COAL MARKET IN INDIA 2012 “ Demand - Supply Gap & Technical Challenges in Augmenting Coal Production ” 10 th July, 2012 T K Mukherjee General Manager (Corporate Planning) Coal India Limited

STRATEGIC IMPORTANCE OF COAL IN INDIA Around 85 % of coal consumed is met through indigenous source CIL produces 81 % of India’s current coal production and meets 70 % of coal demand equivalent to 37 % of India’s commercial energy needs * Others - 9 % SCCL - 10 % CIL - 81 % Steel - 2 % ** Others - 26 % Power (U)-72% Coal Production : Company -wise Share Sector-wise Supply Share from CIL Sources 2 * Others include captive producer,TATA STEEL, Meghalaya & Other PSUs ** Others include cement, sponge iron, fertilizer. Bricks etc

INVENTORY OF INDIAN COAL RESOURCES (in Bt) TOTAL RESOURCES – Bt. As on

INDIAN COAL RESOURCES (Bt) - As on Type -wiseProvedIndicatedInferredTotal% Coking Non-Coking Tertiary Total Depth -wise – 600 (Jharia coalfield only) –

ALL INDIA DEMAND / SUPPLY SCENARIO- Past Trend Figs in Mt TY IX Plan TY X Plan XI Plan (Act) Demand CAGR % Demand Materialization Through Ind. Supply CAGR % Through Import Coking Non-coking

ALL INDIA DEMAND / SUPPLY SCENARIO – Future Projection Figs in Mt TY XI Plan XII PlanXIII Plan BE/AP BAUOPTBAUOPT Demand * CAGR % Through Ind Supply #795 # CAGR % Gap Coking30.00 Non-coking * Assessed by Planning Commission # Considering CIL’s supply of Mt & 615 Mt as mentioned in Working Group Report XII Plan in ‘BAU’ & OPT Scenarios respectively

Year-wise/Sector-wise Coal Consumption/Demand - Mt SectorTY X Plan XI PlanXII Plan (Prov) (Actual)TGT/AP PROJ Steel Power (U) CAGR % Others Total CAGR %

Drivers of future coal demand Sufficient upside in demand available, Per capita annual electricity consumption in FY08 was approx 704 kwh compared to USA (13066 kWh), UK (6231 kWh), China (1379 kWh), Brazil (1934 kWh) High Unmet Demand During summer, the power supply deficit is about % Electricity for All - As per the National Minimum Common Program, the government intends to provide access to electricity to all households. Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), is designed to provide access to all households and actually electrify only BPL households Coal being the most abundant fuel source in India, the coal based power generation will remain strong in India ~ Coal based capacity addition is growing at a faster pace than the general power industry and as such the demand for coal is expected to remain strong Coal based Generation Capacity Addition Scenario IX Plan ( ) ~ 8000 MW X Plan ( ) ~ 8500 MW XI Plan ( ) ~ MW XII Plan ( ) Projection: Proposed Capacity Addition Programme around 70, 000 MW

Based on LOA’s granted by SLC(LT) & other commitments, the future coal balance for CIL is to a large extent (-) ve The envisaged production of CIL is less than the commitments already made The peak deficit of (447 Mt) 96 % is in FY 2013 This necessitates to augment the domestic coal production. Increase in domestic production is very much uncertain and as such requires enhance import facilities The responsibility of CIL will be huge given the New Coal Distribution Policy which envisage total demand of the country to be met by CIL including coal imports, if required.

Source-wise Production (Mt) – Past Trend & Programme for & XII Plan (Mt) TY of VIII Plan (96-97 TY of IX Plan (01-02) TY of X Plan (06-07) TY XI Plan (11-12) XII Plan (12-13) XII Plan (16-17) (BAU) XII Plan (16-17) (OPT) ProductionActualTGTPROJ CIL # CAGR % ( 6.48)* Non-CIL All India CAGR % (6.42)* * Growth% over previous year # The production in Optimistic Scenario is available only if the requisite clearances are processed in fast- tracked route and delivered within the specified time schedule. The issues affecting land acquisition, R & R, law & order and evacuation infrastructure in particular will also have to be addressed in a time bound manner

Production vs Off-take vs Stock Scenario in CIL FY03FY04FY05FY06FY07FY08FY09FY 10FY11 Production Off-take Stock position Coal inventory levels have grown as coal production has increased. It has not been possible to push coal to customers & off take has lagged behind coal production due to non- availability of scheduled no of rakes. Evacuation not kept pace with production leading to build- up of abnormal coal stock(74 Mt) (About 53 Mt increase in 8 years Mt ** As on 31 st May 2012, Coal stock position is Mt

MAJOR REASONS FOR SLIPPAGE IN PRODUCTION DURING XI PLAN Delay in Land Acquisition Embargo imposed in view of CEPI Delay in Forestry & Environmental Clearances Mismatch between Production & Transport Capacities -Non-availability of adequate railway wagons mainly in IB, Talcher, Korba, North Karanpura & Jharia Coalfields (CIL’s growth in coal production in XI Plan over X Plan is 75 Mt but coal stock has increased by about 30 Mt during the same period. So, actual coal available to consumers was only 45 Mt Delay in construction of New Railway lines in expanding coalfields Delay in implementation of projects Law & Order problems in Jharkhand & Orissa

Challenges for Enhancing Domestic Coal Production Performance IndicatorReason for Delay Under the XI Plan, the envisaged land acquisition was > 62 Thousands Ha Against it, during XI Plan, CIL was able to acquire only approx 25,000 Ha, i.e. ~ 40 % of the target Under the XII Plan, envisaged land acquisition is approx 65 Thousands Ha Bulk of land envisaged for acquisition in XI plan was tenancy land However, going ahead the proportion of forest land will increase It is understood that from the present proportion of 30 %, the forest land will increase to 50 % in the future years Forest Land Involvement of multiple state and central government agencies in forest land acquisition leading to inordinate procedural delay Tenancy Land Proper Rights Of Records not being available with State Governments for identification of ownership of land Lack of support from the local administration and local governments Non-uniformity in R&R process for tenancy land acquisition put CIL at disadvantage compared to Private entities In some instances, private parties have offered higher rates without provision for employment Land Acquisition is the biggest bottleneck in coal mining operations –CIL has faced prolonged delays in multiple of its projects leading to loss of production –Even after acquisition, possession of land presents another problem to the company

Evacuation Infrastructure Performance IndicatorReason for Delay Average time for Stage I Forestry clearance is about 4 years Average time for Stage II clearance is about 3 years Thus the total time for Forestry Clearance is 7 years against the normative time of 2-3 years. SPCB takes considerable time to issue Consent to Establish and Consent to Operate Environment Clearance is only given up to a certain capacity (projected peak production) for specific project. Further capacity expansion requires new clearance which again is a prolonged process In last 8 years coal stock has been increased by approx 53 Mt due to non-availability of, Sufficient railway rakes Matching feeder lines as well as loading facilities in IB Valley, Korba & N.Karanpura fields Bulk of future production will come from 5 coal fields of CIL and it is imperative that continuous investment is made in logistics infrastructure The progress of new railway line projects related to coal evacuation have not achieved the desired progress in the last few years (Tori-Shivpur-Hazaribagh, Angul-Kalinga, Gopalpur-Manoharpur, Non-availability of sufficient number of railway rakes CCL, MCL & BCCL are particularly facing the problems in dispatch of coal and increasing coal inventory levels Forestry/ Environment Clearance

Identification of Projects 57 coal projects of XI Plan spilled over to XII Plan and about 70 new projects tentatively identified for XII Plan period. CIL Vision 2020 ~ CIL, in association with KPMG has formulated Vision 2020 document in view of the increasing requirements on the organization. ~ Based on the aspirations of the organization, Six Strategic Themes has been identified, namely, Scalability of Production, Operational Excellence, Employer of Choice, Sustainability, Customer Orientation and Diversification. ~ Multiple initiatives have been discussed under each strategic theme to bring about the transformational change in the organization. Exploration Activities CIL is taking initiatives to enhance annual drilling capacity to mn meters by FY2013 from mn meters achieved in FY2012 The company has intends to achieve conversion of inferred and indicated to proved reserves 3 times the historical performance. CIL is also undertaking systematic exploration to arrive at reliable estimate of coal reserves and application of information technology to create geo database. INITIATIVES FROM CIL TO MEET GROWING DEMAND

Initiatives continued… Implementation of Master Plans CIL is actively working various control measures currently available for controlling underground mine fire (in Jharia and Raniganj) delineated in Master Plans. Implementation of Master Plan towards fire control, surface stabilization, rehabilitation with an estimated capital out lay to the tune of Rs crores, in turn CIL may able to recover locked coal to the tune of 1453 Mt to the possible extent. At the time of Nationalisation, no of fires were 70. Affected surface area was Km². After taking proper mitigation measures, the affected area reduced to 8.90 Km² Coal Beneficiation As on date, CIL is operating 17 washeries with cumulative throughput capacity of Mty. CIL is going to set up another 20 integrated coal washaries with total capacity of Mty to supply washed metallurgical as well as thermal coal to consumers. This will not only save transportation cost of high amount of ash contained in Indian coal but also able to supply coal with much higher calorific value vis-a-vis higher fixed carbon contained in steel and power sectors.

TECHNICAL CHALLENGES Current coal production of CIL ~ About 397 Mt i.e. 91 % comes from opencast mines ~ About 38 Mt i.e. 9 % from underground mines. CIL operates 467 mines – 164 OC, 273 UG mines, and mixed 30. Since inception focus was on large OC projects, for quick addition of substantial production capacity in view of abundant coal reserves in thick seams at shallow cover Cost of production: UG: Rs /te compared to Rs /te of OC and overall Rs /te Reduction in cost of production in UG mines & enhancement of UG production is a challenge for CIL

TECHNICAL CHALLENGES – OC MINES Area of up gradation EquipmentCurrentUp gradation under Implementation Future Size / Capacity Dumper35 / 50 T, 85 T, 120 T, 170 T / 240 T Being Upgraded to corresponding higher capacity machines – 60 T/ 100 T /150 T / 190 T / 240 T. Even 240 T dumpers will be upgraded to still higher capacity dumpers like 400 T. Shovel5 / 10 / 20 / 42 m 3 Induction of larger size of shovel in progress matching with upgraded size of dumpers. Dozer HP HP 850 HP Drills160 / 250 / 311 mm Up gradation to 382 mm or other size to match with equipment configuration As matching with equipment configuration Cabin DesignDumper / Shovel Higher capacity machines/ equipment are fitted with AC & ergonomic seats. Introduction of ergonomically designed AC cabins with on screen gadget monitoring systems

Area of up gradation EquipmentCurrentUp gradation under Implementation Future Monitoring Vehicle Movement / Production Operator Independent Truck Despatch System (OITDS) Under implementation In 11 projects. Already operating in some major OCMs. · More OITDS in larger OCMs. GPS based monitoring of movement of other vehicles. SurveyingBeing done smaller OCMs by conventional surveying systems More Total Stations, etc. AutoCAD for generating plans are under implementation Up gradation of Survey equipment by Laser Scanners for monitoring movement of faces. ReclamationFor OCMs of size > 5 Mtpa - Monitoring already being done by Satellite Systems Coal Winning Surface Miners Coal winning is already being done by SMs in a no. of mines More Surface Miners will be introduced for obtaining sized coal from the mine itself. Cutting depth to increase from 22 mm to 38 mm TECHNICAL CHALLENGES – OC MINES

Area of up gradation EquipmentCurrentUp gradation under Implementation Future Coal Winning Mobile crushers at coal face to replace Existing in a few mines Programmed in more minesTo be introduced in for OB for improvement in OB dispoal Replacing Shovel/Dump er with Mobile In-Pit Crusher Conveyor System Existing in one Mine This is Environment friendly & sized coal obtained directly from mine. To be introduced in more no of mines in future. Despatch System Mostly by pay loader from Siding Rapid Loading Systems from Silos Transportati on Mine to End User Rail/Truck/Belt /Conveyors Future- Tube Conveyors/ Slurry/Pipe Line Transportation TECHNICAL CHALLENGES – OC MINES

Area of up gradation Equipment /Item CurrentUp gradation under Implementation Future SafetyDump Monitoring Visual Inspections Possible Induction of Slope Stability Radar. Collision avoidance Anti-collision & Proximity Warning Devices being considered. Training Simulator Under procurement WCL, MCL, NCL Will be considered on successful implementation of current efforts. TECHNICAL CHALLENGES – OC MINES

Area of up gradation Equipment /Item CurrentUp gradation under Implementation Future Mechanised Mining Powered Support Long wall systems In a few minesBeing planned in more mines on turn-key on basis with OEMs Shall be introduced in more mines wherever geo-mining conditions permit Short wall systems for extraction of developed pillars Introduced in one mine To be introduced in more mines if found techno- economically viable Continuous Miners (CM) Existing in a number of mines To be introduced in more no. of mines where geo- mining conditions permit Shuttle cars to be replaced with flexible conveyors. Small size cutting /bolting equipment for thin seams TECHNICAL CHALLENGES – UG MINES

Area of up gradation Equipment /Item CurrentUp gradation under Implementation Future Mechanised Mining Shaft Sinking / Drift Drivage Conventional· Rapid Shaft Sinking Systems. Tunnel Borers for faster drift drivage Man-Riding Systems In operation in a number of mines Under implementation in more mines To be introduced in more extensive UG mines. Man & Material Transportation Multi-Utility Vehicles & Diesel Carts – Will be considered after DGMS approval. Safety Strata Monitoring Manually by experience. Load Cells, Extensometers, etc. On line Roof Behavior Monitoring Systems Environmental Systems Installed in a no. of highly gassy fiery mines Gas chromatography for enhanced accuracy. Tube Bundle technology TECHNICAL CHALLENGES – UG MINES

Area of up gradation Equipment /Item CurrentUp gradation under Implementation Future Coal Stock Management Sizing & Blending ManualStacker-Re-claimer WeighmentInduction of more nos. of automatic electronic weighbridges SamplingManualAuto-Samplers on Belts BeneficiationOur washeries are generally old using Heavy media bath, jigs, cyclone, flotation Adoption of current levels of these technologies · Dry Coal Beneficiation · Deshaling Plants Fine Coal Recovery Plants TECHNICAL CHALLENGES – UG MINES

BUSINESS MODEL: Equity Model – Stake with off take contract in brown field assets – 100% or majority stake in green field assets Off-take Model : – Long term contract essentially with coal miners – Short term contract TARGET PRODUCTS & DESTINATIONS: Mozambique – Coking & thermal from own assets Indonesia - Thermal coal [ > 4000 kcal/kg (ARB )] South Africa- Thermal Coal [ > 5500 kcal/kg(ARB)] USA- Thermal Coal [ > 6000 kcal/kg(ARB)] Australia - Thermal Coal [ > 5500 kcal/kg(ARB)] 25 Foreign Acquisitions - Strategy Framework

Mozambique:  2 coal blocks acquired in Mozambique  Area sq km  Location – Moatize district, Tete Province  Wholly owned subsidiary Coal India Africana Limitada registered in Mozambique  Office opened in Tete in March 2012  Team of senior officers posted  Parties short-listed for drilling through global EOI  Drilling likely to commence in 2 months time 26 Initiatives taken so far – Equity Model

South Africa:  MoU signed with Provincial Govt. of Limpopo in 2011  Strategic alliance for exploration and development of coal assets in Limpopo Province  Exploratory visit by CIL  Potential zones for coal resources identified 27 Initiatives taken so far – Equity Model

Other countries :  Govt. of India has issues guidelines for PSUs in Jan 2011 for acquisition of raw material assets abroad  Policy adopted by CIL Board  Investment Bankers sensitized to assist CIL in M&A  Opportunities are being explored through bi-lateral platforms particularly in African continent 28 Initiatives taken so far – Equity Model

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