Coal Topic

8/10/2019 Coal Topic

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CHAPTER-VII

COAL PRODUCTION, DISTRIBUTION AND MARKETING

General

7.1 Coal has been recognized as the most important source of energy for electricitygeneration in India. About 70% of the coal in the country is consumed in the powersector. In addition, other industries like steel, cement, fertilizers, chemicals, paper and

thousands of medium and small scale industries are also dependent on coal for theirprocess and energy requirements. In the transport sector though direct consumption ofcoal by the Railways is going down on account of phasing out of steam locomotives,the energy requirement for electric traction is still dependent on coal converted intoelectric power. The Department of Coal, is engaged in developing coal resources ofthis country in a manner to meet the requirements of coal of different consumingsectors. Performance of coal sector in this respect has been impressive.

ALL INDIA PRODUCTION OF COAL

7.2 Through a sustained programme of investment and greater thrust on application ofmodern technologies, it has been possible to raise the production of coal from a level


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of about 70 million tonnes at the time of nationalization of coal mines in early 1970'sto 292.27 million tonnes (All India) in 1998-99 and 208.12 million tonnes (All India)in 1999-2000(Apr-Dec.) (Provisional). Certain significant statistics about coal andlignite are given at Annexure-VI

7.3 Coal India Limited and its subsidiaries are the major producers of coal. 179.83million tonnes of coal was produced by Coal India Ltd and its subsidiaries during1999-2000(Apr-Dec.) as against the production of 183.45 million tonnes in the year1998-99(Apr-Dec).

7.4 SCCL is the main source for supply of coal to the southern region. The company

produced 21.23 million tonnes of coal during 1999-2000(Apr-Dec.) as against 18.32mt during the corresponding year last year. Small quantities of coal are also producedby others TISCO, IISCO and DVC. Besides, some coal is mined in Meghalaya andother states from isolated pockets.The company-wise production, despatch and stockdetails for the last five years are given in Annexure-VII & Annexure-VIIIrespectively.

PRODUCTIVITY

7.5 Productivity is measured in terms of raw coal output in tonnes per manshift(OMS). There has been substantial improvement in OMS in Coal Companies duringthe last decade for CIL group of companies. As against an OMS of 0.58 tonne at thetime of nationalisation, OMS in Coal India Limited during the year 1998-99 was 2.03tonnes and during 1999-2000(upto Dec-99) was 1.99 tonnes (prov). In SCCL, the

OMS during 1998-99 was 1.31 tonnes and during 1999-2000(Apr-Dec.) was 1.31tonnes. Year wise details of productivity of the coal companies are at Annexure IX


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DISTRIBUTION

7.6 Govt. of India have amended the Colliery Control Order 1945 and Colliery

Control Order 2000 has been notified according to which the price and distribution ofall grades of coal with effect from 1.1.2000 has been deregulated.

7.7 For Supplies of Coking Coal, Coal Companies/CIL are allocating coking coal toSteel plants since April-1996.

7.8 For non-core sectors, consumers whose requirements of coal is less than 25,000tonnes per month of non-coking coal and less than 5,000 tonnes per month of cokingcoal, linkages are accorded by the Non-Core Linkage Committees of CIL/SCCLrespectively. These are done taking into account the availability of coal, the locationof the units and the already committed quantities of coal from the given coalfield andthe availability of transport. Based upon such linkages, actual allocation of coal aremade based upon the sponsorship authorised annually by the concerned StateGovernment to the concerned party.

No objection certificate is accorded by the Department of Coal if the linkages for non-core sector consumers exceeds 25,000 tonnes per month of non-coking coal and 5,000tonnes of coking coal per month.

COAL DESPATCHES AND STOCKS

7.9 All India figures of production, despatches and pit-head stocks of coal for theprevious years are shown in Annexure-VII.The overall despatches (All India) duringthe year 1998-99 were of the order of 284.71 million tonnes. The overall despatchesduring 1999-2000(Apr-Dec) have been 217.26 million tonnes(provisional) against208.97 million tonnes during the corresponding period last year (April-Dec,98) thus


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showing growth of about 4% .The vendible stock as on 31.03.99 was at a level of31.89 mt. (All India) and closing stock as on 31.12.99 was 20.87 mt. (Provisional)

7.10 Coal Mining is affected by seasonal factors. Large build up of pit-head stocksoccurs during the winter months. Production drops during summer and monsoonperiod. During the period April-September each year, part of the requirements of theconsumers is met by draw down of stocks from the pit heads.

MARKETING AND DISTRIBUTION

7.11 The Marketing Division of CIL coordinates marketing activities of coal and cokefor all its subsidiaries. CIL has set up Regional Sales Offices and Sub-States Officesat selected places in the country to cater to the needs of the consuming sectors invarious regions. To cater to the tiny customers more effectively and to develop a nichemarket, CIL is in the process of launching a Traders Network at many centers in thecountry.

SUPPLY OF COAL TO BULK CONSUMERS

7.12 Consumer-wise off-take of coal from Coal India Limited by major consumingsectors is indicated in Annexure-XI. The main consumers are the power houses, steel

plants, cement industry and fertilizer industry. Almost 84% of the total production ofcoal is consumed by these sectors. More specific details about some of the majorconsuming sectors are discussed below:-


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(A) POWER HOUSES

7.13 Allocation of coal to thermal power stations is made on quarterly basis by the

Standing Linkage Committee (Short-term). Department of Coal, Central ElectricityAuthority, Railways, Coal India Ltd and its subsidiary companies and SingareniCollieries Company Limited regularly monitor the despatches of coal to powerstations and take corrective steps to meet any exigencies.

7.14 The All India demand of coal including washery middlings for all thermal powerstations of the country for the year 1998-99 was 224.00 mt. Off-take of coal bythermal power stations during the year 1998-99 was 207.70 million tonnes including

middlings. During the year 1999-2000(Apr.-Dec), the total despatch to power housesfrom CIL and SCCL has been 160.52 million tonnes including middlings 1.62 milliontonnes (Provisional).

(B) STEEL PLANTS

7.15 The allocation of coking coal to steel plants was earlier made by the CoalController. However, after deregulation of coking coal, the supplies of coking coal arebeing made by the coal companies themselves on the basis of linkages established bya competent linkage committee or on the basis of their existing commitments. In orderto increase the availability of indigenous coking coal and to meet the growingrequirements of steel plants, coal companies are sanctioning new projects andexpanding their coal washing capacity by establishing new washeries and increasingcapacities of their existing washeries. Production performance of coking coal

washeries is given at Annexure- XII

7.16 During the year 1998-99, 18.35 million tonnes of washed and direct feed coalwas despatched by CIL to steel plants and 10.95(Prov.) million tonnes during the year1999-2000 (upto Dec,99).


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(C) CEMENT PLANTS

7.17 Coal allocation for the cement plants is also done by the Standing LinkageCommittee for Cement (Short-term) which meets every quarter to review and assessthe demand of coal for each cement plant and grant linkages for supply of coal to meetsuch demand. The despatch to cement plants during 1998-99 were 8.61 mt. During theyear 1999-2000(Apr-Dec.), 7.13 million tonnes (Prov.)of coal has been despatched to

cement plants from CIL and SCCL.

MODE OF TRANSPORT

7.18 Important modes of transport of coal are Railways, Road, Merry-go-RoundSystems, Conveyor Belts and the Rail-cum-Sea Route (Annexure-XIII). The sharesof these modes of transport in the total movement of coal is approximately as under:

(a) Railways 56.3%

( b) Road 16.5%

(c) MGR System 22.1%

(d) Other (Belt Conveyor

Ropeways, Rail-cum-Sea

Routes etc) 5.1%


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------------------

100%

------------------

(A) RAIL MOVEMENT

7.19 Railways constitute the major system of coal transportation in India as about

56.3% of the coal is the largest single commodity transported by the Railways. Thedespatch of coal by rail is governed by the Preferential Traffic Schedule of the IndianRailways, under which the programme of movement is to be sponsored by the varioussponsoring authorities and accepted by the coal companies . In case of deregulatedcoal, Railways have allowed coal companies to sponsor the movement of coal.

(B) RAIL-CUM-SEA-MOVEMENT

7.20 Coal requirement of some consumers in Southern India, which include powerstations and cement plants, are met by moving coal by Rail-cum-Sea Route. This isdone in view of the difficulties experienced in moving coal via all Rail Route fromBengal-Bihar and Main Line-Talcher Coalfields. The requirement of power stations ofTamil Nadu Electricity Board (TNEB) is met by Rail-cum-Sea Route. Haldia, Paradipand Vizag Ports handle the shipments.

EXPORT OF COAL


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7.21 Coal is under OGL list . India exports coal to the neighbouring countries to meettheir demand of coal. The traditional buyers of Indian coal are Nepal, Bangladesh andBhutan. Export to Nepal and Bhutan is done in rupee exchange as per the protocolbetween the two countries and with Bangladesh it is done in US Dollar. Export of coalto the neighbouring countries was earlier canalised through the Mineral and Metal

Trading Corporation, but for the last few years it has been decanalised. Export of coalby CIL is made through tender route. The quantum of coal exported during 1998-99 tothe neighbouring countries was 0.79 million tonnes. During 1999-2000(Upto Dec.99)the quantity of coal exported was 0.03 million tonnes (Provisional), by Coal IndiaLimited.

7.22 Bangladesh imports large quantity of coal from the private mines of Meghalaya.The Meghalaya coal exported to Bangladesh was also canalised through Minerals andMetals Trading Corporation (MMTC). But from 29.9.89, export of Meghalaya coal toBangladesh was exempted from canalisation through MMTC and was canalisedthrough Meghalaya Mineral Development Corporation(MMDC). Again from July1991, the export was fully decanalised as a result of which private exporters were

allowed to export coal. However, the export was subjected to a minimum export price(MEP) of US$ 56 per tonne with effect from 5/2/1992. This restriction of MEP wasfurther removed from 1.4.93 and all coal from Meghalaya is freely exportable.

IMPORT OF COAL

7.23 As per the present import policy, coal can be freely imported (under OGL) by theconsumers themselves considering their needs and exercising their own commercialjudgements. Coking coal is being imported by SAIL and other Steel Sectormanufacturers mainly for two reasons:


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1998-99 9.64 6.00 15.64

The current customs duty ( 1999-2000) on imported coal is as follows:-

i) a) Coking coal of ash content 5% ( Basic

less than 12 % custom duty)

b) Surcharge on Basic Custom duty NIL

c) Special Additional Duty 4%

ii) a) Non-coking coal, coke 15% (Basic

and coking coal of ash custom duty)

above 12%.

b) Surcharge on basic custom duty 10%

c) Special Additional Duty 4%

Note : Special Additional Duty of 4% is not chargeable if goods are imported by

traders.

7.26 There has been a rising trend of imports for the last few years in case of noncoking coal especially in coastal regions through which consumers are in a position todirectly import for further transhipment to the plant sites.


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HARD COKE

7.32 The distribution of hard coke was decontrolled in 1975. The consumers arerequired to approach the concerned sponsoring authorities to get their demandsponsored directly to the coal company which makes arrangements for supply of thiscommodity to the consumers. The production of hard coke by CIL in the year 1998-99was 0.14 million tonnes. The production (of hard coke by CIL) during the year 1999-2000(Apr.-Dec) was 0.08 m.t.(Provisional )

CIL STOCKYARDS

7.33 According to the current stockyard policy, the responsibility for setting up andmanaging new stockyards rests with the respective State Governments. Against

sponsorship provided by the State Government, Coal Companies offer coal fordespatch to these stockyards.

CONSUMER SATISFACTION STRESSED ON IMPROVING QUALITY OF

COAL

7.34 Quality complaints mainly relate to supply of lower calorific value, presence ofextraneous material, supply of oversized coal and of short receipts. To overcome thesecomplaints, following steps have been taken:


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COAL CONSUMERS COUNCILS

7.35 For redressal of consumers grievances and monitoring of complaints receivedfrom the consumers, one Regional Coal Consumers Council has been set up for eachcoal company. An Apex body viz. National Coal Consumers Council has also been setup at the Headquarters of Coal India Limited. In case the complainant does notreceive a reply within a month or the complainant is not satisfied with the reply ofCoal Company, he may prefer a complaint to the National Coal Consumers Council.

LIBERALISED SALE SCHEME

7.36 With a view to make coal freely available to small scheme industries and otherconsumers, various schemes such as Liberalised Sales Scheme, OSS(DC) and TatkalScheme have been introduced in Coal India Limited. Any body can draw coal suppliesfrom these schemes without valid sponsorship and/or linkages. All coals purchased

under these schemes can be re-sold at a price to be charged by the purchaser at hisown discretion.

7.37 The despatches under Liberalised Sale Scheme such LSS(M) , OSS(DC) etc. aregiven below:

(In Lakh tones)

97.25.09

98.29.36


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99.40.99

2000. 23.93

( April

Dec.,1999)

7.38 Department of Coal had earlier fixed State-wise and Coal Company-wise ceilinglimits for supply of coal to the Brick Kilns and Seasonal industries. However, with aview to improve despatches of coal, ceiling limits have been removed during the year

1998-99. This decision was appreciated by the BRK consumers located in the State ofUP etc.

PRICE OF COAL

7.39 Coal Prices were last revised by the Government w.e.f. 17.6.94 under the regimefor the administrative prices. As per that revision the pit-head prices of coal producedby Coal India Ltd. ranged from Rs. 183/- per tonne to Rs. 642/- per tonne in respect ofROM non-coking coal and from Rs. 450 per tonne to Rs. 1048/- per tonne in respectof ROM coking coal. The prices as revised in respect of coal produced by SCCL,ranged from Rs. 305 per tonne to Rs. 660/- per tonne.

7.40 However following a recommendation of BICP to deregulate the prices of cokingcoal and A & B grade of non-coking coal and with the recommendation of a coregroup of Secretaries in the Central Government to deregulate the prices of C grade ofnon-coking coal as well, the prices of coking coals and A, B and C grades of non-


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coking coals had been decontrolled. Following this the CIL enhanced the prices ofcoking coal and A, B and C grades of non-coking coal w.e.f 1.4.96, 20.10.96, 21.8.98,5.1.99 and 31.5.99. SCCL who produce only B & C grades of deregulated non-cokingcoal revised the prices of these grades of coal w.e.f. 19.4.96, 15.3.97, 29.8.98 and19.9.99.

7.41 The Government decided on 11.2.97 to deregulate the price and distribution of'D' grade of non-coking coal, hard coke and soft coke with immediate effect and toallow CIL and SCCL to fix the prices of E, F and G grades of non-coking coal once inevery six months by updating the cost indices as per the escalation formula containedin the 1987 report of the BICP, till 1.1.2000. It was further decided that after 1.1.2000the prices of E, F & G grades of non-coking coal may be fixed by CIL and SCCL inrelation with the market prices and the distribution of these coals deregulated w.e.f.

1.1.2000. Following this the deregulation of pricing of D grade of non-coking coaland hard coke and soft coke was notified on 12.2.97. Further vide instructions issuedto the CIL and SCCL on 13.12.97, they were authorised to fix the prices of E, F & Ggrades of non-coking coal as per the BICP escalation formula contained in the 1987BICP report, till 2000 AD, after which the companies may fix the prices of suchgrades of coal relation to the market prices.

7.42 The pricing of coal has been fully deregulated after the Colliery Control

Order,2000 was notified with effect from 1stJanuary 2000 in supersession of theColliery Control Order, 1945. Under the Colliery Control Order, 2000, the CentralGovernment has no power to fix the prices of coal.

7.43 The Average Pit-head prices of CIL and SCCL Coal as revised since 1991 areindicated below:-

Date of revisionAverage Pit-head (Rs. per tonne)


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of Coal Produced by

CIL SCCL

27.12.1991 322.00 388.00

17.02.1993 364.00 434.00

19.06.1993 381.00 452.00

01.04.1994 Do 482.00

17.06.1994 401.00 503.00

01.04.1996 469.02 -do-

19.04.1996 Do 530.00

20.10.1996 498.54 -do-

12.11.1996 Do 529.42

19.03.1997 Do 710.59

01.04.1997 553.37 -do-

01.10.1997 559.02 -do-

21.08.1998 586.19 -do-

29.08.1998 -do- 753.31

05.01.1999 590.05 -do-

31.05.1999 595.84 -do-

19.9.1999 -do- 775.62

7.44 COST OF PRODUCTION


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Major constituents of cost of production of coal produced in CIL and SCCL during1998-99 are given below:-

CIL SCCL

Salaries & Wages 40% Salaries & Wages 43.42%

Stpres 16% Stpres 9.92%

Depreciation 9% Depreciation 9.52%

Interest 5% Interest 10.11%

Power 10% Power 8.65%

Administrative Exp. 7% Administrative Exp. 18.31%

Others 13% Others

Total 100% Total 100%

The average cost of production of CIL coal and SCCL coal during last five years aregiven below:

(in Rs. per tonne)

Year CIL SCCL

1993-94 364.35 487.00

1994-95 380.45 543.00

1995-96 412.66 643.00

1996-97 442.06 731.56

1997-98 480.81 115.78


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1998-99 502.44 826.30

ROYALTY

7.45 In terms of Section 9 of the Mines and Minerals (Regulation and Development)Act, 1957 the holder of a mining lease shall pay royalty in respect of any mineralremoved/consumed. The Central Government can enhance or reduce the rate at whichthe royalty shall be payable provided the rates cannot be enhanced more than once in

a period of 3 years. Thus the royalty on coal is a tax which is imposed by the CentralGovernment but collected and appropriated by the State Government where coalproduction takes place. Prior to the latest revision of royalty rates in October, 1994,the rate was then revised in August, 1991. The average rate was then revised from Rs.5.30 to Rs. 70/per tonne which varied over a range from Rs. 25/per tonne for thelowest grades of coal to Rs. 150/per tonne for the highest grade. Since the nextincrease in royalty rates could be effected on or after 1.8.1994, the CentralGovernment took up the exercise of reviewing the royalty rates. A Study Group set upunder the Chairmanship of Additional Secretary, Ministry of Coal submitted its reportin May, 1994. The report was considered by the Government and the rates of royalty

of coal were revised w.e.f. 11.10.94. The enhancement of rates was made keeping inview the interests of both the consumers and the coal producing States and at the sametime ensuring the development of coal mining industry. The revised rate of royalty hasnot been extended to the State of West Bengal as that State is levying and collectingcess on coal under their Cess Acts. The revised rates can be extended to the StateGovernment after the Cesses levied by them withdrawn or their Cess Acts are struckdown by the Court of Law.

The revised rates are as under:-

(Rs. per tonne)

Coal Group Royalty w.e.f. Royalty w.e.f.


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1.8.91 11.10.94

Group-I(Coking Coal SG I, II. WG I) 150 195

Group-II(Coking Coal WG II, III SC I, II

Non-coking A, B)

120 135

Group-III

(Coking Coal WG IV, Non-coking C)

75 95

Group-IV

(Non-coking D, E)

45 70

Group-V

(Non-coking F, G)

25 50

Group-VI

(Coal produced in Andhra Pradesh)

70 75

7.46 Periodic revision of royalty on minerals including coal has not been laid down in

any law. Section 9 (3) of the MMRD Act empowers the Central Government toenhance or reduce the royalty rates in respect of any mineral by notification in theOfficial Gazette with effect from such date as may be specified in the notification.The proviso to section 9 (3) of the Act prevents the Central Government fromenhancing the rate of royalty in respect of any mineral more than once during anyperiod of three years. Thus, there is no compulsion to revise royalty rates every threeyears. The Central Government has the option to keep the royalty rates unchanged aswas done during 1981-91. A Study Group under the Chairmanship of the AdditionalSecretary of the Ministry of Coal was set up on 28.1.97 to consider all aspects relatingto revision of rates of royalty of coal and make recommendations to the Government.

The Study Group has since submitted their report to the Government in September1997.

The coal companies receive only about 40-45% of the landed price of coal on anaverage. The larger proportion of this price is on account of cost of railways freight


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and the various levies such as royalty, excise duty, cess and sales tax. As aconsequence Indian coal is getting priced out in several locations and consequentlythere is a sharp increase in the import of coal. Import of non-coking coal has increasedmore that 10 times from 1993-94. The State Electricity Boards (SEBs) and StatePower Corporations (SPCs) are also struggling hard to make both ends meet. As on

20.12.99, the SEBs and SPCs owe to the Coal India Limited a huge amount ofRs.3096 crores (Rs.2088.61 crores undisputed and Rs.1007.42 crores disputed) as coalsale dues. Non-receipt of the huge amount of coal sale dues from the SEBs/SPCs iscausing a very heavy financial burden on CIL. Apart from severely affecting the cashinflow to CIL, the non-recovery of coal sale dues from SEBs/SPCs has created anacute financial problem for CIL since the coal company is paying royalty to the StateGovernment on the coal despatches to SEBs/SPCs, the sale value of which is notbeing paid to CIL. In other words, even on sale of coal to SEBs/SPCs on credit, theroyalty payments to the State Government are being made by CIL since royaltypayments are a statutory requirement. The steel industry is also suffering and is yet toget out of the depression. Any increase in royalty on coal at this stage may welldeepen the crisis for the power sector, steel sector and most importantly for the coalsector. Therefore, a decision has been taken not to enhance the existing royalty oncoal at this stage.

The State-wise details of coal royalty payments made by CIL & SCCL during 1998-99 are given in Annexure XIV.

VENDIBLE STOCK

7.47 The position of the vendible stock in respect of CIL and SCCL is indicated at(Annexure XV)

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