Coal Banking - An Option to Enhance Domestic Coal Production: What do you say?

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Coal Banking - An Option to Enhance Domestic Coal Production: What do you say?

Shortage of Fuel supply to power plants leading to lower plant load factors has now become a trauma for the Indian power sector. Various proposals are being raised day on day in order to overcome the said issue. Pooling of prices, Coal regulatory, Coal block auctioning, Captive mining, and now Coal Banking are all considered one or the other way to overcome shortage of fuel supply. Coal Banking is aimed to enhance the domestic coal production and a note on the same is briefed below.
  1. Coal Banking is an arrangement between a project developer and CIL, whereby the developer would provide surplus coal which is produced during the development of the block to CIL, and CIL would return this coal on pre-agreed terms after a specified duration for use in the identified end-use plant. The situations where coal can be rendered surplus could be as follows:
    1. Mismatch between mine development and progress of end use plant leading to a situation where coal mine production has started but the end use plant is not ready
    2. Increased mining capacity due to technological improvements, provided the revised mining plan is also approved by the competent authority
  2. If the right policy framework is provided, captive coal blocks awarded to power sector can produce nearly 25 MTPA additional coal by 2015-16 that would help to reduce the dependency on imported coal to that extent. APP further stated that apart from CIL, banker for the purpose of coal banking can be another end use project in the same end use sector. Regarding the period of banking, depositor has to indicate the period after which he wants the coal returned, depending upon his mining plan, ramp up, end-use project commissioning etc. At this point, Member (Energy) stated that the period of the coal banking should not be open-ended and should not exceed 5 years in any case.
  3. The price level at the time of banking as well as at the time of taking back, the price should be based on last 12 month average CIL e-auction price with the adjustment to the calorific coal.
  4. Regarding the price there is also another view that instead of e-auction price it should be linked to CIL notified price and any increase in prices should be indexed to price variation in the international coal price index.
  5. Any extra coal generated either because of the mismatch on the coal mining and end use plant or through the surplus coal available due to better technological production in any case, would be beneficial for the nation in view of the current shortage of coal and the same should be encouraged by the Government of India. Any surplus coal available through coal banking or through the captive coal mine earmarked for the power sector should remain with the power sector and the should not be diverted to the other sectors.
  6. Maximizing the availability of coal through coal banking mechanism is good for the economy of the country. Platform for surplus coal should not be treated as the commercial trading of coal as per the spirit of the above Act. The availability of surplus coal because of mismatch arising due to delay in completion of end use plant where as the mine has already started production but is not willing to agree with the second reason for surplus coal production by deploying improved technologies.
  7. Approved mine plan specifies certain level of production based on the rate of extraction for specified period of time for a given level of reserves which ultimately ensures coal supplies for life of end use plant. It needs to ensure that additional level of extraction or better recovery of resources by deploying better technologies should not lead to short supplies for the end use plant in the subsequent years.
  8. The motive is not to increase profits through coal banking but welcoming the additional coal production based on the concept of coal banking. Any risks associated with banking can be hedged, if the concept is agreed. CIL notified price is average price of coal produced from both opencast and underground mining operations. It is a known fact that cost of coal produced from underground mining operations is very high as compared to the opencast mining.
  9. CIL is incurring loss to the extent of INR 2000/tonne on an average on account of the underground mines and the loss is compensated to some extent by cross subsidy through open cast mining. CIL further stated that considering the negative balance of the inventory in the foreseeable future based on its commitments, CIL is willing to take surplus coal from the captive developers and give it to the other consumers but would not be able to give any commitment on returning back the coal to the entities who have banked with the company.
With the right policy and the right mechanism to implement coal banking will motivate the captive miners to enhance their coal production levels and thereby support the aim of reducing coal shoartage.

Source: Cerebral Business Research Pvt. Ltd.

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1 comment :

  1. Abhishek Pratap SinghOctober 7, 2013 at 12:57 PM

    Idea is good but why we have to deal with CIL only, we can also arrange banking with the individual players. Already CIL has a huge burden so at time of return may be it will be a big problem for them. But with the private participants this risk will be minimum.
    Also, we cannot take it as a part of our energy mix because surplus supply is very rare and for short duration only and considering the time period we can use it as "Ancilliary Service Mechanism of power trading" for any mismatch of the demand and supply.

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