India Addresses Increasing Demand for Coal by Developing 26 Mines

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Researched by Industrial Info Resources (Sugar Land, Texas)--Coal India Limited (CIL) (Calcutta, India) plans to seek expressions of interest (EOI) from domestic and international players to develop an identified set of 26 abandoned underground assets, which contain huge quantities of coking as well as non-coking coal reserves. The identified sites include 10 mines with 10 million tons of coking coal reserves. CIL will float a global tender seeking EOI in June and will forge joint ventures with interested players. It will subsequently chalk out the broader guidelines of the joint venture equity structure and other details based on the EOI received. The EOI process is open to both coal-producing and user enterprises. However, it will be mandatory for the user enterprises to team up with a technology partner for participation in the EOI process.

CIL had floated a global tender seeking EOI from players interested in the development, operation and maintenance of seven underground coal blocks in technologically challenging conditions. These mines are located in the states of Chhattisgarh, Jharkhand, Orissa, Maharashtra and West Bengal, which all have reserves in excess of 400 million tons. CIL will award long-term contracts for annual extraction of 2 million to 5 million tons of coal from each of these mines. Selected players will have to invest in the installation of machinery and equipment in these mines.

This initiative has reportedly evoked a large response from global mining majors such as Anglo Coal (Brisbane, Australia), XIndia Limited (Manchester, England), White Mining Limited (North Sydney, Australia), and Bucyrus International Incorporated (South Milwaukee, Wisconsin). In response to requests from several companies asking for more time to participate in the EOI process, the tender, which was to be closed in May, has been extended to June 27.

CIL will also roll out a forward e-auction platform, through which it expects to sell 15 million tons of coal annually, including 10 million tons of high-quality coal from underground mines. The bidding process is open only to consumers of coal. CIL recently forged a contract with MSTC Limited (Calcutta), which will function as service provider for CIL's e-tendering and reverse auction services against tenders floated by CIL and its subsidiaries. CIL plans to sell nearly 40 million tons of coal through spot and forward e-auction during 2008-09. The value of purchases handled through the e-procurement process in its first year is estimated to be $850 million.

Providing relief to players in the steel and power industries, which are reeling under high input costs, India's government recently declared that it will not increase the notified prices of coal this year. The notified prices of coal sold to various sectors, such as power and steel, vary between $15 and $40 per ton as a function of the grade of coal. Currently, open-cast mining is undertaken predominantly to extract coal from 64 billion tons of proven resources located within a depth of 300 meters. The presence of extractable reserves up to a depth of 600 meters presents a huge untapped potential for underground mining. The government is likely to permit open-cast mining below a depth of 300 meters to enable more coal extraction. Steps will be taken to ensure that all of the coal that is transported beyond a stretch of 1,000 kilometers is washed. The government will focus on the augmentation of coal production and utilization of deposits that cannot be mined but are available in hundreds of tons. It will float a global tender to invite interested players to take up gas beneficiation of such deposits.

Globally, India is the third largest producer of coal. It has nearly 197 billion tons of coal reserves. Of these, 90 billion tons are proven reserves. Coal extraction in the country occurs at an average daily rate of 800,000 tons. Of the total energy consumed in India, 67% is obtained from coal. Though most of the demand is satisfied by domestic production, coking coal, which is used by the steel industry, is imported from Australia and New Zealand to meet nearly 25% of the annual needs of the industry. India expects to import 33 million to 34 million tons of coal in 2008. This number is likely to go up to 60 million tons per year by 2012. Indian companies are scouting for suppliers in Africa and Indonesia for long-term supply contracts. Demand for coal is expected to be about 690 million tons by 2009-10, and an estimated $18 billion of investment is required to bridge the gap between supply and demand. Although the coal production target for the current year had initially been set at 732 million tons, efforts are being made to achieve at least 600 million tons of coal production.

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