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Racks of investment

Racks of investment

At present, India is not yet ready with the concept of third party involvement for building up rail infrastructure for coal linkages. Now with the positivity which the present government has got along, investors are optimistic about fast-track solutions for coal linkage issues.

A celerating the construction of critical coal connectivity lines is the main agenda of the government´s plan. This is likely to add 100 million tonnes of incremental freight traffic to the railways a year and kickstart idling power plants.

In addition, the government has plans to spend Rs 4,000 crore on improving rail connectivity for transport of coal. However, with private captive mine owners raising the flag of non-cooperation, due to pressure tactics from the government (the mine-owners have to construct their own rail lines), this has transformed the black-field into a battle-field.

Many experts believe that the issue of rail linkage was mainly with captive coal miners and not with Coal India or its subsidiaries. It is because at the time of allocation of mines to private players, IR did not pay much heed to a strong rail network, since the captive mining operations were held privately. It left the burden completely on the shoulders of private players (on a do-it-yourself basis). The situation got so bad, that the growing tussle between coal miners and government has led to subdued performance, wherein only 26 mt of contribution was recorded in the year 2011-12 from private coal miners as against 384 mt, which was contributed by CIL and its subsidiaries. In fact, many Indian mines are operating at low capacity because they can´t move cargo.

Another reason that has hampered the entire linkage chain is capital investments. The captive mine operators were reluctant to invest money in rail linkages as they felt that those who will get mines in the later part of the auctions, will certainly have an advantage of using already ´in-place´ infrastructure without spending funds. This has led to many private players backing off from creating the much-needed infrastructure.

Now the question arises, who should fund and build the rail linkage projects? At present, when most of the Indian rail network is under heavy load, with many stretches of rail routes currently operating at more than 100 per cent utilisation, the expectations from Indian Railways to have a last mile connectivity, will be next to negligible. However, this can be solved if rail linkage projects can be undertaken on PPP model. Considering the amount of money involved i.e., approx Rs 250 crore for laying a 100 km rail line, the government should allow third party or private entities to create world-class infrastructure (rail line, storage system etc.) in the vicinity of coal mines, and the coal miners can take the advantage paying user fee charges. This will sort out the issue of rail linkage as well as storage system and will create ample opportunities for private players. ´The issue of coal linkages, especially with captive coal miners can be solved if the government allows third party involvement on a cost-sharing basis,´says Asheesh Sharma, MD, Mahagenco. Adds Sunil Srivastava, MD, Balaji Rail Road System Ltd, ´Instead of cost sharing basis, the government should encourage private players to take up the projects and then recover money through user charges.´

But for this too, the private players have refused to come together and form a unit to settle the linkages issue. Recently, when a Hyderabad-based private rail consultant went with a proposal to Adani Group to built a common rail linkage in cooperation with another coal miner, Indiabulls, they refused the proposal citing competition issues. Today while Adani Group has received the necessary permission to lay around 100 km of rail line, Indiabull´s project has been stuck with the MoEF.

Analysis of coal linkages
As on 30 September 2013, Coal India Ltd´s (CIL´s) total coal supply commitment to the power sector utilities, in the form of letter of award (LoAs) issued or fuel supply agreement (FSAs) signed, was about 426 mtpa. All 176 units to whom LoAs have been issued have claimed to have met all the expected milestones such as achieving financial closure, obtain¡ing various clearances and completing land acquisition. Of these 176, CIL has completed verifica¡tion of 138 of these claims and signed FSAs with 120 of them. Given this significant progress in development of power plants and tying up of supply commitments, it is reasonable to expect that all these commitments would have to be met in another 30 months, i.e., by 2015-16.

This implies that CIL would have to supply 426 mtpa to power utilities by 2015-16. Given that the quantity of coal supplied to power utilities by CIL in 2012-13 was 345 mtpa, CIL needs to supply an additional 81 mtpa of coal to power utilities over the next three years, or an increase of about 7 per cent p.a. In contrast, the increase in supply to power utilities from CIL over the last three years has been just 46 mtpa, with an average annual increase of just 4 per cent. In other words, CIL´s supply to power utilities has to increase by about 75 per cent over the next three years compared to the increase over the previous three years. This steep increase is rather unrealistic to expect from only domestic sources, and portends a large deficit of domestic coal for the power sector through the 12th Five-Year Plan. From the above, one can conclude that linkages were granted to power producers with the clear understanding that these can be met only with imports augmenting domestic supply. However, the prevalent coal shortage suggests that this understanding, which is also reflected in policy and contractual documents, has not translated into actions by the relevant stakeholders.

´It is revealing to look at the role played by the various agencies involved in bringing about this disconnect between intent and action,´ says Ashok Sreenivas, Prayas Energy Group.

Major issue
The major concern of power producers is availability of domestic coal and consistency in quality of supply. CIL is the largest producer of coal accounting for about 80 per cent of domestic production, but it has not been able to expand its production to meet the growing demand. This increased Indian coal imports to about 185 million tonne last year – imported coal now is a key item impacting our Current Account Deficit. It is also costlier than domestic coal and increases the cost of power produced. Utilities are reluctant to buy expensive power generated from imported coal. ´A combination of factors has created this situation, including land acquisition, financing, environmental issues and law and order problem in some States. From the perspective of power and mining sectors, there is an imminent need for more railway lines for smoother transportation of coal,´ says Dr Pramod Deo, Former Chairman, CERC.

– Rahul Kamat

Government to expedite rail linkage projects
With the current government clearing 50 projects in a span of 100 days, it is expected that the much awaited railway lines–Tori-Shivpur-Kathautia, Jharsuguda-Barpalli-Sardega and Bhupeopur-Raigarh-Mand from coal-rich Jharkhand, Odisha and Chhattisgarh–would see the light of day. Surprisingly, these three rail lines, touted to be new projects are nonetheless quite old and are progressing slowly due to land acquisition and forest clearance issues at the State level.

The importance of these three projects are so much that, if these three rail lines get completed by end of 2017, it will resolve the issue of more than 40,000 MW thermal generation capacity projects lying idle for lack of coal. It is expected that the linkage could resolve the peak electricity demand of northern States such as Punjab, Uttar Pradesh, Rajasthan, Delhi, Haryana, Chandigarh, Himachal Pradesh, Jammu & Kashmir and Uttarakhand.

Prakash Javadekar, Union Minister, Ministry of Environment and Forests told Infrastructure Today that the government has cleared eight coal mining projects of Coal India, Jindal Steel and Power, Sasan Power, Mahandi Coalfields, Hind Energy and Coal Benefication (India). The minister also clarified that small mining projects with less than five hectares won´t require Central government clearance.

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