien, New Delhi

Importance of Coal for Cement Sector:


Constraints in Supply of Domestic Coal
and way forward

BY

N. A. VISWANATHAN
SECRETARY GENERAL
CEMENT MANUFACTURERS ASSOCIATION

CEMENT MANUFACTURERS ASSOCIATION


INDIAN CEMENT INDUSTRY
Completed 100 Years In 2014
Has emerged as the Second Largest Cement Producer in the World, after
China. Produces 7% of Global Cement Production of World Standard. Per
capita cement consumption in India ranks very low and is estimated at 218
kg. compared to world average of 558 kg. (Source: CEMBUREAU).
Contributes significantly to Government Revenues and Society- being
third largest revenue contributor for excise duty (non petroleum
commodity)- 2014-15 Rs 9,572 crore 14.7% of the total excise.
Has World Class Production Facilities and State-of-the-Art Cement plants.
Technology. Green and Environment-Friendly Industry. Contributes
significantly to CO2 emission reduction and thereby taking care of issues
concerning Global Warning use of Slag in PPC. Consumes around 27%
of Fly Ash generated from Thermal Power stations.
A turning point in the life of cement industry - Partial Decontrol was
introduced in 1982, which culminated to Decontrol in 1989.

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INDIAN CEMENT INDUSTRY
Completed 100 Years In 2014
Drastically compressed time for adding additional 100 Mt. cement
capacity mark to 11 and 3 years for second & third respectively from 83
years taken for the First 100 million tones.
Of late, subdued cement demand has significantly affected working of the
cement industry A major cause of concern. The installed capacity is
more than 431 Million TPA and in the year 2015-16 the production was
limited only to about 283 Million TPA. Growth of Cement Production was
only 4.7% as against 5.6% in 2014-15.
Turnover of industry is Rs 1.35 lakhs crores. About 150 Mn TPA of
capacity lying idle, (34%) leaving an investment of more than Rs.1,20,000
crores stranded .
Cement is manufactured by heating limestone with small quantities of
other materials to 1400C in a kiln, a process which requires large
amounts of fuel.

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INDIAN CEMENT INDUSTRY
Completed 100 Years In 2014
Indian Cement Industrys Initiatives and Achievements acknowledged and
appreciated Globally. Although, a lot still remains to be done with the help &
support from Government.
Projected Cement demand in 2016-17 at 9% growth is 308 MT requiring total 67
MT i.e. 45 MT G8 grade of Coal for the Kiln with production of 65% PPC and 30%
of OPC with average 90% clinker consumption and 22 MT for the CPP for
generating 3696 MW(based on 60% CPP generation @20 MW for one million
tonne of cement.)
Major thrust being given by Govt. of India for Infrastructure Development such as
development of 100 smart cities 20 million affordable houses, etc. by 2022,
cement concrete National Highways are expected to provide a major boost to the
Cement Sector.
A cement plant consumes 162 to 250 kg of G 8 to G 10 Grade of Coal per tonne of
clinker produced, depending on the raw materials and the process used.

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Likely Cement Demand in 2020 even at 9% Growth
to meet Govts Plans and Inputs Requirements

(Million Tonnes)

Particular 2015-16(Actual) 2019-20 (est.)


Cement Production 282.843 400.00
431.00 460.00
Cement Cap.
(At 66% utilization) (at 87% utilization)
94.00
Coal for Kilns and CPP 66
(at 23.5% requirement)

Limestone (1.5 times of


424.00 600.00
production)

Gypsum ( 5% of production) 14.14 20.00

Power (MW)
(worked on 20 mw requirement for 3383 (MW) 4800 (MW)
one MT production X 60% CPP)

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Domestic Coal Production and
Demand
(Fig in Million Tonnes)
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

CIL 431.26 431.32 435.84 452.20 462.41 494.23 536.51

SCCL 50.43 51.33 52.21 53.19 50.47 52.54 60.38


Captive 35.03 34.60 36.24 37.26 37.69 52.95 42.11

Others 16.28 15.44 15.50 13.75 15.19 12.87

Total 532.04 532.69 539.79 556.40 565.76 612.59 639.00


Production

Demand 604.33 656.31 696.03 772.84 769.69 819.00 910


Gap 72.29 123.62 156.24 216.44 203.93 175.44 270

Import 73 69 103 146 169 212 200

Increasing Coal Imports trend reversed in 2015-16 by 12 MT, first time

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Coal Imports
(Fig in Million Tonnes)
YEAR COAL PRODUCTION COAL IMPORTS VALUE OF IMPORTS
CONSUMPTION (IN RS CRORES)

2007-08 457 453 50 20738


2008-09 492 549 59 41340
2009-10 532 620 73 39180
2010-11 532 589 69 41569
2011-12 539 638 103 78837
2012-13 556 710 146 86845
2013-14 566 739 169 93292
2014-15 613 800 212 120225
2015-16 639 840 200 110000 (P)

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Dwindling Availability of Coal
Fuel Procurement by CMA Members for Cement and Captive Power Plants
(Fig in Million Tonnes)
Coal procured % of linked coal
Lignite & Total Fuel
Year Linked Coal Imported Coal from Open Pet Coke against total
Other Fuel Procurement
Market procurement
2002-03 12.35 3.66 0.77 1.04 0.05 17.87 69
69
2003-04 13.35 3.18 1.03 1.41 0.11 19.08 70
2004-05 14.84 3.63 1.27 1.87 0.76 22.37 66
2005-06 14.81 3.40 1.55 2.16 0.82 22.74 65
2006-07 14.43 4.96 2.94 2.09 0.83 25.25 57
2007-08 14.56 6.08 5.00 2.27 0.93 28.84 50
2008-09 14.29 6.97 6.17 2.41 0.36 30.20 47
2009-10 10.79 6.95 4.36 3.92 0.23 26.25 41
2010-11 11.90 8.48 4.92 3.18 0.36 28.84 41
2011-12 10.45 9.39 4.51 4.70 0.75 29.80 35
2012-13 10.38 9.27 3.93 5.18 1.06 29.82 35
2013-14 9.22 9.08 3.92 5.96 1.75 29.93 31
2014-15 7.71 10.88 3.52 6.14 1.70 29.95 26
2015-16 6.93 10.16 3.11 7.95 1.46 29.61 23
23
% of total Fuel
Procured 2015-16 23 34 11 27 5
- Provisional-
During the year 2015-16, cement Industry got only 23% of coal requirement through FSA. Consequently,
forcing member cement companies to meet their balance 77% fuel requirement from Imported Coal, E-
auction Pet coke, and other fuels.

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STEEP DECLINING TRENDS IN COAL SUPPLY TO
CEMENT INDUSTRY

Linked coal supplies plunged in the


Financial Year 2015-16, to 23% of
Declining Linked Coal %age Total Fuel Requirement
total fuel requirement from 31% in
80
69 70 the Financial Year 2013-14 as
70 66 65
against 69% in the Financial Year
60 57
50 2002-03.
50 47
41 41
40 35 35 Consequently, forcing cement
31
30 26
23
industry to meet its balance 77%
20 fuel requirement from Imported
10 Coal, E-auction Pet coke, and other
0
fuels.
Mines/sidings offered in the recent
auction of coal linkages for the
cement sub-sector was of lower
grades. Hence financially and
technically unviable resulting in
booking of only 32% of the offered
quantity.

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Rail Transportation
Becoming Unviable for Cement
Second Largest Freight Customer and Revenue Contributor to
Railways after coal :
The Cement Industry contributed Rs. 9157 crores to the Railways
towards freight charges during the period Apr-Mar 2016 as against
Rs. 9182 crores in the corresponding period of previous year. This
does not include the freight paid by the cement industry to the
Railways towards coal, pet-coke, fly ash, gypsum, limestone, etc.
However industry facing Increasing trend of per ton cost of
transportation.
Erratic availability of Railway wagons at Coal supplying sources i.e. Collieries,
Ports, Refineries also at the Cement plants for loading Clinkers & Cement.
Rail share for Cement declined to 26.2% of the total
dispatches of cement from 50% a few years back.
End cost to the Consumer in Road transport is now considerably cheaper than
Rail transport. Rail Transportation becoming Unviable for Cement Industry.

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Rail Transportation
Becoming Unviable for Cement
Railway Board on 22.08.16 revised the freight rate table for coal traffic per tonne
along with levy of coal terminal charge (CTS) of Rs 110 per tonne at the rate of
Rs 55 per tonne for both loading as well as unloading terminals for traffic of
coal.
About 65% of the total coal requirement of cement production is moved by rail,
works out to about 45.82 million tonne. The average increase in the rail freight
is 20 % that would translate into increase in input cost.
Besides, the coal freight hike it will impact the cost of power as its generation is
coal dependent. Power being another major cost centre for cement production.
The effect on the sector would be cascading.
Experts estimate cement industry will suffer a combined impact of over Rs 2,000
crore.
Overall leads in freight movements both in bulk/ container have been
structurally declining.
Increase will discourage the movement of coal by rail. Road transport will
become far more cost effective versus railways.

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Rail Transportation
Becoming Unviable for Cement
Need of the Hour :
Roll back coal freight hike and withdrawal of CTS.
Classification of Pet-coke slab 145 be fixed at par with Fly ash
i.e. Slab 120 since both are having similar density.
Reduction in diesel prices witnessed in the recent past may be
reflected in the freight rates of the Railways under its Dynamic
Policy.
Freight to be charged via shorter route even if the traffic is
moved via longer route due to the convenience of Railways or
route congestion.
Regular and assured availability of rakes for domestic coal,
Imported coal, Pet Coke, cement, clinker and for export of
cement and clinker need of the hour.
Freight for cement and clinker transported by Rail be made at
par with the Road transport .

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Auction of Coal Linkages
Ministry of Coal directed CIL and SCCL in February 2016, to conduct auction of
coal-linkages for the non-regulated sector.
The sub-sectors under non-regulated sector eligible to participate in the auction
are: 1) Cement , 2) Sponge Iron, 3) All Captive Power Plants (CPPs) & cogeneration,
4) Steel(Coking Coal), 5) Others excluding Fertilizer.
Some of the key aspects of the linkage auction are :
The existing coal supply arrangements will continue till commencement of coal supply
under the auction process.
Plants having achieved commercial operation will be allowed to participate in the present
auction.
FSA shall have a lock-in period of 2 (two) years Post the expiry of lock-in period,
Successful Bidder may seek an exit after serving a prior written notice of 3 (three)
months.
Tenure of the FSA shall be 5 years and can be extended by another 5 years on mutually
agreed terms upon the request of Bidder.
Separate quantity shall be earmarked for each sub-sector and industry will compete
among their sub-sector peers. Contd...

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Auction of Coal Linkages
CIL will chalk out 6 months calendar for auction.
The sub-sectors may be reviewed by MOC as and when required.
Provision of third party sampling shall be made.
Swapping of coal across End Use Plants is not allowed.
The auction will be conducted on initial reserve price and shall be based on non-
discriminatory ascending clock auction.
The premium shall be increased as per demand/supply ratio and shall vary from Rs
10 if greater than 100% to Rs 100 if greater than 300% per tonne. Till range of
demand /supply equilibrium is established Maximum bid quantity by a particular
bidder shall not exceed the normative requirement of end use plant.
A co-generation plant can only participate in one of the two sub-sectors, i.e. CPP or
Others. Will not be entitled to any additional coal requirement beyond what will be
assessed in the sub-sector where it participates.
FSA of PSUs of non-regulated sector will continue to remain inforce as it is in the
larger public interest. This action of MOC would distort the level playing field
between public and private sector firms where final product prices are market driven.
Contd...

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Auction of Coal Linkages
CIL offered 3.78 MT of coal exclusively for sponge iron manufacturers in its
first tranche of auctions in June16. But only 2.05 MT, that is 54%, was
booked.
Coal linkage auction conducted by CIL for the cement sector ended on a grim
note. CIL managed to sell only 32.5% of the allocated quantity due to poor
participation. Against allocated quantity of 2.15 MT, only .698 MT was booked
by Cement Sub-sector.
In Contrast to the Cement and Sponge iron sectors, auction of coal linkages by
CIL for CPPs met with an extremely optimistic response. A total of 18.86 MT of
coal offered, 18.807 MT i.e. 95.81% was booked.
Despite requests to MOC/CIL to offer coal mines located near the cement
cluster having quality of coal of G8 grade and above, compatible with
requirement for Cement sub-sector for mutual benefit, more than 50% of coal
offered was from mines having G9 grade and below, not suitable for Cement
Sector.

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Auction of Coal Linkages
SUGGESTIONS
Requirement of Power of Attorney in specific format for each tranche of
auction is difficult to comply. General Power of Attorney given by the
Board may be accepted as for listed companies.
In case of slippage of coal quality continuously (say 2 quarters), there
should be a provision to amend the Contracted Grade of Coal. This will
ensure correct pricing of coal as well as levy of royalties and taxes for the
consumer.
As per provision, royalty is payable on notified price plus premium by the
successful bidder. Royalty should be payable on notified price only as
applicable in case of coal blocks auction and not on premium.
In case of delay in supply of allotted rake beyond 45 days, the consumer
must be allowed off-take coal by road to meet its coal requirement.

Contd...

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Auction of Coal Linkages

CIL should transparently share methodology adopted for


empanelment of third party coal sampling agencies with the
consumers. Along with the list of agencies and rates agreed with
such agencies.
Credit note for slippage of grade should be based on landed cost
of coal to the consumers and not only on the basic price.
The Scheme Document prescribes consumption norms for captive
power plants upto 100 MW capacity at 2770 Kcal/ kwh, whereas the
actual consumption for such captive power plants is 3100-3200
Kcal/ kwh. This results in normative requirement being fixed on
lower side and balance coal quantity having to be met from other
costly sources- needs review and correction.

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Coal quality
Cement companies are facing problems as neither the quantity nor the quality of
coal supplied by the coal companies is meeting their requirement. Regularly
communicating serious concern about the poor quality of coal supplied by CIL and
by Singareni Colliery Co. Ltd. Is not attracting any response.

Extensive variation in the declared GCV and the actual GCV measured at the cement
plant as also the sub-standard quality of coal. Grade slippage & Sizing are major
concerns as huge quantity of extraneous material is found in supply at large.

Provision for sampling and analysis facility for the Non-regulated Sector is fixed for
ACQ of 4 lakhs & above. Cement sector is presently suffering from huge financial
loss due to grade slippage.

Cement industry is facing shortages in Rail dispatches from 5 to 15 %.

Most of the Sidings/Mines Coal is dispatched un-crushed due to absence of


crushers. Still sizing charges are levied to the customers for the Run of Mine coal,
an unfair practice by CIL. Therefore, crushers should be installed at all collieries
subsidiaries and levy of crushing charges should be stopped in the absence of
crusher/sizing units.

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Coal quality
Cement Plants should be charged on actual grade. Third party sampling
needs to be adopted at the loading end under the umbrella of Central
Institute of Mining and Fuel Research, Dhanbad (CIMFR), without embargo of
ACQ of 4 lakhs tonnes, which is very high quantity for any cement plant.

Standard Operating Procedure as developed by the MOC for the Power


Sector needs to be implemented for the Non-Power Sector (optional) for
ensuring consistent quality with correct heat value.

Root cause of quality disputes is Annual coal grade declaration by Coal


Controller on the basis of drawal of seam coal sample and not from the
dispatch end. Re-grading of GCV on the quality of coal at dispatch point is
the solution.

Utmost precaution required at the loading point for collection, preparation


and testing of coal samples as in all probability variation takes place in
determination of GCV leading to dispute between the coal company and the
consumer.

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Coal pricing
Coal India Ltd has increased the overall coal prices with effect from 31st
May 2016 by 6.2%.Non-regulated sectors including Cement Industry are
still being charged 20% higher price than the regulated sector.

With substantial decrease in international thermal coal prices and


problems due to quality slippage (2-3 grades) coupled with heavy taxes,
duties, royalty & cess, imported coal / pet coke as an alternative source
is being preferred by the Cement Plants. This increase in coal price for
lower grades of coal has further worsened the situation. CIL to consider
lowering the domestic coal price and dispensing with dual pricing
regime.

Royalty on coal is highest in India at 14% Ad-valorem compared to South


Africa (8%), Australia (6%), Indonesia (Grade-wise 3-7%), Columbia
(5-10%), etc.

Substantial revenue has been earned from coal block auction. High
royalty rate should be reduced to 5-7% to boost the industry sentiment

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Coal - Key Issues
Precondition for mandatory lifting of 25% higher grade coal (Between G1 to
G4), in signing of FSA Needs Modification indigenous coal costs higher than
the landed cost of imported coal.
Coal companies deducting FSA quantity (deemed supply) based on fixed
weight per wagon(66MTX59 Boxes), while actual loading is 5% to 7% lower.
Shortfall needs to be compensated .
Coal supply by Rail has to be through Tripartite Agreement involving the
railways & coal companies. The interval for supply of rakes should be uniform
so that industries get coal at the right time to enable continuous operation of
the plant.
Steep Penalty on overloading of coal by Rail charged despite industry not
having any role in loading.
There are many Unilateral clauses in the FSA which need modifications.
Increase in Clean Energy Cess from Rs. 50/tonne w.e.f July 2010 to
Rs. 400/tonne w.e.f. 01.03.2016 caused an 800% hike in Clean Energy Cess in
last 5 years, adversely impacting the cost of production. Clean Energy Cess be
rolled back to Rs 200/- per tonne.

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Coal - Key Issues
Fast & expeditious of auction coal blocks It has been
one year since auction. Only eight nine mines have
started operations.
Prior allottees who had deposited fixed amount with the
nominated authority should be compensated fast where
the vesting orders have been issued to other successful
bidders.
Legal cases pending in various courts should be
expeditiously got decided by filing early hearing
applications.
Commercial Mining Approach Paper is awaited by the
industries at large.

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ABOUT
CEMENT MANUFACTURERS ASSOCIATION (CMA)

Provides a link between the Industry and Govt. and also serves
the cement industry and its consumers.
Plays a pivotal role in formulation of Government policies
for cement industry through continuous dialogues and
interactions.
Apprises industry of latest Technological Developments and
Cutting Edge Technologies.
Educates on rational use of cement including choice of the right
type of Cements for various applications.
Creates awareness on the industrys efforts on Quality
Assurance, Environmental improvements, Consumer
protection and other related issues.
CMA is also a Communication partner with Cement
Sustainability Initiative (CSI) under World Business Council for
Sustainable Development (WBCSD). This would facilitate
sharing knowledge through CSIs network of studies, in-plant
learning of good practices, etc.

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Thank you
E-mail: cmand@cmaindia.org

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