Last week’s announcement, on re-grading of coal mined by subsidiaries of Coal India by the Coal Controller’s Office (CCO), may be seen as one of the most far-reaching initiatives to address the fossil fuel’s quality issues on a meaningful basis.
From April 1, invoicing by coal companies will be based on the grades finalised by the CCO. By March-end, the CCO would finalise and communicate the grades of all mines/seams/sidings, based on 1,625 samples.
It has already reassessed the grades of 92 mines, following which 21 mines were downgraded and one was upgraded. This is being done through four scientific and academic institutions.
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History of disputes
It marks a significant departure from the present practice of the CCO certifying the grades fixed by the coal companies. Disputes and complaints regarding grade-slippages have been an integral part of India’s coal scenario, often leading users (especially the power sector which accounts for 76% of the consumption) to question the effective quality.
These led to the establishment, by the Centre, of standing operating procedures (SoP) for third-party sampling at loading-ends and the Central Institute for Mining and Fuel Research was appointed as the independent TPS agency for both – the power plant and the coal companies. Now, a similar process is in the offing for the non-power users.
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Inadequate supplies had been a bane for CIL for long. In 2015, the public-sector behemoth was tasked to double its production to one billion tonnes by 2020. After clocking its highest-ever growth rate of 9% in the first year (2015-16), it soon became clear that in a scenario of low power load factor by power plants, much of the coal would go abegging.
Current indications are that coal demand is set to improve. NTPC, the largest thermal power generator said recently that it had exceeded its 12th Plan capacity-addition target. Higher generation from coal based-stations indicates an uptrend in electricity demand in the grid.
The government, however, seized the opportunity of CIL’s oversupply position in early 2016 to drive for improved quality. This is the time when the TPS came about.
CIL has said that it remained committed to consistent quality despite the inherent challenges posed by India’s high-ash content coal. In 2012, CIL changed the grading (and the pricing) system from the earlier UHV (useful heat value) based grading to the gross calorific value grading in a move aimed at giving customers value for money. It has also taken steps to ensure uniformity of size and removal of extraneous material.
CIL has also taken the most significant quality-enhancement measure of increasing production through surface-miners, from 119.2 million tonnes in 2011-12 to 243 million tonnes in 2015-16. This is equipment used in open cast mining which helps extract coal that is free of dust and stones. “Against a 6% CAGR in this period, surface miner output has risen by 18%,” a CIL official said.
Impact
Although CIL officials do not admit to the effect of regrading on the bottomline, there is apprehension among sector experts and some senior CIL officials that overall realisation may be hit in the near-term if too many mines are downgraded. CIL’s margins are already squeezed due wage-provisioning and lower e-auction realisations.