Commercial Mining Prospects and Challenges R.P.Ritolia Former CMD, Central Coalfields Ltd Former Advisor to Managing Director, TATA Steel September 2017

Commercial mining for Private Sector Commercial mining by private sector has been successfully operating in other mineral sector like Iron-Ore, Bauxite, Manganese and Chromite. For Coal: Amendment in Nationalization act, for commercial mining, is a thing in awaiting since 1991 resulting into monopolistic situation & hence compromise on productivity and key performance areas Commercial Mining in Coal can be a Panacea for the Coal sector

Coal Sector has inefficiencies Background Indian coal sector is dominated by Government companies; Out of 654 Mill. Tonnes production 90% of total production comes from CIL & SCCL Coal Sector has inefficiencies Coal processing cost in CIL are of order $16/MT while best-in-class mines incur processing cost of order of $10/MT Source: BCG-CII report on Future of Coal Coal India’s average OMS was 6.2 tonnes for FY 15 vs. global average of >15 tonnes Source: World Coal Association Improving processing cost can translate into saving of INR ~300/Mt for end users Source: BCG-CII report http://pecconsultinggroup.com/newsflash/comparative-properties-of-coal-and-petcoke http://economictimes.indiatimes.com/news/politics-and-nation/india-committed-to-reducing-carbon-emission-by-30-35-piyush-goyal/articleshow/51999433.cms http://ibm.nic.in/writereaddata/files/02282017165024IMYB2015_Coal_28022017_Adv.pdf http://www.livemint.com/Industry/BLPFIml5mdzF9rgJyxIQzK/Coal-India-to-auction-linkages-for-cement-steel-sectors.html Coal mining is suffering with issues of cost & process optimization; lack of competition is one of the major reasons of sectoral inefficiencies Production inefficiencies, absence of quality control and beneficiation has forced end-users to import huge amount of coal India imported around 193 million tonnes of coal in FY 2016 Source: ministry of coal

Coal blocks auction 9 ~12 MTPA So far 74 coal blocks have been allocated/auctioned; however production hasn’t taken off as expected Coal Blocks auctioned/alloted So far 74 coal blocks have been allocated/auctioned; only 9 captive coal blocks are producing coal. Land acquisition and regulatory clearances are key reasons of delays Coal Miners have been struggling to arrange project funds Schedule II Schedule III Auction 17 Auction 14 Allotment 18 Allotment 25 9 out of 72* auctioned/allocated blocks operating ~12 MTPA Production from these 9 blocks Captive coal blocks’ production & performance are contingent to status of end-use plants. Key end-user i.e. Thermal coal based power projects are facing multiple project issues which is impacting the success of linked coal mining projects Note: Block Allocated to SECL (being CIL subsidiary) excluded; Moher & Moher-Amlori production not considered here as it is an UMPP block allocated before 2015 Source: Coal Directory 2016

Industry Competitiveness Key issues 1 Captive Mining Coal mining requires different skill sets to develop and operate than end-use power plants. Hence a power company may not have mining related competencies 2 Industry Competitiveness Due to monopolistic situation of PSUs/Govt entities, industry performance has been sub-optimal and scope of technological & operational improvement is high 3 High ash coal Due to high ash ROM coal, significant amount of coal is unusable because of insufficient beneficiation capacity 4 Delay in clearances Auctioned/allocated blocks are suffering from the issue of delayed clearances 5 Scale of operation Captive mines have limitations on production limit which is determined by the capacity of linked end-use plant thus may lead to sub-optimal mine capacity

Commercial mining may lead to debottlenecking of some of the critical issues in the sector Commercial mining may be a big boost in achieving the dream of 1.5 MTPA coal production by 2020 CIL 1 Billion Tonnes 2020 1.5 Billion Tonnes Coal SCCL 0.1 Billion Tonnes Others 0.4 Billion Tonnes

Electricity Supply- Installed Capacity Year 2047: Coal is expected to continue playing a strong role in Indian power sector As per the recent joint report (Energizing India) of NITI Aayog and IEEJ, Japan - Coal will contribute 42% of total energy supply in 2047 (ambitious scenario). Coal based power stations will increase from 125 GW to 459 GW (ambitious scenario). Competition from Renewable Energy sector calls for efficiency improvement & cost optimization in coal sector. Electricity Demand Electricity Supply- Installed Capacity Sector 2012 2047 TWh BAU Ambitious Buildings 240 3016 2472 Industry 336 1692 1891 Transport 79 296 275 Pumps & Tractors 136 501 353 Others 14 145 153 Total 805 5651 5144 Sector 2012 2047 GW BAU Ambitious Gas Power Stns 24 50 83 Coal Power Stns 125 333 459 Carbon Capture (CCS) 35 80 Nuclear 5 26 45 Hydro 41 75 105 Solar PV+CSP 1 396 477 Wind 17 233 292 Small Hydro 3 20 30 Distributed solar PV 191 216 Biomass 11 23 Waste to Electricity 6 Total 221 1375 1816 Investment in power generation capacity by 2040 ( $ trillion) Source: Bloomberg India has more than 310 Billion tonnes of coal reserves; still we are importing around 190 MTPA of coal which is impacting our current account deficit Additionally, 33 Billion tonnes of coking coal reserves is present in our country excavation of which will substantially reduce our import bills.

How commercial mining may help the industry & suggested recommendations 1 Improvement in Efficiency Unlike captive mining, where performance of a mine is linked to project status & performance of end-use plant, the mine owner can sell coal to open market. Hence a miner can achieve optimized performance Recommendations Auctioned Captive coal blocks may be allowed to sell coal in the market; will reduce dependence on linked end-use plant for its performance 2 Optimized Pricing Due to competition miners will focus on modern cost optimization, project management and technological practices, thus achieving a healthy KPI levels Beneficiation may be considered as end-use and blocks may be allocated to beneficiation plants 3 Coal Quality Improvement Market competition will force players to supply desired quality coal pushing the industry towards cleaner practises Blanket in-principle approval with requisite conditions shall be given along with the LOA; the miner shall get into project execution from day- I with parallel regulatory clearance processes. 4 Reduction in coal import Commercial mining, specially for coking coal, may help reduce dependence on imported coal

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