CHAPTER-VII

General

7.1 Coal has been recognized as the most important source of energy for electricity generation in India. About 70% of the coal in the country is consumed in the power sector. In addition, other industries like steel, cement, fertilizers, chemicals, paper and thousands of medium and small scale industries are also dependent on coal for their process and energy requirements. In the transport sector though direct consumption of coal by the Railways is going down on account of phasing out of steam locomotives, the energy requirement for electric traction is still dependent on coal converted into electric power. The Department of Coal, is engaged in developing coal resources of this country in a manner to meet the requirements of coal of different consuming sectors. Performance of coal sector in this respect has been impressive.

ALL INDIA PRODUCTION OF COAL

7.2 Through a sustained programme of investment and greater thrust on application of modern technologies, it has been possible to raise the production of coal from a level of about 70 million tonnes at the time of nationalization of coal mines in early 1970's to 292.27 million tonnes (All India) in 1998-99 and 208.12 million tonnes (All India) in 1999-2000(Apr-Dec.) (Provisional). Certain significant statistics about coal and lignite are given at Annexure-VI

7.3 Coal India Limited and its subsidiaries are the major producers of coal. 179.83 million tonnes of coal was produced by Coal India Ltd and its subsidiaries during 1999-2000(Apr-Dec.) as against the production of 183.45 million tonnes in the year 1998-99(Apr-Dec).

7.4 SCCL is the main source for supply of coal to the southern region. The company produced 21.23 million tonnes of coal during 1999-2000(Apr-Dec.) as against 18.32 mt during the corresponding year last year. Small quantities of coal are also produced by others TISCO, IISCO and DVC. Besides, some coal is mined in Meghalaya and other states from isolated pockets.The company-wise production, despatch and stock details for the last five years are given in Annexure-VII & Annexure-VIII respectively.

7.5 Productivity is measured in terms of raw coal output in tonnes per manshift (OMS). There has been substantial improvement in OMS in Coal Companies during the last decade for CIL group of companies. As against an OMS of 0.58 tonne at the time of nationalisation, OMS in Coal India Limited during the year 1998-99 was 2.03 tonnes and during 1999-2000(upto Dec-99) was 1.99 tonnes (prov). In SCCL, the OMS during 1998-99 was 1.31 tonnes and during 1999-2000(Apr-Dec.) was 1.31 tonnes. Year wise details of productivity of the coal companies are at Annexure IX

DISTRIBUTION

7.6 Govt. of India have amended the Colliery Control Order 1945 and Colliery Control Order 2000 has been notified according to which the price and distribution of all grades of coal with effect from 1.1.2000 has been deregulated.

7.7 For Supplies of Coking Coal, Coal Companies/CIL are allocating coking coal to Steel plants since April-1996.

7.8 For non-core sectors, consumers whose requirements of coal is less than 25,000 tonnes per month of non-coking coal and less than 5,000 tonnes per month of coking coal, linkages are accorded by the Non-Core Linkage Committees of CIL/SCCL respectively. These are done taking into account the availability of coal, the location of the units and the already committed quantities of coal from the given coalfield and the availability of transport. Based upon such linkages, actual allocation of coal are made based upon the sponsorship authorised annually by the concerned State Government to the concerned party.

No objection certificate is accorded by the Department of Coal if the linkages for non-core sector consumers exceeds 25,000 tonnes per month of non-coking coal and 5,000 tonnes of coking coal per month.

COAL DESPATCHES AND STOCKS

7.9 All India figures of production, despatches and pit-head stocks of coal for the previous years are shown in Annexure-VII. The overall despatches (All India) during the year 1998-99 were of the order of 284.71 million tonnes. The overall despatches during 1999-2000(Apr-Dec) have been 217.26 million tonnes(provisional) against 208.97 million tonnes during the corresponding period last year (April-Dec,98) thus showing growth of about 4% .The vendible stock as on 31.03.99 was at a level of 31.89 mt. (All India) and closing stock as on 31.12.99 was 20.87 mt. (Provisional)

7.10 Coal Mining is affected by seasonal factors. Large build up of pit-head stocks occurs during the winter months. Production drops during summer and monsoon period. During the period April-September each year, part of the requirements of the consumers is met by draw down of stocks from the pit heads.

MARKETING AND DISTRIBUTION

7.11 The Marketing Division of CIL coordinates marketing activities of coal and coke for all its subsidiaries. CIL has set up Regional Sales Offices and Sub-States Offices at selected places in the country to cater to the needs of the consuming sectors in various regions. To cater to the tiny customers more effectively and to develop a niche market, CIL is in the process of launching a Traders Network at many centers in the country.

SUPPLY OF COAL TO BULK CONSUMERS

7.12 Consumer-wise off-take of coal from Coal India Limited by major consuming sectors is indicated in Annexure-XI. The main consumers are the power houses, steel plants, cement industry and fertilizer industry. Almost 84% of the total production of coal is consumed by these sectors. More specific details about some of the major consuming sectors are discussed below:-

(A) POWER HOUSES

7.13 Allocation of coal to thermal power stations is made on quarterly basis by the Standing Linkage Committee (Short-term). Department of Coal, Central Electricity Authority, Railways, Coal India Ltd and its subsidiary companies and Singareni Collieries Company Limited regularly monitor the despatches of coal to power stations and take corrective steps to meet any exigencies.

7.14 The All India demand of coal including washery middlings for all thermal power stations of the country for the year 1998-99 was 224.00 mt. Off-take of coal by thermal power stations during the year 1998-99 was 207.70 million tonnes including middlings. During the year 1999-2000(Apr.-Dec), the total despatch to power houses from CIL and SCCL has been 160.52 million tonnes including middlings 1.62 million tonnes (Provisional).

(B) STEEL PLANTS

7.15 The allocation of coking coal to steel plants was earlier made by the Coal Controller. However, after deregulation of coking coal, the supplies of coking coal are being made by the coal companies themselves on the basis of linkages established by a competent linkage committee or on the basis of their existing commitments. In order to increase the availability of indigenous coking coal and to meet the growing requirements of steel plants, coal companies are sanctioning new projects and expanding their coal washing capacity by establishing new washeries and increasing capacities of their existing washeries. Production performance of coking coal washeries is given at Annexure- XII

7.16 During the year 1998-99, 18.35 million tonnes of washed and direct feed coal was despatched by CIL to steel plants and 10.95(Prov.) million tonnes during the year 1999-2000 (upto Dec,99).

7.17 Coal allocation for the cement plants is also done by the Standing Linkage Committee for Cement (Short-term) which meets every quarter to review and assess the demand of coal for each cement plant and grant linkages for supply of coal to meet such demand. The despatch to cement plants during 1998-99 were 8.61 mt. During the year 1999-2000(Apr-Dec.), 7.13 million tonnes (Prov.)of coal has been despatched to cement plants from CIL and SCCL.

MODE OF TRANSPORT

7.18 Important modes of transport of coal are Railways, Road, Merry-go-Round Systems, Conveyor Belts and the Rail-cum-Sea Route (Annexure-XIII). The shares of these modes of transport in the total movement of coal is approximately as under:

(a) Railways 56.3%

( b) Road 16.5%

(c) MGR System 22.1%

(d) Other (Belt Conveyor

Ropeways, Rail-cum-Sea

Routes etc) 5.1%

------------------

100%

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(A) RAIL MOVEMENT

7.19 Railways constitute the major system of coal transportation in India as about 56.3% of the coal is the largest single commodity transported by the Railways. The despatch of coal by rail is governed by the Preferential Traffic Schedule of the Indian Railways, under which the programme of movement is to be sponsored by the various sponsoring authorities and accepted by the coal companies . In case of deregulated coal, Railways have allowed coal companies to sponsor the movement of coal.

(B) RAIL-CUM-SEA-MOVEMENT

7.20 Coal requirement of some consumers in Southern India, which include power stations and cement plants, are met by moving coal by Rail-cum-Sea Route. This is done in view of the difficulties experienced in moving coal via all Rail Route from Bengal-Bihar and Main Line-Talcher Coalfields. The requirement of power stations of Tamil Nadu Electricity Board (TNEB) is met by Rail-cum-Sea Route. Haldia, Paradip and Vizag Ports handle the shipments.

EXPORT OF COAL

7.21 Coal is under OGL list . India exports coal to the neighbouring countries to meet their demand of coal. The traditional buyers of Indian coal are Nepal, Bangladesh and Bhutan. Export to Nepal and Bhutan is done in rupee exchange as per the protocol between the two countries and with Bangladesh it is done in US Dollar. Export of coal to the neighbouring countries was earlier canalised through the Mineral and Metal Trading Corporation, but for the last few years it has been decanalised. Export of coal by CIL is made through tender route. The quantum of coal exported during 1998-99 to the neighbouring countries was 0.79 million tonnes. During 1999-2000(Upto Dec.99) the quantity of coal exported was 0.03 million tonnes (Provisional), by Coal India Limited.

7.22 Bangladesh imports large quantity of coal from the private mines of Meghalaya. The Meghalaya coal exported to Bangladesh was also canalised through Minerals and Metals Trading Corporation (MMTC). But from 29.9.89, export of Meghalaya coal to Bangladesh was exempted from canalisation through MMTC and was canalised through Meghalaya Mineral Development Corporation(MMDC). Again from July 1991, the export was fully decanalised as a result of which private exporters were allowed to export coal. However, the export was subjected to a minimum export price (MEP) of US$ 56 per tonne with effect from 5/2/1992. This restriction of MEP was further removed from 1.4.93 and all coal from Meghalaya is freely exportable.

IMPORT OF COAL

7.23 As per the present import policy, coal can be freely imported (under OGL) by the consumers themselves considering their needs and exercising their own commercial judgements. Coking coal is being imported by SAIL and other Steel Sector manufacturers mainly for two reasons:

(i) To bridge the gap between the requirement and indigenous availability.

(ii) To improve the quality of overall blend for technological reasons.

7.24 Coal based power stations and cement plants are also importing certain quantity of non coking coal on consideration of transport logistics and commercial prudence as well as against export entitlements.

7.25 The quantities of coking and non coking coals imported in the country during the last seven years are as under:-

(in million tonnes) (provisional)

YEAR COKING COAL NON COKING COAL TOTAL

1991-92 5.27 0.66 5.93

1992-93 6.32 0.42 6.74

1993-94 6.82 0.57 7.39

1994-95 10.15 1.24 11.39

1995-96 9.37 3.14 12.51

1996-97 9.78 4.53 14.31

1997-98 10.65 6.56 17.21

1998-99 9.64 6.00 15.64

The current customs duty ( 1999-2000) on imported coal is as follows:-

i) a) Coking coal of ash content 5% ( Basic

less than 12 % custom duty)

b) Surcharge on Basic Custom duty NIL

c) Special Additional Duty 4%

ii) a) Non-coking coal, coke 15% (Basic

and coking coal of ash custom duty)

above 12%.

b) Surcharge on basic custom duty 10%

c) Special Additional Duty 4%

Note : Special Additional Duty of 4% is not chargeable if goods are imported by traders.

7.26 There has been a rising trend of imports for the last few years in case of non coking coal especially in coastal regions through which consumers are in a position to directly import for further transhipment to the plant sites.

COAL FOR DOMESTIC USE

7.27 The production of soft coke has been declining over the years, since the process adopted is not free from pollution hazards. However, to meet the demand for this product, especially in some of the Northern States, where people use soft coke as a domestic fuel, Government have encouraged setting up of SSF

Plants(Special smokeless fuel plants) based on the technology developed by CMPDIL and CFRI. This product is an ideal substitute of soft coke. Necessary linkages are being provided by CIL. CMPDIL is offering necessary technical assistance for installation of these plants. Coal India Limited is also providing linkages to briquetting units, the product of which is also a substitute of soft coke.

7.28 Off-take of raw coal from Coal India Limited for manufacturing soft coke during the year 1998-99 was 0.10 lakh tonnes. Offtake during 1999-2000 (upto December,99) has been nil.

7.29 Coal is also supplied for production of SSF and Briquettes by the coal companies on an assured basis.

7.30 Supply of coal to SSF Units during the year 1998-99 was 1.43 Million tonnes as against the supply of 1.77 Million tonnes during the year 1997-98. Similarly, coal supplies to briquetting units had been of the order 2.93 million tonnes during the year 1998-99 as against 2.28 million tonnes during the year 1997-98.

7.31 As per the recommendation of the integrated coal policy, Government has decontrolled the pricing and distribution of soft coke. Thereafter the allocation of soft coke to various states under Public Distribution System has been discontinued.

HARD COKE

7.32 The distribution of hard coke was decontrolled in 1975. The consumers are required to approach the concerned sponsoring authorities to get their demand sponsored directly to the coal company which makes arrangements for supply of this commodity to the consumers. The production of hard coke by CIL in the year 1998-99 was 0.14 million tonnes. The production (of hard coke by CIL) during the year 1999-2000(Apr.-Dec) was 0.08 m.t.(Provisional )

7.33 According to the current stockyard policy, the responsibility for setting up and managing new stockyards rests with the respective State Governments. Against sponsorship provided by the State Government, Coal Companies offer coal for despatch to these stockyards.

7.34 Quality complaints mainly relate to supply of lower calorific value, presence of extraneous material, supply of oversized coal and of short receipts. To overcome these complaints, following steps have been taken:

7.35 For redressal of consumers grievances and monitoring of complaints received from the consumers, one Regional Coal Consumers Council has been set up for each coal company. An Apex body viz. National Coal Consumers Council has also been set up at the Headquarters of Coal India Limited. In case the complainant does not receive a reply within a month or the complainant is not satisfied with the reply of Coal Company, he may prefer a complaint to the National Coal Consumers Council.

7.36 With a view to make coal freely available to small scheme industries and other consumers, various schemes such as Liberalised Sales Scheme, OSS(DC) and Tatkal Scheme have been introduced in Coal India Limited. Any body can draw coal supplies from these schemes without valid sponsorship and/or linkages. All coals purchased under these schemes can be re-sold at a price to be charged by the purchaser at his own discretion.

7.37 The despatches under Liberalised Sale Scheme such LSS(M) , OSS(DC) etc. are given below:

97. 25.09

98. 29.36

99. 40.99

2000. 23.93

( April –

Dec.,1999)

7.38 Department of Coal had earlier fixed State-wise and Coal Company-wise ceiling limits for supply of coal to the Brick Kilns and Seasonal industries. However, with a view to improve despatches of coal, ceiling limits have been removed during the year 1998-99. This decision was appreciated by the BRK consumers located in the State of UP etc.

7.39 Coal Prices were last revised by the Government w.e.f. 17.6.94 under the regime for the administrative prices. As per that revision the pit-head prices of coal produced by Coal India Ltd. ranged from Rs. 183/- per tonne to Rs. 642/- per tonne in respect of ROM non-coking coal and from Rs. 450 per tonne to Rs. 1048/- per tonne in respect of ROM coking coal. The prices as revised in respect of coal produced by SCCL, ranged from Rs. 305 per tonne to Rs. 660/- per tonne.

7.40 However following a recommendation of BICP to deregulate the prices of coking coal and A & B grade of non-coking coal and with the recommendation of a core group of Secretaries in the Central Government to deregulate the prices of C grade of non-coking coal as well, the prices of coking coals and A, B and C grades of non-coking coals had been decontrolled. Following this the CIL enhanced the prices of coking coal and A, B and C grades of non-coking coal w.e.f 1.4.96, 20.10.96, 21.8.98, 5.1.99 and 31.5.99. SCCL who produce only B & C grades of deregulated non-coking coal revised the prices of these grades of coal w.e.f. 19.4.96, 15.3.97, 29.8.98 and 19.9.99.

7.41 The Government decided on 11.2.97 to deregulate the price and distribution of 'D' grade of non-coking coal, hard coke and soft coke with immediate effect and to allow CIL and SCCL to fix the prices of E, F and G grades of non-coking coal once in every six months by updating the cost indices as per the escalation formula contained in the 1987 report of the BICP, till 1.1.2000. It was further decided that after 1.1.2000 the prices of E, F & G grades of non-coking coal may be fixed by CIL and SCCL in relation with the market prices and the distribution of these coals deregulated w.e.f. 1.1.2000. Following this the deregulation of pricing of D grade of non-coking coal and hard coke and soft coke was notified on 12.2.97. Further vide instructions issued to the CIL and SCCL on 13.12.97, they were authorised to fix the prices of E, F & G grades of non-coking coal as per the BICP escalation formula contained in the 1987 BICP report, till 2000 AD, after which the companies may fix the prices of such grades of coal relation to the market prices.

7.42 The pricing of coal has been fully deregulated after the Colliery Control Order,2000 was notified with effect from 1^st January 2000 in supersession of the Colliery Control Order, 1945. Under the Colliery Control Order, 2000, the Central Government has no power to fix the prices of coal.

7.43 The Average Pit-head prices of CIL and SCCL Coal as revised since 1991 are indicated below:-

of Coal Produced by

CIL SCCL

7.44 COST OF PRODUCTION

Major constituents of cost of production of coal produced in CIL and SCCL during 1998-99 are given below:-

CIL SCCL

The average cost of production of CIL coal and SCCL coal during last five years are given below:

(in Rs. per tonne)

7.45 In terms of Section 9 of the Mines and Minerals (Regulation and Development) Act, 1957 the holder of a mining lease shall pay royalty in respect of any mineral removed/consumed. The Central Government can enhance or reduce the rate at which the royalty shall be payable provided the rates cannot be enhanced more than once in a period of 3 years. Thus the royalty on coal is a tax which is imposed by the Central Government but collected and appropriated by the State Government where coal production takes place. Prior to the latest revision of royalty rates in October, 1994, the rate was then revised in August, 1991. The average rate was then revised from Rs. 5.30 to Rs. 70/per tonne which varied over a range from Rs. 25/per tonne for the lowest grades of coal to Rs. 150/per tonne for the highest grade. Since the next increase in royalty rates could be effected on or after 1.8.1994, the Central Government took up the exercise of reviewing the royalty rates. A Study Group set up under the Chairmanship of Additional Secretary, Ministry of Coal submitted its report in May, 1994. The report was considered by the Government and the rates of royalty of coal were revised w.e.f. 11.10.94. The enhancement of rates was made keeping in view the interests of both the consumers and the coal producing States and at the same time ensuring the development of coal mining industry. The revised rate of royalty has not been extended to the State of West Bengal as that State is levying and collecting cess on coal under their Cess Acts. The revised rates can be extended to the State Government after the Cesses levied by them withdrawn or their Cess Acts are struck down by the Court of Law.

The revised rates are as under:-

7.46 Periodic revision of royalty on minerals including coal has not been laid down in any law. Section 9 (3) of the MMRD Act empowers the Central Government to enhance or reduce the royalty rates in respect of any mineral by notification in the Official Gazette with effect from such date as may be specified in the notification. The proviso to section 9 (3) of the Act prevents the Central Government from enhancing the rate of royalty in respect of any mineral more than once during any period of three years. Thus, there is no compulsion to revise royalty rates every three years. The Central Government has the option to keep the royalty rates unchanged as was done during 1981-91. A Study Group under the Chairmanship of the Additional Secretary of the Ministry of Coal was set up on 28.1.97 to consider all aspects relating to revision of rates of royalty of coal and make recommendations to the Government. The Study Group has since submitted their report to the Government in September 1997.

The coal companies receive only about 40-45% of the landed price of coal on an average. The larger proportion of this price is on account of cost of railways freight and the various levies such as royalty, excise duty, cess and sales tax. As a consequence Indian coal is getting priced out in several locations and consequently there is a sharp increase in the import of coal. Import of non-coking coal has increased more that 10 times from 1993-94. The State Electricity Boards (SEBs) and State Power Corporations (SPCs) are also struggling hard to make both ends meet. As on 20.12.99, the SEBs and SPCs owe to the Coal India Limited a huge amount of Rs.3096 crores (Rs.2088.61 crores undisputed and Rs.1007.42 crores disputed) as coal sale dues. Non-receipt of the huge amount of coal sale dues from the SEBs/SPCs is causing a very heavy financial burden on CIL. Apart from severely affecting the cash inflow to CIL, the non-recovery of coal sale dues from SEBs/SPCs has created an acute financial problem for CIL since the coal company is paying royalty to the State Government on the coal despatches to SEBs/SPCs, the sale value of which is not being paid to CIL. In other words, even on sale of coal to SEBs/SPCs on credit, the royalty payments to the State Government are being made by CIL since royalty payments are a statutory requirement. The steel industry is also suffering and is yet to get out of the depression. Any increase in royalty on coal at this stage may well deepen the crisis for the power sector, steel sector and most importantly for the coal sector. Therefore, a decision has been taken not to enhance the existing royalty on coal at this stage.

The State-wise details of coal royalty payments made by CIL & SCCL during 1998-99 are given in Annexure XIV.

7.47 The position of the vendible stock in respect of CIL and SCCL is indicated at (Annexure XV)

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