Investment in coal sector and

business diversification
18th February 2020

Vipul Tuli
Managing Director
Sembcorp Energy India Ltd.
Summary
 Indian coal majors have large reserves, unmatched experience and strong balance sheets
 They must continue to invest in coal, and attract new investment, given India’s twin needs:
‒ Growing energy demand, and
‒ Need to reduce cost of power
 The sector must also look beyond coal, considering:
‒ Expected slowdown in coal demand in 20-30 years
‒ India’s massive proven coal reserves of 150bn tons (R/P > 150 years)
‒ India’s strategic need to reduce energy import dependence
‒ India’s economic need to reduce cost of power
 Two kinds of opportunities to make the most of this valuable national resource:
‒ Maximise use while coal demand remains
o Unlock new markets, new reserves, new value
o Create and operate essential evacuation and logistics infrastructure
o Forward integrate into thermal power generation
‒ Use available assets and experience in new, evergreen areas
o Launch a national mission on coal to chemicals
o Diversify into non-coal minerals
 Lessons learned by others in diversification must be carefully considered
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Coal to Chemicals (1/2)

 With environmental concerns slowdown expected in coal demand in 20-30 years  China majors plans to invest more in coal
 Development of Coal to chemical industry to provide multiple opportunities to utilize to chemical projects than coal mines
India’s massive coal reserves.
Coal based chemical industry China Coal investment 2020
2.44
Urea Acetic acid Formaldehyde Olefins

$Bn
0.45
Indirect
Gasification Methanol Dimethylether (DME)
Liquefication
Coal to Coal Mine
Diesel, Naphtha, hydrocarbon gases Chemical Development
Coal Direct Liquefication
Polyvinyl alcohol, PVC;  Proven business model with more than 35
Coke, coke
Coking (pyrolysis) Methane, large-scale plants in China. Globally ~80
oven gas
methanol, DME, olefins plants under development

Uses of main coal-based starting chemicals  India virgin-grade polymer demand to

Urea Acetic Acid Formaldehyde Olefins grow at 7-8%

Fertilizers Chemical reagent Textiles Industrial chemical reactions India polymer demand
40
Plastics Chemical solvent
Auto Polymerisation, oxidation, (MMT)
components halogenation,
Adhesives Ester production Resins Detergents 20
Explosives Inks, paints Paints Textiles, synthetic fibres
Diesel combustion 0
Explosives Personal Care
denitrification FY14 FY18 FY23 FY28
Animal feed Disinfectants Pharmaceuticals  Huge investment potential 1-4 $Bn a year.
Cloud seeding Plastics  Employment intensive sector

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Coal to Chemicals (2/2)

Strengths Weakness
 Land availability  Inadequate expertise
 Coal extraction capability
 Surplus financial reserves
 Cheap & stranded coal

SWOT
Analysis

Opportunities Threat
 Mature and proved technology  Environmental concerns
 Growing demand – chemicals &  Large capital investment 1-4 $Bn
plastic
 Competition with Naptha based
 Coal reserves far exceed oil & Petrochemicals
gas
 Complex waste disposal

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Diversification to non-fuel minerals

 Top 40 global miners are investing more in Non-  34 out of 40 top global miners are into non-
ferrous minerals and Precious metals. coal mining

Capex by mineral (Top 40 miners) Product diversification

(Top 40 global miners)
Annual capex:
17% $30bn

13
34%

11%
21

16%
6
23%

Non-ferrous metal Coal Industrial Diversified Single-Non-coal

Precious metal Ferro Single-Coal

 Major reserves in India – Limestone, Iron Ore,

Dolomite, Bauxite, Kaolin, Copper, Gypsum,
Lead-zinc, Ilmenite, Managnese, Gold, Magnesite

Source: PWC Report: Mine 2019 4

Evacuation and logistics

Evacuation issue from mines Distance from top 5 coal blocks under
resulting in lower dispatch and higher CM(SP) Act
end-user cost. Distance from rail
Coal Block Reserve (MMT)
Opportunities for CIL head
Mahanadi 1994 42 km
 Captive rail / waterway infra
Ramchandi 1500 42 km
 Investment in Jetty / port
Machhakata 1401 42 km
 Coal handling infra Chhendipada-II 1350 40 km
Chhendipada 559 40 km
Investment in rail infra to reduce end-user freight cost
1,200 Freight traffic (Billion Tonne Kms)
Freight revenue (Billion Rs.)
1,000

800

600

400
FY11 FY12 FY13 FY14 FY15 FY16 FY17

5
Forward integration into thermal power generation

 Investment slow-down in coal- Coal based capacity addition

based power generation. Central Private State
72,565
 Need to continue investment
in coal based power 16,100
generation to meet growing 44,324

MW
energy demand, and
11,935
reduction in cost of power 44,629
22,418

11,836 9,971
2009-14 2014-19

Growing electricity requirement

200
BU
150

100

50

0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

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Unlock new market and reserves

Indicated/Inferred Proved
 Mine exploration: Under Coal reserves in India (Bn Ton)
investment leading to CAGR: 1.3%
subdued growth in coal
299 302 307 309 315 319
exploration and proven
reserves
175 171 172 170 CAGR: 3.8%
176 176
 Exploration as a 3rd party
activity?
123 126 132 138 143 149

2013 2014 2015 2016 2017 2018

 Investment in washeries Washery capacity & demand

MMT per Annum

and blending hubs? 300-400

‒ Product augmentation
‒ Creation of grade/user 82
oriented market 39
42
‒ Quality assurance Existing capacity Demand >500km
from mines
‒ Reduced burden on
Demand >500km from mines PSU & Pvt. CIL
logistics
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Competitiveness of Indian coal in export market?
Indian coal: CFR Bangladesh Indonesian coal: CFR Bangladesh
Rs./kcal Rs./kcal
0.9 0.9

0.8 0.8

0.7 0.64 0.7

0.6 0.57 0.07 0.6

0.06
0.5 0.5

0.4 0.01
0.20 0.4

0.3 0.21 0.07 0.3

0.05
0.2 0.2

0.1 0.1

0.0 0.0
Base Crushing+ Taxes & Washing Rly Port FOB Sea CFR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Royalty Freight loading Paradip Freight B’desh
ICI4 (CFR B’desh)
cost
Rs./ 753 168 270 250 706 201 2348 288 2636
Ton

 Pre-washed GCV: 3600 kcal/kg

 Post-wash GCV: 4100 kcal/kg

 Indian coal prices competitive for neighbouring export

markets
 Market development for coal with low GCV / high Ash
content in neighboring countries

8
Current coal mining approval timelines: good enough?
53 out of 66 months are required for approvals – can this be reduced to 12-24 months?

[CELLRANGE] Months→

0 5 10 15 20 25 30 35 40 45 50 55 60 65

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

Source: Ministry of Coal Approvals & permissions Application & Report Preparation Physical works

 Coal ministry alone cannot achieve – Rail, MOEFCC, States, joint

accountability will be needed. Single window clearance through inter-
ministerial committee (Central, State level)
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 Adoption of UMPP/Solar park model for clearances prior to bidding
Indian oil case-study

Capital employed, Revenue & Profit –Petrochemical Share (%) of Petrochemical of overall
Business (FY15)

+5% 31%
+7%
21,183
20,265
22%
16,040
Rs. crore

15,037

+70%
4,198
2,473 5%

FY15 FY19
Capital Revenue Profit
Employed
Capital Employed Revenue Profit

IOCL successfully diversified into petrochemicals business

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Key success factors for new ventures

 Opportunities arise mostly out of industry discontinuities

 Benchmark with the best, and plan with high aspirations
 Create independent teams with the best of external and internal talent, empowerment
and resources
 Ensure top management of the parent company are well versed in the KSFs and risks
of the new business
 Especially, recognise when businesses look similar but are not
 Engage external technical and business expertise, including partners selectively
 Give it time, be prepared for challenges

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Annexure

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Full cost of renewables different from headline tariff
Example: Generation source connected to central grid in Gujarat, with power being procured by UP discoms

Cost
S.No Component INR/kWh Remarks
1 Power Cost 2.93 Current ceiling tariff for SECI wind bids
2 Thermal fixed charges 1.12 FY 19, average fixed charges for UPRVUNL thermal
(for addressing RE variability) plants as per MYT petition.

PLF of 80% assumed for thermal power plants.

3 POC Charges 1.62 POC charges for UP as per POSOCO x 3 to adjust
for lower PLF

4 Gujarat Injection Losses 0.02 0.52% as per POSOCO

5 UP Withdrawal Losses 0.09 3.15% as per POSOCO
Total Landed Cost 5.78 Total landed cost assuming full transmission
charges, losses and standby thermal capacity.

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