For superior grade

Coal India Limited (CIL) is the world's largest coal miner. But is it the best? Those who think otherwise are likely to outnumber those who think so by a very wide margin. There could be many reasons for this incongruity in perception. But by far the most influencing factor has been the inferior quality of coal supplies. The company has been in news off late because of quality complaints from various state governments.

Indian coal is inherently high in ash and low in calorific value (CV). This becomes apparent if one looks at the distribution of coal deposits in various declared grades. Lower grades command a higher share of coal reserves. While this is mandated by nature and not amenable to correction in the process of mining, what is bothersome is the stark variation in grades of coal supplied, as found on analysis, with the grade declared.

As one of the largest Maharatna PSUs and a virtual monopoly, it is expected of CIL to achieve a very high level of conformity of the grades of coal supplies with the declared grade. It is all the more important as bills are provisionally raised on the basis of the declared grade. The payment is however linked to the grade determined through analysis. This holds good for consumers who are covered under the sampling and analysis protocol that includes all power utilities.

The slippage of grade between billed and analysed has remained a sore point between CIL and the consumers, especially power utilities for decades. While it impacts the coal producer adversely in terms of lower sales realisation, the consumer is also adversely impacted since the logistics cost per tonne, the other major cost component is unaffected by grade slippage. As a result, the landed cost of coal in units of energy, say Rs/GCal at the power plant increases with grade slippage. In other words, all instances of grade slippage are 'lose lose' events. Hence, the more the number of such events, the more is the reputational risk for CIL.

The advent of renewable power has provided the coal consuming gencos with an option to switch to an alternative mode of power generation. The fast declining cost of renewable power combined with widespread concern for climate change is expected to add speed to the process of transition away from coal. The pain point around the quality of coal supplies can only add more speed to the transition. In other words, for coal to last longer as a fossil fuel, there is an imperative need to squarely address the quality issue.

Coal production and offtake have been stagnating for a while. However substantial imports are taking place. CIL has rightly taken upon itself the task of replacing the imports, at least partially. Traded coal globally enjoys the distinction of a very high level of quality convergence and the consumers are used to that. For CIL to replace such imports, it will be necessary to meet the standards of quality conformity prevalent in imported coal.

As a part of the Indian commitment to using coal sustainably and in a green manner, coal gasification is being encouraged and a target of 100 mtpa by 2030 has been set. For the programme to succeed, the ash in the 'as mined' coal needs to be reduced significantly. In other words, this will require substantial improvement and consistency of coal quality through beneficiation and washing.

Thus, from all angles, it has become imperative for coal producers to lay thrust on achieving improvement and consistency in coal quality for the coal to last longer.

Now for the situation on the ground, a report on 'Money Control' dated March 11, quotes CIL as claiming 65 per cent grade conformity during the period between April 2020 and Feb 2021, meaning that 35 per cent of supplies have suffered grade slippage. Out of 65 per cent that has conformed to grade, roughly 20 per cent has reported an improvement in analysed grade over billed grade, resulting in CIL earning a bonus of Rs 571 crore during the period. The penalty for grade slippage gets submerged into the system of payment based on analysed grade and is not separately mentioned.

In 2017, major initiatives towards quality improvement were initiated by CIL at the instance of the Ministry of Coal. The first was focused on a comprehensive independent review of all declared grades by the office of Coal Controller under the Ministry of Coal. This led to one-time downgradation in many cases and upgradation in some. The second was engagement of CIMFR — a CSIR lab for third party sampling and analysis of coal supplies. This added credibility to the outcome of the analysis.

In order to take these rational initiatives forward, it is incumbent upon coal companies to deploy data analytics for determining the supply sources where the grade conformity, averaged over a calendar year, is less than an acceptable cutoff (say 80 per cent to begin with). All such cases should be probed deeper, that may include revisiting the declared grade by Coal Controller. In such cases where the grades are reaffirmed, the process of mining and beneficiation must be critically examined to determine the root cause and deploy corrective measures. The process should be tightened increasingly over a two-year time frame by the end of which the cutoff should be reset at levels around 90-95 per cent.

Is aspiring for grade conformity of 95 per cent-plus realistic and achievable? The coal exporters globally are achieving such convergence and hence it is safe to say that CIL can surely follow suit by making the much-needed process changes.

Processing of coal through properly designed Coal Handling Plants (CHP) and adopting dry coal beneficiation mandatorily, before 'as mined' coal is considered fit for despatch to consumers, will go a long way in achieving the proper sizing and grade conformity. In addition, setting up large-scale modern state-of-the-art close circuit coal washeries that consume minimal water and power for processing all coal containing ash in excess of a prescribed cut off, can surely improve the quality further.

What could act as a trigger for causing such transformation? The structure of coal pricing perhaps holds the key. A comparison of domestic and imported coal price at source (FOB/Pithead) and at destination (CFR/1000 kms away) is placed at the table.

As may be seen that for imported Indonesian coal to rise in GAR CV by 32 per cent (from 3,800 to 5,000 KCal/kg) the FOB price rises by 98 per cent and the CFR price by 68 per cent. The corresponding figures for CIL coal at pithead and at a distance of 1000 km by rail is 64 per cent and 27 per cent respectively. The rise in landed cost is less than the rise in GCV of coal in percentage terms. As a result, the landed cost in Rs/GCal for superior coal at the destination is lower than inferior coal. This is due to the differential in pithead price between superior and inferior grades being low, which gets offset by the transport cost. For comparison with imported coal, the grade prices have been considered as that of G8 and G14. If this is revised to G9 and G14, which represents the range of power grade coal better, the pithead price differential drastically drops from 64 per cent to 35 per cent. Also, the price in Rs/GCal remains constant over the entire range from G9 to G14. At this differential, any capex or opex incurred for improving quality does not secure a pay back. The table, in fact, brings out the stake of distant consumers to secure coal of higher GCV by readily agreeing to pay differential pricing for higher grades in line with the price trend prevailing internationally.

A package of measures as described earlier along with a correction of the grade prices to allow a linear rise in pithead price in Rs/GCal in a revenue-neutral manner should go a long way to improve coal quality.

The writer is former Chairman, Coal India Ltd. Views expressed are personal