Presentation on theme: "1 Cement Manufacturers’ Association New Delhi 16.12.2014 Suggestions of Cement Sector on Procedure & Methodology of auction/ allocation of coal blocks."— Presentation transcript:
1 Cement Manufacturers’ Association New Delhi 16.12.2014 Suggestions of Cement Sector on Procedure & Methodology of auction/ allocation of coal blocks : A Presentation before the Nominated Authority
2 Cement Manufacturers ’ Association Who We Are…….. Cement Manufacturers Association (CMA), the apex representative body of large cement manufacturers in India was established in 1961. It is a unique body in as much as it has both the private and public sector cement companies as its members. It is a registered body under the Societies Registration Act XXI of 1860. Its registered office is in New Delhi, while the Corporate Office in Noida with Branch offices in Mumbai and Hyderabad. It represents 75% Cement manufacturers in the country. Indian Cement industry is the 2 nd Largest cement producer in the world, next only to China. The installed capacity is more than 360 Million TPA and in the year 2013- 14 the production was limited only to about 255 Million TPA. Approx 100 Mn TPA of capacity lying idle, leaving an investment of Rs. 60,000 Crores stranded - mainly on account of non availability of assured fuel & infrastructure sectors growth of meager 3%. Vision to Achieve a Production of 550 – 600 MTPA by 2022.
3 Cement Manufacturers ’ Association Fuel Requirement for Cement Cement is manufactured by heating limestone with small quantities of other materials to 1450°C in a kiln, a process which requires large amounts of fuel. A cement plant consumes 170 to 250 kg of Coal G 10 to G 11 Grade of Coal fuel per tonne of clinker produced, depending on the raw materials and the process used. Projected Cement demand with 12% growth is 285 Mil Tonnes requiring 48 Mil. Tonnes Coal for the Kiln and 20 Mil. Tonnes for the CPP 3400 MW in 2014-15. With a projected growth of 15% the Coal requirement for production of 328 Mil. Tonnes of Cement would require 56 Mil Tonnes Coal and 24 Mil. Tonnes for CPP for 4000 MW in 2015-16. Fuel Requirement vis-à-vis Investment of Various Sectors. SectorFuel RequirementInvestment Power – 1000 MW5 Mn TPAApprox. Rs. 6000 Crores DRI/Sponge Iron – 1 Mn TPA 1.6 Mn TPAApprox. Rs. 500 Crores Cement – 10 Mn TPA1.7 Mn TPAApprox 6000 Crores
4 Cement Manufacturers ’ Association Fuel Procurement by CMA Members for Cement Plants and its Captive Power Plants % of Total Fuel 30.8% 30.3% 13.1% 19.9% 5.9% Cement Industry gets only 31% of Coal requirement through FSA. No Coal linkage granted after 2007 while new cement units and CPPs have come up and are in operation. Consequently, forcing cement industry to meet its fuel requirement from costlier Imported Coal, Pet coke, E-auction and other fuels..
5 Cement Manufacturers ’ Association About Cement Sector 100 Million TPA cement capacity stranded in the financial year 2013-14 worth Rs. 60,000 crores of investments. It is imperative that more and more coal blocks in surrounding area of the cement plants be allocated to the sector to meet the rising fuel requirement and for a sustainable growth of the sector. More coal blocks should be allocated to Cement Sector as Cement Sector is a fully grown sector producing finished goods and contributes to the socio economic development of the country.
6 Cement Manufacturers ’ Association Three Coal Blocks auctioned to the Steel, Sponge iron and Cement industry did not receive any bids due to very high valuation of coal blocks for upfront payment as well as floor price and other stringent terms & conditions, though over 40 firms purchased bid documents in March, 2014. Government had to cancel the Auction. Care needed to consider above facts to make this round of block auction successful. Valuation of coal blocks to be done in a fair manner to attract investors. Investors would look for long term supply from dedicated source and draw benefit for the risks undertaken in investing in coal blocks. Coal Block Auction in March 2014
7 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks Auction of coal blocks should be done as one auction event per day for specific end use sector like cement (including CPP) Auction should remain open for minimum one hour followed by unlimited auto extensions by another 15 minutes. if any bid is updated during the last lap of 15 minutes, bidding should be extended by another 15 minutes & so on. Bidder should be given visibility to see their ranking during the bidding time. Name of bidders & bid price should not be visible to other bidders as well as administrators during bidding time. Contd....
8 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks Tie of bids at the same price should not be permitted. In case of tie, system should flash message for the same enabling bidder to revise the bid. Advanced training followed by mock bidding should be provided to the eligible bidders prior to actual bidding event to familiarize with the situation of bidding process. Online help desk should be available to the bidders to deal with any technical difficulties faced by bidders. Logs of such issues should be captured by the system to review post-bidding by the nominated authority System/IT requirement at bidder side should be well communicated in advance to all bidders Contd....
9 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks Bidding should be fully automated & system driven without any human intervention. Draft auction process & methodology should be released in public domain for comments by all the stakeholders including prospective bidders, well in time. Cement Industry being the 3 rd largest coal consumer in the country, equitable and fair distribution of coal blocks to the Cement Sector as per the future projection based on the Report of the Working Group of Cement Industry for XII Five Year Plan and beyond needs to be considered. Contd....
10 Cement Manufacturers ’ Association Intrinsic value of the coal block be calculated by computing its Net Present Value (NPV), based on Discounted Cash Flow Approach (DCF). Linkage coal prices as applicable to the Power Sector needs to be taken into account to derive the intrinsic value of coal block for upfront payment and not the imported coal prices or multiple of linkage coal prices Floor price should be kept nominal say at Rs 100 per ton. Competitive bidding through e-auction will ultimately help discovery of prices. Fixing very high floor price linked to international prices or multiple of domestic prices will defeat the very purpose of auction which itself is a price discovery mechanism. Floor price should be common for PSUs / IPPs / Cement / others as dynamic auction is a price discovery mechanism Suggestions for Procedure and Methodology of auction of Coal Blocks Contd....
11 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks Most of the cement plants are located away from coalfield areas and would on an average need transportation of coal beyond 400 kms up to 1500 kms. Hence, for determining intrinsic value of coal block, such factors should be considered realistically Only 10% of the bid price should be payable upfront and the balance should be annuitized equivalent to the Mining lease period. Flexibility should be provided for use of coal in any of the end use plant to minimize distance for transportation of coal & also for optimum utilization of coal linkages of existing end use plants of the successful bidder under the same registered Company (both present and proposed end use plant). Contd....
12 Cement Manufacturers ’ Association Infrastructures facilities, Coal Handling Plant, Washery, Coal Crusher, Railway sidings, etc. developed at the coal mines by the prior allocattee should be made available to the successful bidders to ensure commercial viability of the Coal Blocks. Information related to the Coal Blocks to be auctioned should be made available in public domain by uploading the same on the Government website to enable bidders to evaluate the Coal Blocks before participation in auction. Policy for allocation of Coal Blocks should streamline and expedite the procedure for land acquisition and grant of various clearances required for development and operation of coal mines, maintaining parity whether in public or private sector. The FC & EC clearances should be obtained by the Government prior to the Coal Blocks E-auction. Suggestions for Procedure and Methodology of auction of Coal Blocks Contd....
13 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks In the previous auction of March 2014 coal requirement of 0.114 kg coal/ kg of clinker produced was considered as the norm for assessing requirement. This norm is at variance with the norm fixed by MOC in its minutes of the SLC(LT) for Power/Sponge/Cement sector held on 27 th June 2014, which decided the following. “As coal is used for manufacture of clinker, therefore entitled coal quantities under various LOAs will be worked out considering total clinkerisation capacity of the plant (including pre-existing + enhanced capacities). Based on this capacity, the total eligible quantity will be at the rate of 17% of the clinker capacity as normative quantity”. MOC to kindly consider the norm of 0.17 kg. coal /kg of clinker capacity as coal requirement for assessing of coal requirement for auction of coal blocks for the cement sector, in line with present actual coal consumption. Contd....
14 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks Requirement of coal for CPP should be combined with the Cement plant for assessing the total requirement of the Coal for cement sector. High Gross Calorific value in the range of G7 – G8 GCV Grades of coal is suitable for clinkerisation and Low Gross Calorific Value/rejects/ middlings is suitable for Captive Power Generation. Quality of coal available in the coal blocks has extensive variations. So poorer quality coal can be utilised for power generation. Allowing coal use in both cement and Captive Power Plant will help Government optimise coal usage & conserve mineral resources. Contd....
15 Cement Manufacturers ’ Association Bid documents must clearly provide for beneficiation and utilisation of washery by products in Captive Power Generation in the same or other end use plants. To ensure optimum utilisation of coal blocks and also conservation of minerals. Incentive should be given for Higher production. Excess production over requirement of particular end use plant should be permitted to be diverted to other similar end- use-plant of the same company This would infuse investment in coal mining to achieve higher economies of scale, reducing the mining cost. Coal bearing areas (Acquisition & Development) Act, 1957 for land acquisition for mining coal applies only to the Central Public Sector Undertakings. To provide a level playing ground in coal mining across the country, the Act needs to be made applicable also to the private companies engaged in Coal Mining also to enable them to acquire land through this Act. Suggestions for Procedure and Methodology of auction of Coal Blocks Contd....
16 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks Maximum number of mines/reserves: As per section 10 (5) of the draft Rules, the Nominated Authority may specify the maximum number of mines and/or coal reserves that may be allocated to one or more persons. In case of captive consumption of coal for a specified end-use, cap on maximum capacity or reserves should be linked to coal requirement of bidder and investment capabilities as some bidders may have significantly higher installed capacities compared to others resulting in higher coal requirements. Limiting the maximum capacity/reserves based on requirement will ensure uniformity of mechanism for all bidders. Otherwise this may prove to be hindrance to growth of industry.. Contd....
17 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks In order to satisfy the needs of the Cement Sector for an equitable and fair distribution of Coal, blocks in the surrounding areas of cement plant clusters should be reserved for auction to cement sector end use as per the entitlement and coal requirement. Coal blocks situated in surrounding areas of cement clusters in different parts of the country to be made available to cement sector so that all cement manufacturers located in different part of the country are able to source their coal requirement from coal block in a fair & equitable manner. Contd....
18 Cement Manufacturers ’ Association Suggestions for Procedure and Methodology of auction of Coal Blocks On the last occasion bid documents lacked clarity on following points with regard to the payment of per tonne levy which should be clarified in the bid documents: - Base coal production to be considered for payment of per tonne levy, i.e. actual coal produced and not on rated capacity. - Point of time such amount would be payable i.e. upon mining of coal or at the time of transportation out of mining lease area. - Frequency of payment of amount etc. - Such amount would be paid to whom - Tax treatment of such amount. Contd....
19 Cement Manufacturers ’ Association In Sum Request consideration of our suggestions and providing appropriate clarifications in the proposed procedure and methodology of auction of coal blocks and Bid Documents.
20 Cement Manufacturers’ Association. Thank You Email: firstname.lastname@example.org