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● The Ministry of Coal now believes that there is a need to review
the New Coal Distribution Policy (NCDP) introduced in Oct 2007
and thus convened a meeting with various stakeholders on 6-Jun-
11 to seek their inputs on the existing policy.
● Most stakeholders believe that Coal India should consider coal eauctions
only after meeting the FSA commitments. Stakeholders
also believed that Coal India is resorting to profiteering via
inequitable price hikes and e-auctions.
● Other critical issues raised relate to: (1) declining quality of coal
supplies from Coal India, (2) captive power producers being at a
disadvantage to independent power producers, (3) list of
milestones under LoA being unduly long and (4) inequitable
distribution of coal among sectors.
● We believe that revision of NCDP (if any) could have a material
impact on the utilities sector. The Ministry of Coal has indicated
that it shall take appropriate actions based on the inputs received
and revise the NCDP, if needed, at which point we shall review
the revised policy and its implications for the utilities sector.
● For the full report, please click here.
New Coal Distribution Policy under review
The risk of domestic fuel deficits, as highlighted in our detailed reports
Quantifying fuel security (August 2010) and Domestic fuel deficit a
structural risk (March 2011), has started to play out, visible from the
rationing of coal supplies and Coal India negotiating for only 50%
domestic coal supply guarantee under the new Fuel Supply
Agreement (FSA). As a result, the Ministry of Coal now believes that
there is a need to review the New Coal Distribution Policy (NCDP)
introduced in Oct 2007 and convened a meeting with various
stakeholders on 6 June 2011 to seek their inputs on the policy.
Stakeholders voicing diverse opinions
Analysis of different arguments put forth during the meeting convened
indicates that most stakeholders believe that Coal India should
consider coal e-auctions only after meeting the FSA commitments.
Further, stakeholders believe that Coal India is resorting to
profiteering via inequitable price hikes and e-auctions. The critical
issues raised relate to: (1) declining quality of coal supplies from Coal
India, (2) captive power producers being at a disadvantage to
independent power producers, (3) list of milestones under LoA being
unduly long and (4) inequitable distribution of coal among sectors.
Figure 1: Key issues raised by stakeholders during NCDP discussion
Entity/Association Key recommendations/issues raised
Ministry of Power Only 50% coal supply guarantee could lead to loan defaults
Ministry of Steel CIL should e-auction coal only after meeting FSA commitments
FICCI Milestones to be achieved under LoA too many, requires review
CII Pooling price mechanism should be adopted
Planning Comm. Coal India should import coal without any reservations
Captive Power Coal India resorting to profiteering via inequitable price hikes
Sponge Iron Power sector should not be overly prioritised for coal supply
Fertilizers Advance payment should be based on actual grade of supplies
Captive Coal Blocks Interchange of end use plant for allocated coal block be allowed
Cement (CMA) List of milestones under LoA should be reduced
Coal India Coal imports suffering due to lack of back-to-back commitments
Source: Ministry of Coal.
Coal India: Shortfall to reach 157-254 mn t by 2020-21
Coal India expects that against the estimated coal production of 452
mn t in FY12, after accounting for existing commitments and quantity
to be offered under e-auction (about 10% or 45 mn t), net coal
available to meet coal requirements of new consumers will be at
negative 11 mn t. Further, if all the existing LoAs that have been
issued culminate successfully, Coal India is expected to witness a
supply shortfall of 157–254 mn t by 2020-21. Hence, Coal India
believes that the scope of the SLC (LT) should be restricted to
distribute only available coal.
Figure 2: Coal India’s expected annual committed supply under FSA
(mn t per annum) Committed coal supply
FSA signed with non-power consumers for 60% guarantees 102
FSA signed with power utilities for 90% guarantees 289
FSA yet to be signed with power utilities 27
Total committed coal supply under FSAs 418
Source: Company data, Ministry of Coal
During the meeting, Coal India indicated that it shall take initiatives of
importing coal through long-term contracts only if it has firm back-toback
commitment from consumers. Further, Coal India indicated that
contrary to the belief even if it were to import coal through long-term
contracts, it will not necessarily be cheaper, as no rebates are
forthcoming even for the long-term off-take contracts for 10 years, and
the imported coal prices are linked to international index.
On the issue of degradation in the quality of supplied coal, Coal India
indicated that the impact of inferior quality of coal can be mitigated to
a certain extent through ‘joint sampling’. New washeries are being set
up and once washed coal is made available to the consumers, the
complaint regarding the quality of coal will get addressed.
Policy revision to be a critical milestone
We believe that revision of NCDP (if any) could have a material impact
on the utilities sector. Contrary to general perception, NCDP review
could also affect existing power projects with signed FSAs. Further, we
highlight that the revision of NCDP will largely address only the coal
allocation issue, but the structural risk from rising domestic coal deficits
will continue to affect the sector. The Ministry of Coal has indicated that
it shall take appropriate actions based on the inputs received and
revise the NCDP if needed, at which point we shall review the revised
policy and its implications for the utilities sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● The Ministry of Coal now believes that there is a need to review
the New Coal Distribution Policy (NCDP) introduced in Oct 2007
and thus convened a meeting with various stakeholders on 6-Jun-
11 to seek their inputs on the existing policy.
● Most stakeholders believe that Coal India should consider coal eauctions
only after meeting the FSA commitments. Stakeholders
also believed that Coal India is resorting to profiteering via
inequitable price hikes and e-auctions.
● Other critical issues raised relate to: (1) declining quality of coal
supplies from Coal India, (2) captive power producers being at a
disadvantage to independent power producers, (3) list of
milestones under LoA being unduly long and (4) inequitable
distribution of coal among sectors.
● We believe that revision of NCDP (if any) could have a material
impact on the utilities sector. The Ministry of Coal has indicated
that it shall take appropriate actions based on the inputs received
and revise the NCDP, if needed, at which point we shall review
the revised policy and its implications for the utilities sector.
● For the full report, please click here.
New Coal Distribution Policy under review
The risk of domestic fuel deficits, as highlighted in our detailed reports
Quantifying fuel security (August 2010) and Domestic fuel deficit a
structural risk (March 2011), has started to play out, visible from the
rationing of coal supplies and Coal India negotiating for only 50%
domestic coal supply guarantee under the new Fuel Supply
Agreement (FSA). As a result, the Ministry of Coal now believes that
there is a need to review the New Coal Distribution Policy (NCDP)
introduced in Oct 2007 and convened a meeting with various
stakeholders on 6 June 2011 to seek their inputs on the policy.
Stakeholders voicing diverse opinions
Analysis of different arguments put forth during the meeting convened
indicates that most stakeholders believe that Coal India should
consider coal e-auctions only after meeting the FSA commitments.
Further, stakeholders believe that Coal India is resorting to
profiteering via inequitable price hikes and e-auctions. The critical
issues raised relate to: (1) declining quality of coal supplies from Coal
India, (2) captive power producers being at a disadvantage to
independent power producers, (3) list of milestones under LoA being
unduly long and (4) inequitable distribution of coal among sectors.
Figure 1: Key issues raised by stakeholders during NCDP discussion
Entity/Association Key recommendations/issues raised
Ministry of Power Only 50% coal supply guarantee could lead to loan defaults
Ministry of Steel CIL should e-auction coal only after meeting FSA commitments
FICCI Milestones to be achieved under LoA too many, requires review
CII Pooling price mechanism should be adopted
Planning Comm. Coal India should import coal without any reservations
Captive Power Coal India resorting to profiteering via inequitable price hikes
Sponge Iron Power sector should not be overly prioritised for coal supply
Fertilizers Advance payment should be based on actual grade of supplies
Captive Coal Blocks Interchange of end use plant for allocated coal block be allowed
Cement (CMA) List of milestones under LoA should be reduced
Coal India Coal imports suffering due to lack of back-to-back commitments
Source: Ministry of Coal.
Coal India: Shortfall to reach 157-254 mn t by 2020-21
Coal India expects that against the estimated coal production of 452
mn t in FY12, after accounting for existing commitments and quantity
to be offered under e-auction (about 10% or 45 mn t), net coal
available to meet coal requirements of new consumers will be at
negative 11 mn t. Further, if all the existing LoAs that have been
issued culminate successfully, Coal India is expected to witness a
supply shortfall of 157–254 mn t by 2020-21. Hence, Coal India
believes that the scope of the SLC (LT) should be restricted to
distribute only available coal.
Figure 2: Coal India’s expected annual committed supply under FSA
(mn t per annum) Committed coal supply
FSA signed with non-power consumers for 60% guarantees 102
FSA signed with power utilities for 90% guarantees 289
FSA yet to be signed with power utilities 27
Total committed coal supply under FSAs 418
Source: Company data, Ministry of Coal
During the meeting, Coal India indicated that it shall take initiatives of
importing coal through long-term contracts only if it has firm back-toback
commitment from consumers. Further, Coal India indicated that
contrary to the belief even if it were to import coal through long-term
contracts, it will not necessarily be cheaper, as no rebates are
forthcoming even for the long-term off-take contracts for 10 years, and
the imported coal prices are linked to international index.
On the issue of degradation in the quality of supplied coal, Coal India
indicated that the impact of inferior quality of coal can be mitigated to
a certain extent through ‘joint sampling’. New washeries are being set
up and once washed coal is made available to the consumers, the
complaint regarding the quality of coal will get addressed.
Policy revision to be a critical milestone
We believe that revision of NCDP (if any) could have a material impact
on the utilities sector. Contrary to general perception, NCDP review
could also affect existing power projects with signed FSAs. Further, we
highlight that the revision of NCDP will largely address only the coal
allocation issue, but the structural risk from rising domestic coal deficits
will continue to affect the sector. The Ministry of Coal has indicated that
it shall take appropriate actions based on the inputs received and
revise the NCDP if needed, at which point we shall review the revised
policy and its implications for the utilities sector.
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