BESI India Coal Thematic

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THEMATIC
India | Utilities | Large Cap | 19-June-2015
India coal thematic
Coal Odyssey - A trip to the East India
We visited the key states of Odisha, Chhattisgarh and Jharkhand
(East India) to assess Coal India (CIL’s) 1bn production target by
2020. Our meetings with miners, railway officials and NGOs suggest
significant region-specific challenges in land acquisition, coal
evacuation and clearances for the coal sector. The benefit of the
coal ministry’s significant efforts to resolve sector bottlenecks will
be back-ended, in our view.
In the light of these challenges, we have carried out a detailed
analysis of CIL’s key projects that suggests production of just 684mt
by 2020 (6.7% CAGR FY15-20). This is significantly lower than CIL’s
target (13% CAGR). We initiate on Coal India with a non-consensus
SELL rating and FV of INR327 and NTPC with a SELL rating and FV
of INR122. Further, our analysis of key beneficiaries of better than
historical coal production growth suggests that the opportunity size
for mining equipment can significantly increase.
Our on-the-ground checks suggest several challenges
The three states we visited constitute ~70% of India’s coal reserves and ~75%
of CIL’s incremental production in 2020. Our meetings in these states suggest
that each state has unique land acquisition problems that delay mining and
coal evacuation projects. The clearances are difficult compared to the rest of
India given higher forest cover and larger tribal populations. Also, we see a
widening trust deficit due to instances of violations of environment and forest
laws. We have presented several case studies in our report including: a) a visit
to NTPC’s PB mine in Jharkhand; and b) RVUNL’s PEKB mine in Chhattisgarh.
Expect CIL to miss its 2020 off-take target by a wide margin
Based on our detailed analysis of 30 key CIL projects, we estimate 6.7% CAGR
growth, much lower than CIL’s target. We have quantified the challenges in
these projects: a) 36% of 300mt analysed capacity is still at the approval
stage; b) While 57% capacity out of 200mt approved projects have
>1000PAFs and could face land acquisition challenges, 27% capacity have
>25% forest cover and could face forest clearance challenges (Pg 18).
Coal ministry’s action positive but benefits may be back-ended
We believe the government’s policy steps are in the right direction. Coal block
auctions, linkage auctions, rationalisation of transport, etc are all long term
positive. However, the benefits will be back-ended, in our view.
Initiate on CIL and NTPC with SELL; mining equipment key beneficiary
We initiate on CIL with a SELL rating and FV of INR327, and NTPC with a SELL
rating and FV of INR122 (see company section for details). While our estimate of
CIL’s production growth of 6.7% is less than the company´s target, it is better than
its historical growth rate (3.7% CAGR 2009-15). Our assessment of the
beneficiaries of CIL’s better than historical growth rate suggest: a) The mining
equipment sector should benefit significantly due to increased production
growth and increasing strip ratios (US$4.5bn over FY16-20E); b) Wagon
orders will be back-ended (US$800mn over FY16-20E); c) Mine developer
(MDO) may be a relatively less attractive opportunity given few players and
adverse experiences in some regions.
Coal India
SELL 17% downside
Fair Value Rs327.00
Bloomberg ticker COAL IN
Share Price Rs394.30
Market Capitalisation Rs2,490,542.33m
Free Float 20%
INR m Y/E 31-Mar 2014A 2015A 2016E 2017E
Revenue 688,100 720,146 760,375 828,456
Employee cost 277,694 298,741 301,462 365,290
EBITDA 159,631 152,300 168,511 155,182
EBITDA adjusted* 192,497 190,567 207,359 193,948
EBIT 139,667 129,102 142,062 123,734
Other income 89,693 86,761 88,739 89,052
PAT 151,102 137,216 146,735 140,390
EPS 23.9 21.7 23.2 22.2
*EBITDA adjusted for over burden removal
NTPC Ltd
SELL 11% downside
Fair Value Rs122.00
Bloomberg ticker NTPC IN
Free Float 25%
2014A 2015A 2016E 2017E
Revenue 720,189 732,461 825,971 858,462
EBITDA 183,358 160,856 179,814 193,189
Pre Tax Profit 139,047 105,467 116,526 125,238
Net Income tax adj 105,221 90,458 93,221 100,191
Adj EPS (Rs/sh) 12.8 11.0 11.3 12.2
Book value/share 104.1 99.0 106.9 115.5
Book value/share growth 6.8% -4.8% 8.0% 8.0%
Source: BESI Research, Company Data, Bloomberg
Analysts
Jay Kakkad
+91 22 4315 6832
Jay.Kakkad@espiritosantoib.co.in
Espirito Santo Securities India Private Limited
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Table of Contents
Our visit to the key states of Odisha, Jharkhand and Chhattisgarh suggests several challenges:..................................................................3
Challenge #1: Land acquisition process has practical difficulties ..........................................................................................................................3
Challenge #2: Slow progress on coal evacuation bottlenecks due to land acquisition and financing problems .............................6
Challenge #3: Environment and forest clearances.......................................................................................................................................................9
Challenge #4: Trust deficit between locals and corporates: .................................................................................................................................10
Case Study 1 – NTPC coal mining project of Pakrih Barwadih ......................................................................................................................................13
Case Study 2 – RVUNL’s Parsa East Kante Basan coal mine in Chhattisgarh (Unlisted state government company) ........................16
Expect Coal India to miss its 2020 target by a wide margin.........................................................................................................................................18
Our detailed analysis of key projects suggests production of 684mt by 2020............................................................................................18
Instances of very aggressive projections in CIL’s roadmap..................................................................................................................................20
Where could we be wrong in our production estimates?....................................................................................................................................... 21
Government’s action positive but benefits will be back-ended .................................................................................................................................. 22
Linkage auctions: Reforming the way coal is allocated.......................................................................................................................................... 22
Coal block auctions – Speedy govt. actions but slow progress on the ground ...........................................................................................23
Opportunities in other sectors from coal production growth......................................................................................................................................25
Mining equipment opportunity – US$4.5bn over next five years .......................................................................................................................25
Wagons for coal – a US$800mn opportunity over FY16-20: ............................................................................................................................... 27
Mine developer (MDO) opportunity – US$2.5bn opportunity.............................................................................................................................. 27
Initiate on Coal India with SELL rating and FV of INR327 .....................................................................................................................................28
Initiate on NTPC with SELL rating and FV of INR122...............................................................................................................................................28
Company section
Coal India …………………………………………………………………………………………………………………………………………………………………………………………………29
NTPC…………………………………………………………………………………………………………………………………………………………………………………………………………39
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Figure 1 Geological coal reserves in India
Source: Ministry of Coal, As on 1.04.2014
Figure 3 Coal Production in India - FY14
Source: Ministry of Coal
We have done extensive on-the-
ground checks of the coal mining in the
three key states.
Every state has unique land acquisition
challenges
Our visit to the key states of Odisha, Jharkhand and Chhattisgarh
suggests several challenges:
To understand the on-the-ground situation in the coal sector, we visited the
states of Odisha, Chhattisgarh and Jharkhand and met various stakeholders
including miners, railway officials and NGOs in each state.
These three states are critical given :) they constitute -70% of India’s coal
reserves and 62% of India’s coal production; and b) ~75% of CIL’s incremental
production in 2020 will be from these three states. Our meetings in these
states suggest that they have unique challenges compared to the rest of India
given high forest cover and tribal populations. We came back with the
impression that there would be four key challenges: a) land acquisition; b) coal
evacuation; c) Environment/forest clearance; and d) Trust deficit.
Also, to give some background, we have presented two case studies in our
report – a) Visit to NTPC’s PB mine in Jharkhand; and b) RVUNL’s Parsa and
kente mine in Chhattisgarh.
Challenge #1: Land acquisition process has practical difficulties
Land acquisition is a big challenge for projects in the coal mining sector. The
land acquisition problems in each state are different and there are practical
difficulties. Based on our interactions, below we list the state-wise difficulties.
 Jharkhand:
o Old land records: The state’s land records are very old and
hence the companies have to carry out an initial survey
themselves to ascertain ownership. Even then, the ownership
changes are frequent;
o CNT act 1908: The Chota Nagpur Tenancy act (CNT 1908) is
applicable in the region. This act restricts the transfer of tribal
land to non-tribals including corporates or government. The
CNT act was enacted after the Birsa movement against land
acquisition. Overall, 26% of the population is classed as tribal
(Called schedule V population).
Figure 2 Coal Odyssey – Key states of Jharkhand, Chhattisgarh and Odisha
Source: BESI Research, Forest cover as of 2013 and tribal population as of 2011, Ministry of tribal affairs, Government of India
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Challenges in Jharkhand: Very old land
records and existence of CNT act
Challenges in Odisha: History of
protest over large land acquisition and
seeming stringent state R&R policy
Challenge in Chhattisgarh: High forest
cover and larger tribal population
o Land for afforestation: Forest land acquisition for private players
has become very difficult. The state government has decided
not to allot any land for compensatory afforestation to private
players. This is because finding non-forest land is difficult in
Jharkhand as forest comprises 30% of land. Also, the private
players cannot be exempted from their obligations.
o State cabinet clears every Govt. land decision: For surface
rights on government land, the company needs to deposit a
premium with the district collector. After this the proposal needs
to be approved by the highest state authority, i.e. the state
cabinet, which is contrary to practise followed by other states.
o Encroachers: There is no defined state policy for encroachers,
i.e. residents staying for less than 30 years as per state
definition.
o PESA now applicable: After the recent panchayat elections, the
Panchayat extension to the scheduled areas act (PESA) is now
applicable in Jharkhand. This will mean that any land acquisition
in a tribal region (called as schedule V region) will need consent
of local bodies (Gram sabha). This may lead to delays.
 Odisha:
o Opposition from displaced people: In the region of
Jharsuguda (IB valley), many people were displaced after the
Hirakud dam was built (1956). Now these people do not want
to be displaced further and part with their land.
o History of protests over large-scale land acquisition: The
state has a recent history of protests over large scale land
acquisition. Locals cite poor implementation of R&R in large
projects like the Rengali dam that displaced more than 11,000
families as a trigger to these protests. Recent protests that
caught significant attention are bauxite mining in Niyamgiri,
Refinery in Lanjigarh, etc.
o R&R policy seen as stringent: In 2006, the state government
came up with a Resettlement and Rehabilitation (R&R) policy.
Miners apparently consider the policy to be stringent due to
its requirement of a mandatory socio-economic survey, and
the need to employ locals in the projects.
 Chhattisgarh:
o Forest cover is high: The forest cover is 44.2% of total land
and the tribal population is 30.6% of the total population. The
process of recognising the forest rights of individuals under
the FRA Act 2006 has not yet been completed. Hence, the
process of land acquisition needs time.
Figure 4 CIL needs 3x increase in land acquisition rate
Figure 5 SECL land requirement break-up – Forest and Tenancy land
are tougher compared to government land
Source: BESI Research, Company Data Source: BESI Research, Company Data, SECL presentation- January 2015
0
1000
2000
3000
4000
5000
6000
7000
8000
FY14 FY15 FY16-20
Ha
3x
Tenancy
49%
Government
12%
Forest
39%
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With the new land acquisition act,
CBA’s procedures may be tightened
CIL R&R policy is well received given
its job promise to locals
An informal consent of locals is
anyways required even if the new land
acquisition ordinance does not make it
mandatory
Difficulties for Coal India have increased with the recent land bill
After the recent change – the Coal Bearings Act (CBA 1957) will now be
included in the Land Act 2013. (LARR 2013)
What changes for CIL?
 Cost of acquisition increases: CIL’s land cost will rise 4x with the new
land bill.
 Procedure will tighten up compared to the earlier act: The procedure
and time taken relative to the previous act will increase. However, the
procedure/time of acquiring coal bearings land will remain
easier/shorter compared to acquisition of land for other uses.
Coal India’s R&R policy looks better compared to peers:
The general feedback from the locals, miners and NGOs was that Coal India’s
R&R policy was better than other corporates in the mining sector. CIL
provides one job for every two acres of land acquired. This can provide locals
with a sense of security.
Figure 6 CIL’s R&R policy highlights
Source: BESI Research, Company Data
CBA Act 1957 – not for all: The Coal Bearings Act is only for Coal India and
NTPC. No other company can use it. All non-CIL and non-NTPC companies
have to use LARR (Land Acquisition Act) for acquiring land, even in the coal
bearing areas. Even for CIL and NTPC, the acquisition of land for other
purposes like railway connectivity, water pipelines, power lines and township
is through the LARR 2013.
Coal India uses the Coal Bearings Act (CBA 1957 Act) to acquire land
containing coal deposits. For other purpose the Land Acquisition Act (LARR
2013) is used. In its earlier form, we believe the CBA act was better from both
a legal and procedural perspective for Coal India.
Can the recent land ruling ease the land acquisition process? Our interactions
with various stakeholders suggest that involving the locals is a must despite
the new law. The Government intends to increase the compensation but
remove the consent clause and requirement of a Social Impact Assessment
(SIA) to fasten the pace of land acquisition. However, our interaction with
stakeholders suggests that the land acquisition without involving/consulting
the locals or an informal consent creates local dissent and leads to severe law
and order problems. For instance, the Niyamgiri and Gandhamardan protest
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Figure 7 Critical rail projects could be
delayed
Source: BESI Research for estimates, Ministry of Coal
Critical rail line Govt timeline Our estimate
Odisha Jul-16 FY19
Jharkhand Jun-16 / Dec-17 FY20 / FY21
Chhattisgarh Dec-17/Mar-18 FY20 / FY21
Administrative difficulties: Our interaction with experts suggests that it will
take time to restart the land acquisition process in most states due to
procedural challenges:
 Currently, land acquisition is on hold in most places as the parties are
waiting for the final act and don’t want to decide on rules that could
undergo changes.
 Once the new act is in place, the states will need to tweak their R&R
policy accordingly.
 Some institutional set up needs to be put in place by the state
governments like the nodal officer where the proposal is sent to, a
committee that scrutinises proposals among others.
Common mistakes: Our interaction with experts suggests there are common
mistakes made by companies when acquiring land for coal mining:
 They start applying for land for a R&R colony after they acquire land
for coal bearing areas. Instead they should have started work on R&R
simultaneously.
 When the collector assigns land for the R&R colony, the officials don’t
consult the locals to find out whether they are satisfied with the
location of the colony.
 Most companies outsource the SIA to outside agencies. If these
agencies don’t carry out the SIA properly, the wrong data points lead
to unrest among locals and delays.
Challenge #2: Slow progress on coal evacuation bottlenecks due to land
acquisition and financing problems
The government has identified three critical lines for coal connectivity – one
each in the states of Jharkhand, Chhattisgarh and Odisha. The overall progress
seems to be slower than expected and we see a risk that all the projects will
miss the deadlines.
Three critical Railway lines:
 Line#1 Jharsuguda- Barpalli line in Odisha (53km): This rail link
connects the IB valley coal blocks and has capacity to evacuate 30mt
initially and 60mt after doubling the length of the line. The
government targets to complete the line by July-2016 but we expect
it to be delayed to Dec-2018. The line is expected to improve the coal
connectivity to MCL (Mahanadi coal fields) – CIL’s subsidiary.
Why do we expect a delay? This line is the most advanced amongst
the three. The stage II FC was received in June 2014. However, the
acquisition of tenancy land near Jharsuguda and Barpalli is still
pending. Our checks suggests that there are three reasons for delays
in land acquisition: a) Odisha’s R&R policy is very stringent and time
consuming; and b) most land owners in the Jharsuguda region are
people who were rehabilitated during the construction of the Hirakud
dam and hence oppose this now; and c) land owners want to see the
final land acquisition act before letting go of their land. Hence, it
seems to us that the land acquisition will take one more year and the
line construction could take another 2.5 years, leading to a delay of at
least a year.
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Figure 8 Coal blocks that benefit from this Odisha line Figure 9 MCL– breakdown of coal transport FY14
Source: BESI Research, Coal India Source: BESI Research, Company Data
 Line#2 Tori- Shivpur line in Jharkhand (44km): The rail line connects
the North Karanpura coal field and has capacity to evacuate 60mt.
The government targets to complete the line by Jun-2016 but we
expect the line to get delayed to Jun-2019. The line is expected to act
as coal connectivity to CCL mines (Central coal fields – a subsidiary of
Coal India).
Why do we expect a delay? The line has received stage II forest
clearance in 2013. However, progress on land acquisition has been
slow. As of Feb-15, railways were only in possession of 55% of the
land. Moreover, the land is in patches and hence no work can start.
The delay is mainly due to very old land records of the Jharkhand
state, which results in frequent ownership changes. Hence, it seems
that the land acquisition process will take one more year and the final
completion another 3 years.
Figure 10 Coal block that benefits from Jharkhand lines Figure 11 CCL – breakdown of coal transportation FY14
Source: BESI Research, Company Data Source: BESI Research, Company Data
 Line#3 Bhupdeopur- Gharghoda- Korba in Chhattisgarh (180km): The
line connects the Korba coal fields. The line received the stage-I
clearance in Feb-2015 and stage II clearance in May-15. Our checks
suggest that around 50% of the tenancy land has been acquired but
the railways JV has no possession of land as of now. The tendering
process will start only after the railways JV has physical possession of
land. Our checks suggest that the line will take at least three years
after the land acquisition. We do not expect the final completion
before December-2019. The line is expected to improve coal
connectivity to the mines of SECL (South eastern coal fields – a
subsidiary of CIL).
Project Current
Production
Additional
by FY20
(mt)
Mine type
Kulda 4.8 10 Ongoing
Siarmal - 10 Future (40mt capacity)
Garjanbahal - 10 Future
Total 30 Rail
63%
Road
21%
MGR
14%
Others
2%
Project Current
Production
Additional
by FY20
(mt)
Mine Type
Chatti Bariatu - 7 Future
Kerandari - 6 Future
Amrapali 3 9 Ongoing
Magadh 2 18 Ongoing
Sanghamitra - 20 Future
Pachra - 15 Future
Total 75
Rail
50%
Road
30%
Feed to
washery
20%
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Figure 12 Coal blocks that benefit from the Chhattisgarh line Figure 13 SECL – breakdown of coal transportation FY14
The status of other coal connectivity projects apart from critical rail projects is
set out below.
Figure 14 Status of other coal connectivity projects
Source: BESI Research, MOEF, Ministry of Railways
Availability of rakes for coal evacuation:
As per the coal secretary, Coal India plans to buy 200 rakes over the next five
years for coal evacuation. This will entail an investment of approximately
INR30b for 12,000 wagons (60 wagons per rake).
Figure 15 Coal India rakes per day- CIL expects 234rakes/day in FY16E Figure 16 Key subsidiaries’ rakes per day (CAGR FY10-14)
Project Current
production
Additional
by FY20
(mt)
Mine type
Syang 20 Future
Pelma - 10 Ongoing
(capacity 15mt)Jampali 2 Ongoing
Rai - 5 future
(capacity 15mt)Total 37
Rail
38.9%
Road
33.9%
Belt
4.3%
MGR
20.1%
Own
Wagons
2.7%
Rail projects Coalfields State Subsidiary Distance
km
Capital
(Rs bn)
FC Est. date of
completion
Comment
Shivpur -Kathautia
(Hazaribagh)
North
Karanpura
Jharkhand
CCL
48 19.83bn Applied for stage I FC
on April 2015; Forest
land = 368ha FY21
Three years for FC and land acquisition +
three years for construction. The CIL,
Railways and State recently signed MOU to
expedite the coal connectivity projects
including this project
East-West Corridor
(Gevra - Pendra , via
Dipka, Katghora,
Sindurgarh, Pasan)
Mand-
Raigarh
Chhattisgarh
SECL
122 Est
15bn
Applied for stage I FC
on September 2014;
Forest land 500ha
FY20
In-principle approval accorded in Feb-2015.
We estimate two years for land acquisition
and forest clearance and three years for
construction of line
North Corridor -
(Surajpur-Katghora-
Korba)
Mand-
Raigarh
Chhattisgarh
SECL
77
Angul-Tacher Bulb line Talcher Odisha
MCL
85 52bn
Shipur - Chhatti Bariatu North
Karanpura
Jharkhand
NTPC
14
------- Initial stages and not yet applied for forest clearance ------
To be implemented by JV of IDCO - IRCON - MCL; considering all funding options
including PPP
In PR stage, important for connecting Chhatti Bariatu mine with the Critical railway line of
Tori Shivpur
154
159
168
184
190
210
234
100
120
140
160
180
200
220
240
260
FY10 FY11 FY12 FY13 FY14 FY15 FY16E
Rakes/day Company FY10 FY11 FY12 FY13 FY14 CAGR
ECL 12.6 13.4 14.8 17.8 18.0 9%
BCCL 15.5 18.5 19.8 20.8 22.2 9%
CCL 22.9 23.7 25.4 27.3 25.2 2%
NCL 16.3 16.9 17.7 18.7 20.9 6%
WCL 16.2 13.7 14.0 15.2 15.7 -1%
SECL 29.9 29.9 31.8 32.9 34.3 3%
MCL 40.0 42.3 43.5 50.8 53.5 8%
NEC 0.8 0.8 0.7 0.6 0.4 -13%
CIL 154.1 159.2 167.7 184.0 190.2 5%
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It takes 3 years for Forest Clearance &
1.5 years for Environment Clearance
after a public hearing
Improper public hearing & potential
violation of FRA rights are key local
grievances
Figure 17 Takeaways from meeting with railway officials and railway project experts
Is there a need to augment railway main line capacity to complement the coal connectivity projects? Most of the increased coal
traffic will be on the already busy Mumbai-Howrah line and this may need significant augmentation. The traffic issues on the
main line can be partly resolved through optimally staggering the traffic. However, there will be need to augment the main line
rail capacity. The traffic problems on the main line are majorly during the peak period of 6-7 months. The traffic during the
non-peak period of 6-7 months may be manageable.
Funding the main line augmentation projects: The recent rail budget emphasised raising external sources of funding. The
railways have already entered into a JV with Coal India and the state government to fund the coal connectivity projects. As per
the railway official, it´s possible the JVs could also fund the main line augmentation projects required after the commissioning
for coal connectivity projects.
Also, railways are looking at PPP models to attract funds.
On new line construction: It takes at least 2.5-3 years for a new line construction of 100km length after the land acquisition
process is complete. There are several processes that need to be adhered to. For instance, in the Koderma -Tillaya railway line,
the forest clearance process took a long time and was granted in Dec-14. However, the compensation money was deposited
only in May-2015. The assessment of forest officials on wild life and other matters took five months.
Land acquisition is the biggest challenge for railway projects: There are three types of land that needs to be acquired –
Government land, Private land / tenancy land and forest land
 Government land - This is the easiest to acquire if the state wants the project to happen.
 Private land: The process takes about 1-1.5 years (approx) if everything goes well. The major problem here is the land
records. Mostly the records are incomplete. Also, the tillers of the soil (framers who act as contractors with whom the
land holders have a contract) are difficult to identify. Many issues related to faulty records and tillers come up after
the compensation is paid. Currently, acquiring private land is on hold till the new land acquisition ordinance becomes
an act.
 Forest land: The forest land acquisition takes time as forest clearance (FC) is required. There are issues of wildlife and
tribal rights which may delay the process. Generally, the process of FC is: the proposal is weighed up by state govt,
then the central government. An assessment is carried out to see the impact on the forest and then appropriate
compensation is paid. After that, the process for approval of tree felling starts. The number of trees to be cut is
identified and clearance is sought. The wood from cutting the trees is then handed over to the forest department.
To use the railways act provisions for land acquisition, the project should be notified as a project of national importance. The
railways use the R&R policy of the state government.
Size of tenders/contracts by railways: It is ideal to give a complete line contract to one contractor. However, the sizes are small
due to practical difficulties – a) as soon as government land is acquired the contracts of bridges are awarded (area near rivers
is generally govt. land); b) other patches are awarded based on land availability; c) sometimes the budget allocations in a year
to a specific project is so small that the contracts have to be small.
Source: BESI Research
Challenge #3: Environment and forest clearances
Industry participants typically feel that the environment and forest clearance
is a time-consuming process. It takes a minimum of three years to get a forest
clearance and a minimum of 1.5 years for environment clearance after
completion of a satisfactory public hearing.
Two key grievances that local activists typically have are:
a) Public hearing is not conducted in a proper manner. The public
hearing is a part of environment clearance and involves consultation
with the local people. This acts as a platform for locals to register
their grievances. These grievances are taken into account by the
committee that grants clearances.
b) Companies have allegedly violated the provision of the forest act
(FRA 2006): As per the FRA act, the forest land can only be acquired
after the rights of individuals and community are established by the
gram sabhas. This process is apparently incomplete in most forest
dwelling areas according to NGOs we spoke to in various regions,
although this lacks verification. However, some companies may have
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T Subramanian suggests radical
changes to Environment policy…..
….. But critics believe the committee
failed to review Supreme Court and
NGT judgements related to forest and
environment.
acquired land without the recognition of these individual and
community rights, which if confirmed would be a violation of the act.
The sub-committee of environment ministry also found this in their
survey of the PEKB mine.
What has the government done to resolve clearances bottlenecks?
Easing of norms for expansion of projects: In July 2014, the MOEF exempted
the coal mines from a public hearing to increase the capacity of existing mines
by 25%. This is subject to a cap of a 2mt increase for transportation by road
and cap of a 5mt increase for transportation by railway.
High level panel to look into MOEF laws: The newly elected government
constituted a high level panel under the chairmanship of T Subramanian to
make recommendations on the laws of environment and forest. The key
recommendations were:
Critics of this report that we met have told us that they think the above
recommendations are aimed towards: a) diluting the environment protection
acts in the name of fast-tracking clearance; b) diluting the process of public
participation; c) undermining the decade-long struggle for forest and
environment protection. Their view is that the committee failed to review
several judgments of the supreme court and the NGT, which suggests hasty
approvals by the authorities.
Challenge #4: Trust deficit between locals and corporates:
CIL was a virtual monopoly till 2004 after which many government and private
players got into development of coal blocks. The inexperience of the new players
coupled with pressure to fast-track projects has led to cases of violation resulting
in a trust deficit between locals and corporates (see case studies).
We came away with the impression that the main problem in the sector is if
companies don’t adhere to the prescribed rules at first and spend a lot of
money and later they ask for reprieve based on a ‘fait accompli’. Should this
happen this can lead to a trust deficit between the locals and the company.
The case studies we mention below illustrate this viewpoint.
Could there have been any FRA rights violation?: Our interactions in
Chhattisgarh suggest there is a risk there may have been some process
irregularities in implementing the FRA act. As per FRA, the land cannot be
acquired until the rights of individual and community has been recognised by
the Gram Sabha. Following our on-the-ground check with NGOs, we were left
with the impression that no areas in Chhattisgarh have completed this activity
of rights recognition. A fact-finding subcommittee of the ministry of
Figure 18 T Subramanian committee report to review various acts of MOEF (Nov 2014)
Source: Ministry of environment, T Subramanian committee report. This is a high level committee set up by the government.
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East India, where coal reserves are
highest, has the most forest cover
East India, where coal reserves are
highest, has the highest tribal
population
environment and forest while examining such claims at the PEKB mine in
Chhattisgarh also mentioned this in its report. However, there have been
instances where the gram sabha issues a letter to the collector saying that “no
individual rights under FRA pending”. Many projects have already acquired
land without official completion of the process by a gram sabha and if
confirmed this could potentially be a violation.
The N. C. Saxena committee report in 2010 on Niyamgiri mining in Odisha
(committee set up by the ministry of environment and forest) suggests poor
implementation of the FRA act by the local and state authorities. According to
the report, some local authorities have allegedly gone to the extent of
forwarding false certificates from Gram Sabha stating that the forest rights of
the community have been recognised.
PESA violation? In areas occupied by tribals (marked as schedule V areas), the
Panchayats extension to the scheduled areas act (PESA) is applicable. As per
the act, gram sabha /panchayats need to be consulted before acquiring this
land. The gram sabha has the power to prevent alienation of land in scheduled
areas. Feedback from NGOs in the region suggests the possibility that the
provisions of the PESA may have not been followed in most cases. Conversely,
according to SECL, (Coal India subsidiary), the provisions of PESA are not
applicable when the coal bearings act (CBA act) is applied for acquiring land.
Figure 19 Forest areas (gross %) in various states (2013)
Source: BESI Research, Government of India
Figure 20 Tribal population in various states (2011)
Source: BESI Research, Ministry of tribal affairs
9% 10%
6%
23%
18%
20%
30%
37%
44%
13%
20%
31%
11%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Jammu&Kashmir
Rajasthan
Punjab
AndhraPradesh
TamilNadu
Karnataka
Jharkhand
Odisha
Chhattisgarh
WestBengal
Maharashtra
MadhyaPradesh
Gujarat
North South East West
12%
14%
7%
1%
7%
26%
23%
31%
5%
9%
26%
15%
0%
5%
10%
15%
20%
25%
30%
35%
Jammu&Kashmir
Rajasthan
AndhraPradesh
TamilNadu
Karnataka
Jharkhand
Odisha
Chhattisgarh
WestBengal
Maharashtra
MadhyaPradesh
Gujarat
North South East West
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We highlight below a few violations that courts have actually recognised.
Figure 21 Kudgi TPP of NTPC – Improper declaration of details
Source: BESI Research,, National Green Tribunal order dated 13.03.2014
Figure 22 NGT cancels EC of Dheeru Powergen Private Limited
Source: BESI Research, National Green Tribunal order dated 16.04.2013
Figure 23 Parsa East and Kante Basan – arbitrary rejection of FAC advice
Source: BESI Research, Company Data, National Green Tribunal order in March 2014
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NTPC terminates contract with Thiess
India on alleged non-performance
Our checks suggest NTPC’s Pakrih
Barwadih mine will be delayed to at
least to 2017
Figure 24 Multiple reasons for possible delay
Source: BESI Research, High court order
Case Study 1 – NTPC coal mining project of Pakrih Barwadih
We visited Barkagaon village to get on-the-ground status of the mine
We visited Jharkhand and met NGOs, miners and locals in that region. We
travelled to the Barkagaon village (near Hazaribag) which lies near NTPC’s
mines -Pakrih Barwadih, Chatti Bariatu and Kerandari. Our checks suggest that
the mines could be delayed to at least 2017.
There seems to be a genuine local opposition to NTPC’s mining plan in that
region due to:
 Unpopular compensation package: NTPC is not offering jobs to the
locals as a part of the compensation package. This is contrary to
other PSUs like Coal India that offer one job for every 2-3 acres
acquired and enjoy relatively good goodwill amongst locals.
However, around three months back NTPC changed its compensation
package and this seems to have been well received.
 Very few schemes of community service: NTPC runs a medical facility
for the locals at its site office. However, NTPC has not yet completed
it R&R colony (awarded contract). It currently has no training centres
for skill development or a school in that region.
Termination of Thiess India’s contract could lead to legal uncertainty at the
Pakrih Barwadih coal mine.
The termination of the contract with the Pakrih Barwadih mine operator
(MDO), Thiess India, could further aggravate the situation. NTPC says it has
cancelled the contract of the mine developer, Thiess India, on alleged non-
performance (Source: high court order). The cancellation is despite NTPC
claiming readiness at the mine site and citing several issues beyond its control
in its communication to the ministry. After the high court order, the parties
have gone for arbitration and the proceedings are in progress. Although the
arbitration panel has not granted a stay of appointment process of a new
MDO, there could be practical difficulties for NTPC in going ahead. This could
potentially delay mining operations at the Pakrih Barwadih mine, in our view.
More importantly, such incidents could potentially discourage foreign miners
from starting operations in India. Foreign mines could bring in technology that
could set a) mining standards; b) environmental standards; and c) safety
standards for the industry. The fresh bids called for by NTPC for the Pakrih
Barwadih coal mine requires bidders to have experience in land acquisition.
Such conditions will keep away foreign miners, in our view.
Figure 25 Sequence of events between NTPC and Theiss India
July-2011- NTPC and Thiess India sign contract for development of Pakrih Barwadih
July -2012: NTPC issues show-cause notice to Thiess for delays
June-2013: NTPC informs Power ministry of NTPC's readiness to start the mine but
lists several problems where it required support from the state government.
May-2014 : After several meetings, NTPC terminates contract with Thiess
July-2014: Single bench of high court decides in favour of NTPC.
Aug-2014: Division bench of high court directs the parties to create an arbitration
panel within 45days.
Oct-2014: Arbitration panel formed
Source: BESI Research, High court order dated 01.07.2014
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NTPC is yet to build the R&R colony
and conveyor system from mine to
railway siding
But informs the ministry of its
readiness to start the mine highlight
issues beyond its control
NTPC’s inexperience in handling
encroachers in the region
Law and order problems and illegal
mining further exacerbates the
situation
Figure 26 Snippets from NTPC’s communication to Government of India on 19.06.2013
As you are aware, NTPC is in advanced stage of coal extraction from Pakri-
Barwadih Mines. We need urgent assistance from the Jharkhand Government
on the following:
Our equipments are lying at the mine-mouth. However, there are some 200
plus families, who are unauthorized encroachers on the forest land in Chirudih
village. We have requested the State Government to evacuate them and
indicate, if any, compensation that needs to be paid. The State Government is
yet to confirm.
Out of 665 acres of Government land, 3 acres have been transferred to NTPC,
499 acres have been approved for transfer, 142 acres is pending for transfer
with the State Government and for the balance 21 acres there is no record
available with the State Government.
Transfer of the total Government land and the settlement of occupants who
are not eligible, as per the Jharkhand Government’s policy decision order of
May 2009 also needs to be addressed by the State Government immediately.
The present Government has also approved R&R Plan on 15-02-2013 and the
order was issued on 27-02-2013. However, we are having difficulty in
identifying the beneficiaries
Source: BESI Research, High court order dated 01.07.2014
NTPC’s reluctance to compensate encroachers without a formal state
government policy shows NTPC’s lack of experience in the region:
Our checks indicate that the land records of the region are ~100yrs old and
hence identifying people to be compensated becomes tough. After a detailed
survey by NTPC, it was found that there are 200 plus families in that region
without records and termed as encroachers. NTPC says it does not want to
compensate these families without a state government policy or a guideline.
However, in its revised compensation package, the company has offered to
pay these families.
Our checks also highlighted problems of illegal mining and law and order
problems in the region
NTPC has revised the R&R package several times to meet the local demands
but they have yet to be accepted according to the company.
Status of the coal mines of NTPC in North Karanpura region
Pakrih Barwadih Coal mine: We expect the mine to be delayed to at least
2017. Only 3 acres out of the required 655acres of land is in the possession of
NTPC (as of Jan-15). Moreover, NTPC is yet to build an R&R colony. Also,
vendors have not been able to operate as their offices have been vandalised
by locals. Further, the contract termination of Thiess could further add to
delays due to court proceedings.
Chatti Bariatu coal mine: We expect a delay of at least two years. Our checks
suggest that the mine operator is carrying out the land survey in the region.
However, the work is slow as the contractors are apparently unwilling to work
in this area due to public unrest against NTPC.
Kerandari coal mine: Not much work on the ground. Moreover, the evacuation
of coal will be through the Tori-Shivpuri railway line, which should only come
not before FY20.
Figure 27 Status of NTPC’s North Karanpura project
Mine Usage Peak
production
Status
Pakri
Barwadih
Basket source
for north plant
15 Expect delay of atleast two years due to local opposition, law
and order problems, cancellation of contract with mine developer
Chatti
Bariatu
Barh-II, Tanda,
Darlipali
7 Recently de-allcated but mine developer carrying our survey.
Evacuation linked to the delayed Tori Shivpuri railway line
Kerandari Barh-II, Tanda,
Darlipali
6 Evacuation linked to Tori Shivpuri railway line; alternative
evacuation is under consideration
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Figure 28 NTPC projects based on these mines Figure 29 CIL projects in this region
Figure 31 Hazaribag- Banadag railway line Figure 32 Vandalised site office of contractors
Source: BESI Research Source: BESI Research
Figure 33 Abandoned structures erected for conveyor system (13km)
Projects Capacity
(MW)
Schedule
Vindhyachal-V 500 FY16
Barh II 1,320 FY14, FY15
Kudgi 2,400 FY16,FY17, FY17+
Lara 1,600 FY17+
Darlipalli 1,600 FY17+
Gadarwara 1,600 FY17+
Projects Capacity
(MTPA)
Subsidiary
Amrapali 12 CCL
Magadh 20 CCL
Figure 30 North Karanpura region
Source: Greenpeace report
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The PEKB coal mine is situated in the
north of the Hasdeo-Arand forest. This
area is considered rich in bio-diversity
and wildlife. Also, the region has a
Bango dam with a reservoir area.
As per study conducted, Parsa East
Kente Blocks have Weighted Forest
Cover (WFC) >10% & Gross Forest
Cover (GFC) >30% which makes it
Category ‘A’ area
Case Study 2 – RVUNL’s Parsa East Kante Basan coal mine in
Chhattisgarh (Unlisted state government company)
We visited Chhattisgarh to understand mining problems
We visited Chhattisgarh and met miners and NGOs in that region. The case of
Rajasthan Vidyut Utpadan Nigam Ltd. (RVUNL’s) coal block - Parsa East and
Kante Basan (PEKB) was widely discussed as an example that encompasses a
host of challenges and violations in that region. The NGT cancelled the forest
clearance of the block in March 2014.
What is wrong with the PKEB mine of RUVNL (miner: Adani mining)?
The NGT (National Green Tribunal) cancelled the forest clearance for the coal
blocks citing that: a) although the FAC did not recommend clearance, it did
not examine all relevant facts and circumstances; b) the Minister acted
arbitrarily and rejected the FAC’s advice. Our discussion with locals highlight
below issues:
Wrong/incomplete disclosure of forest density and wildlife leading to
inadequate assessment of impact on environment: The Hasdeo Arand region is
a forest area rich in bio-diversity. There may be wrong disclosure of forest
density and wildlife in the forest area of the mine as per a fact-finding
committee of ministry of environment.
The findings of the forest sub-committee that visited the site were that: a) in
several places the crop density was shown to be much lower than it actually
Figure 34 Hasdeo Arand region in Chhattisgarh state
Source: Greenpeace report
Figure 35 Sequence of events – PEKB coal mine (JV of RUVNL and Adani mining)
2.3.2011- RUVNL submitted revised proposal regarding sequential mining of coal in
2 phases
10.3.2011- FAC appointed sub-committee to inspect and provide findings
21.6.2011- Based on sub-committee observations, FAC does not recommend
diversion of forest land
23.06.2011- MOEF Minister disagrees with FAC, grants stage 1 Forest clearance
21.12.2011- MOEF grants environmental clearance to PEKB Opencast coalmine
project of 10MTPA production capacity & pit head coal washery of 10MTPA
15.3.2012- Stage II forest clearance granted to the project
24.3.2014- NGT cancelled forest clearance and asks MOEF to take a fresh view.
Mining suspended.
Source: BESI Research, NGT order dated 24.03.2014
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Figure 36 What the locals and forest sub-
committee are suggesting about the mine
Source: BESI Research, On the ground checks, National green
tribunal order
Figure 38 Other coal blocks in
Hasdeo-Arand region
Source: BESI Research, Greenpeace Report
Coal Blocks
Morga I & II
Morga III
Morga IV
Paturia & Gidmuri
Chotia
was; b) the team visits confirm the presence of elephants and that the area
possibly serves as elephant corridor. (Source: NGT order 24.03.2014)
We were told by some locals that a large part of the Hasdeo-Arnand forest
was proposed to be identified as the Lemru Elephant reserve and was
approved by the Chhattisgarh assembly in 2007. However, CII’s
(confederation of Indian Industry) letter stating the presence of coal deposits
led to the government’s change of mind. The locals said they felt that the
mining could lead to increased incidence of wildlife and human conflict in that
region.
As per a study conducted by the ministry of coal and ministry of Environment
in 2010, the blocks are a category ‘A’ forest area i.e. >30% gross forest cover
and >10% weighted forest cover.
Possibility of Forest dwellers act 2006 (FRA) violation: Some locals we spoke
to claim the process of settlement of community rights on the forest as the
FRA act is incomplete. As per the provision of FRA act, the forest diversion
should only be done once the rights of individuals are settled. Locals pointed
out that the rights of individuals in the seven affected villages were handed
over only after the land acquisition was completed. Hence, there seems to be
a risk of a violation of the FRA act.
Also, the sub-committee of FAC that visited the site mentioned: “As per the
nodal officer the process for settlement of community rights in accordance
with forest dweller’s act on the forest land proposed for diversion have not
been completed, so far” (Source: NGT order 24.03.2014).
Locals unhappy with the progress of rehabilitation and resettlement (R&R):
The locals we met also claim that the complete R&R activities were supposed
to be completed before the start of mining activities. However, the activities
are yet to be completed. Moreover, the rehabilitation is planned in the
adjacent Besan village, which itself is a coal bearing area. Also, the residents of
Besan are opposing the activities to settle these affected villages given
increased pressure on their forest lands.
Possibility of Panchayat extension to scheduled area act (PESA) violation: The
entire region is a Schedule V area as per constitution and hence the PESA act
is applicable. This means consent of gram sabha is required before clearance
for mining projects (similar to Niyamgiri). An NGO operating in the region
expressed concern about the process followed by the gram sabha for
approving the mining project.
Failure to mention railway project for coal evacuation in EIA: The locals we
met say that in the Environment impact assessment (EIA) report, there was no
mention of the construction of a railway project for coal evacuation and is a
critical element from an environmental standpoint.
Figure 37 PEKB are category ‘A’ forest area as per the study
Tara
Central
Parsa Parsa
East
Kente Parsa East
plus Kente
VDF 1,529 120 - 205 205
MDF 363 514 380 460 840
OF 36 49 141 201 342
Total Forest Cover 1,928 683 521 866 1,387
Scrub - - - - -
Water - - - - -
NF 475 555 746 486 1,232
Grant Total 2,403 1,238 1,267 1,352 2,619
Weighted Forest Cover 1,508 397 244 478 721
% Weighted forest cover
(WFC)
62.8% 32.1% 19.3% 35.3% 27.5%
% Gross forest cover (GFC) 80.2% 55.2% 41.1% 64.1% 53.0%
Status as per % WFC and
GFC with the threshold limit
of 10% & 30% resp
A A A A A
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Expect Coal India to miss its 2020 target by a wide margin
Based on our on-the-ground checks in each region, we have analysed key
projects to arrive at a production estimate for CIL. We estimate 6.7% CAGR
growth in CIL’s production, substantially lower than CIL’s estimate of 13%
CAGR over FY15-20. We have assessed CIL’s roadmap and believe that the
targets are aggressive. In fact, we point out instances where the targets look
extremely aggressive.
Figure 39 We estimate CIL’s production to grow 6.7% CAGR over FY15-20
Source: BESI Research for estimates, Company targets
Our detailed analysis of key projects suggests production of 684mt by 2020
We analyse 30 key projects that could potentially add ~300mt by FY20 as per
CIL’s target. We have quantified the key challenges (we highlighted in the
previous section) by analysing a number of Project affected families (PAFs),
the percentage of forest cover and current status of the project. Our analysis
suggests that
 Status - at PR stage: 36% of 300mt incremental capacity that we
analysed are still in the project approval stage (PR Stage)
 Status at Public hearing stage: Just 38% of 300mt incremental
capacity that we analysed have completed the public hearing
process, although some of the hearings were not satisfactory.
 Land acquisition challenges: 57% of 200mt incremental capacity that
is approved and analysed have more than 1000 project affected
families and could face land acquisition and R&R challenges.
 Forest clearance challenges: 27% of 200mt incremental capacity that
is approved and analysed have >25% forest land in its overall land
requirement. These may get delayed on account of forest clearances.
Figure 40 Key Challenges to the increase coal production Figure 41 Quantifying the challenges in ramping up production
Source: BESI Research Source: BESI Research
548
598
661
774
908
528
555
584
634
684
400
500
600
700
800
900
1,000
FY16 FY17 FY18 FY19 FY20
MT
CIL target Our estimate
6.7% CAGR
13% CAGR
•Higher PAFs increase the time of land
acquisition due to higher R&R requirementHigh PAFs
•Higher forest cover increases time of
forest clerance due to requirement of
Gram sabha consent
High Forest Cover
•Acquiring agricultural land has been a
source of local opposition especially in
Odisha and West Bengal
High Tenancy
Land
•Dependency on coal connectivity projects
could delay projects if the railway line
gets delayed.
Coal Evacuation
36% 38%
27%
57%
43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Project
approval stage
Public hearing
completed
>25% forest
land
>1000 PAFs Dependence on
critical rail
projects
Out of the ~300mt additional
projects analysed by us
Out of the approved ~200mt additional
projects analysed by us
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Figure 42 Estimated practical time taken from PR Approval to start of mining- based on our checks
Figure 43 Our estimate of CIL’s production of 684mt by FY20E
Source: BESI Research for estimates,Ministry of environment, Ministry of railway, on-the-ground checks, Ministry of Coal
TOR
Public
Hearing
Environment
Clearance
Stage I Forest
Clearance
Environment
Impact Assessment
Land Acquisition
Stage II
Forest
Clearance
0.5 years 1 year 1.5 years
1.5 years
4-5 years
PR Approval
5.5 - 6.5 years
Major challenges /assumption
Opencast Projects Incremental FY15 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20
SECL
Kusmunda expansion 32.0 18.0 20.8 24.8 25.0 37.0 50.0 18.0 18.0 18.0 20.8 24.8 8200 PAFs; Opposition in public hearing
Gevra Expansion I (35-50) 24.0 - - - 4.0 9.0 24.0 - - - - - PR approval pending; 80% tenancy land
Dipka Expansion 1.0 30.0 30.0 31.0 31.0 31.0 31.0 30.0 31.0 31.0 31.0 31.0
Madannagar 2.0 - - - - 0.5 2.0 - - - - - Yet to submit PR
Pelma OCP 10.0 - - - 1.6 4.0 10.0 - PR approved; yet to apply for TOR
Rai OCP 5.0 - - - 3.0 5.0 - - - - - PR yet to be approved by the CIL board
Other future projects 12.0 1.0 1.0 2.0 6.1 12.8 1.0 1.0 1.0 1.0 2.0 assume two year delay to CIL estimates
Others 22.0 83.3 92.9 97.4 102.5 104.8 83.3 92.9 97.4 102.5 104.8 same as CIL estimates
Total 108.0 128.3 135.0 149.7 161.0 193.1 239.6 132.3 142.9 147.4 155.3 162.6
MCL
Siarmal 10.0 6.0 10.0 - - 2454 PAFs; 83% tenancy land
Talabira II & III 10.0 4.0
8.0
10.0 - - - JV mine now de-allocated; 1894 PAFs; 54% forest
land
Gopalprasad 15.0 4.0 11.0 15.0 - - - JV mine now de-allocated; 68% tenancy land
Garjanbahal 10.0 5.0 10.0 5.0 10.0 Coal evacuation/land problem; EC available
Kulda & Kulda Exp 10.2 4.8 7.0 12.3 12.3 13.8 15.0 7.0 7.0 7.0 10.0 12.3 R&R /coal evacution; EC for 15mt not applied
Hingula-II OCP Expn. 8.5 3.5 5.0 8.8 10.0 11.0 12.0 5.0 8.8 10.0 11.0 12.0 Land/ R&R problems; EC available upto 12mt
Ananta III (12- 15/ Peak 20 MT) 11.0 9.0 12.0 14.5 16.0 18.0 20.0 12.0 12.0 12.0 14.5 16.0 EC for exp in Dec-14; 689PAF, 33% forest land
Bharatpur (20MT) 12.5 7.5 17.0 19.0 20.0 20.0 20.0 10.0 11.0 13.0 15.0 15.0 only part FC hence assumed cap of 15mt
Lingaraj III - 16MT/ 20MT Peak 8.5 11.5 13.0 16.0 18.0 19.0 20.0 13.0 12.5 13.5 19.0 20.0 No additional PAFs, public hearing for exp done
Integ Belpahar Lakhanpur 30.0 30.0 - - - - 28.0 Yet to submit PR for expansion project; 28mt is
existing production of lakhanpur and Belpahar
Gopalji Kaniha 7.0 4.0 7.0 - - - - - Yet to submit PR
Others (4.1) 85.1 96.0 96.5 102.8 106.3 81.0 88.3 88.8 94.5 100.9 81.0 92-95% of CIL estimates to adjust for rake avail.
Total 128.6 121.4 150.0 167.0 187.0 222.0 250.0 135.3 140.0 150.0 175.4 194.3
CCL
Magadh 12 TO 20MT Exp 18.0 2.0 2.0 3.7 5.0 10.0 20.0 2.0 3.7 3.7 5.0 5.0 Land possession and coal evacuation
Amrapali 9.0 3.0 6.0 8.5 9.0 11.0 12.0 6.0 6.0 6.0 9.0 9.0 Land and coal evacuation; EC lapsed Jan-15
Ashoka EPR (6.5 TO 10) 12.0 8.0 9.0 10.0 12.0 14.5 20.0 9.0 10.0 10.0 10.0 10.0 Coal evacuation
Sanghamitra 20/27Mt 12.5 2.5 8.1 12.5 - - - Yet to receive TOR
Pachra (15/20) MT 15.0 3.0 8.2 15.0 - - - Yet to receive TOR
Others - future projects 2.9 0.3 1.1 1.7 2.9 - - - - Land possession and coal evacuation
Others 8.5 42.6 43.5 44.6 47.4 48.5 51.1 43.5 44.6 47.4 48.5 51.1 same as CIL estimates
Total 77.9 55.6 60.5 67.0 80.0 102.0 133.5 60.5 64.3 67.1 72.5 75.1
NCL
khadia 10 to 14mt expansion 6.5 5.5 6.0 8.0 10.0 10.0 12.0 6.0 8.0 10.0 10.0 10.0 PR yet to be prepared for 10-14mt exp
Dudhichua exp (14-19 MT) 6.0 - - - 3.0 4.0 6.0 - - - PR to be prepared; CIL's timeline for procurement
of equipment is mar-18
Jayant Expansion (12-25MT) 6.0 - - 1.0 3.0 4.0 6.0 - - - - - PR to be prepared; CIL's timeline for procurement
of equipment is mar-18
Bina Kakri Exp 10mt 1.5 8.5 8.5 8.5 8.5 10.0 10.0 8.5 8.5 8.5 10.0 10.0 FC for amalgamation applied in 2015; Bina and
Kakri operational
Other future projects 11.5 - - - 0.5 7.0 11.5 0.5 7.0 One year delay in the future projects
Others 6.0 58.5 65.5 64.5 65.0 64.0 64.5 65.5 64.5 65.0 64.0 64.5 same as CIL estimates
Total 37.5 72.5 80.0 82.0 90.0 99.0 110.0 80.0 81.0 83.5 84.5 91.5
ECL
SONEPUR Bazari ( 8 -12 mt) 4.5 6.5 7.0 7.5 8.5 10.0 11.0 6.5 6.5 7.0 8.0 8.0 railway siding and conveyor in FY17
Rajmahal Expansion 17MT 2.2 14.8 16.0 16.5 17.0 17.0 17.0 16.0 16.5 17.0 17.0 17.0 similar to CIL estimates; all clearance available
Others - future project 11.6 - - 0.4 1.5 5.8 11.6 - 0.4 1.5 5.8 assuming one year delay
Others 3.7 18.7 19.0 22.6 24.7 23.8 22.4 19.0 22.6 24.7 23.8 22.4 similar to CIL estimates
Total 22.0 40.0 42.0 46.9 51.7 56.6 62.0 41.5 45.6 49.1 50.3 53.2
BCCL 18.5 34.5 35.5 37.0 41.0 46.0 53.0 35.5 35.2 39.0 43.7 50.4 95% of CIL estimates
WCL 18.9 41.2 45.0 48.0 50.0 55.0 60.0 42.8 45.6 47.5 52.3 57.0 95% of CIL estimates
Total 411.3 494.0 548.0 597.6 660.7 773.7 908.1 527.9 554.5 583.6 634.0 684.0
Our expections of production (mt)CIL Production schedule (mt)
19

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Figure 44 Key details of each project
Source: BESI Research, Ministry of environement and forest, Ministry of Coal, Coal India
Our methodology of analysing projects: We have prepared a benchmark of
practical time taken to start a mining project after the project is approved
(See the chart below). We then deep dive into project specific challenges and
region specific challenges to conclude whether we think the project will
underperform or outperform the benchmark.
Instances of very aggressive projections in CIL’s roadmap
We have seen the detailed roadmap and analysed the details project-wise.
While the targets are generally aggressive, a few cases may be extremely
aggressive in our view.
EC Forest land
Stage 1 Stage 2
SECL
Kusmunda expansion 32.0 Aug-13 Dec-14 Feb-15 Pending Pending 8,200 11%
Gevra Expansion I 24.0 PR submitted ; approval expected shortly 16%
RAI OC 5.0 PR submitted ; approval expected shortly 13%
Pelma OCP 10.0 Nov-14 42%
Madannagar 2.0 At early stage 53%
Dipka
MCL
Siarmal 40mt 10.0 Mar-14 Feb-15 pending 2,454 17%
Talabira II & III 10.0 May-07 Pending Pending 1,894 54%
Gopalprasad 15.0 Dec-08 Pending Pending 9%
Garjanbahal 10.0 May-01 Dec-99 May-05 Pending 512 13%
Kulda 10.2 Yet to apply
Hingula-II OCP 8.5 Done Sep-
2009
EC upto
12MT
partial in
Jan-15
2,245 50%
Integ Belpahar Lakhanpur Lilari
OCP.
30.0 Done Pending Pending Not req
Lingaraj III 8.5 Done Exp
TOR Mar-
12
For
Expn in
Sep-14
EC upto
13mt in
Feb-06
No PAF 12%
Ananta III 11.0 Dne 2010 Recd in
Dec-14
689 33%
Bharatpur 12.5 Done Recd in
Oct-08
Stage II
partial
860 14%
Gopalji Kaniha 7.0 Yet to submit PR
CCL
Magadh 18.0 Done Aug-07 Oct-08 Dec-08 Oct-10 998 14%
Amrapali 9.0 Done EC
lapsed
Feb-09 Oct-10 544 56%
Ashoka OCP 12.0 Done Jan-12 Feb-14 244 50%
Sanghamitra 12.5 No TOR
Pachra 15.0 No TOR
NCL
khadia expansion 6.5 PR to be prepared - expansion
Dudhichua expansion 6.0 PR to be prepared - expansion
Jayant Expansion 6.0 PR to be prepared - expansion
Bina Kakri Amalgamation 1.5 Done Pending. NIL 370ha
ECL
Sonepur Bazari expansion 4.5 Jun-08
Rajmahal Expansion 17MT 2.2 May-05 1,737 5%
Coal Project Status of Clearance Land acquisition
Incremental
production
PR TOR
Public
hearing
FC Project affected
families (PAF)
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Figure 45 Instances of very aggressive targets of CIL
Figure 46 Instances of very aggressive targets of CIL
Where could we be wrong in our production estimates?
Change in process of obtaining clearances could make it less time consuming
and may lead to faster execution. The T.S Subramanian committee report is an
indication of government’s intentions. However, as we highlighted, these
regions have higher forest area and larger tribal populations compared to the
rest of India.
Change in land regulation: The removal of the consent clause and social
impact assessment clause may increase the pace of land acquisition. However,
informal consent is still required to operate in the regions to avoid law and
order problems. Moreover, given the federal structure, the state governments
will have to be on board.
No. Greenfield Project Company Expected
Production
by FY20
EC target FC target Land
target
Rail
target
Our Comments
1 Pelma -15MT SECL
10.0
Oct-16 Aug-16 Mar-17 Dec-17 Yet to apply for TOR but expect EC in
14months
2 Rai -15MT SECL
5.0
Mar-18 Mar-18
Stage II &
possession
Mar-18 Mar-18 Yet to get the project approval but expect
land by march-18
6 Gopalji Kaniha OCP MCL
7.0
Jan-17 Aug-17 &
Dec-17
Dec-15 Expect Stage I FC in Aug-17 but EC in Jan-
17; Stage I FC is pre-condition for EC.
8 Pachra OCP CCL
15.0
Dec-15 Sep-15 &
Jun-16
Mar-15 &
Jun-16
Jun-16 &
Dec-17
TOR yet to be granted but EC expected in
the next 6months
9 Sanghamitra OCP CCL
12.5
Dec-16 Sep-15 &
Jun-16
Jun-15 Jun-16 &
Dec-17
TOR yet to be granted but EC expected in
the next 18months
TOTAL 49.5
No. De-allocated Blocks Company Expected
Production
by FY20
EC target FC target Land
target
Rail
target
Our Comments
1 Talabira OCP MCL 10.0 Mar-17 May-16 &
Sep-16
Mar-17
2 Gopalprasad OCP MCL 15.0 Feb-16 &
Jun-16
Mar-17
TOTAL 25.0
These are JV Blocks deallocated in 2014.
Reallocation is yet to happen. Possibility of
EC lapse if Stage I FC is not submitted
before Sep-15.
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Government’s action positive but benefits will be back-ended
We believe the coal ministry, led by Mr. Piyush Goyal (Coal and power
minister) and Mr. Anil Swarup (Coal secretary), has taken the right steps in
policy direction. While the positive impact of some of the steps have started
to show, we believe the results from most steps are back-ended i.e. post 2019-
20.
Figure 47 Steps taken by the government in the coal sector
Source: BESI Research, Ministry of coal
Linkage auctions: Reforming the way coal is allocated
The government has initiated the process of auctioning coal linage to the un-
regulated sector and has come up with draft rules and is inviting comments.
Key points from the draft:
 Quantities: CIL will earmark quantities from select coal mining zones
for specific sub-sectors. The railway route planning will be aligned
accordingly. The maximum bid quantity will be the lesser of 15% of
auction quantity or 65% of end-use plant requirement.
 Tenure: Tenure of the linkage offered will be five years.
 Auction methodology: New methodology to ensure demand supply
equilibrium. The quantity bids will be for a price and the price will be
increased in steps to match the demand and supply.
 Others: CIL will chalk out auction calendar to minimise speculation.
FSAs to the non-regulated sector will be lapsed from July-2016.
Auctions will be conducted by CIL.
A) Will there be aggressive bidding?
We believe it is very likely that the bidding will be moderately aggressive
despite weak international prices given: a) the certainty of supply; and b)
based on its historical performance, consumer confidence in CIL meeting its
production target could be low. We believe bidders might be ready to pay a
premium to existing prices (INR 1750) and near to e-auction prices (INR 2450)
as:
 International coal prices low: Coal India in its recent analyst meet says
some consumers near the coast find international prices competitive
compared to CIL’s current prices for the non-regulated sector.
 Calendar of auction quantity but consumer confidence in CIL based
on its historical performance to meet production targets may be low:
Around 55mt of coal linkage will be auctioned. Also, CIL will come up
with a calendar of quantities to be offered.
• Speedy and transparent coal block auctions after the
cancellation of mines by supreme court
• Linkage auctions process initiated for non-regulated
sectors (non-power)
Auctions
• Ministry working on rationalisation and swapping of
coal linkages for about 32GW projects
• This process will de-congest the railway network and
also save an estimated Rs60bn in transport cost
Rationalisation
• Promoting use of technology to improve mining
efficiency
• workshop with equipment suppliers to generate idea
on use of technology in Coal mining.
Efficiency
• Collaborating with the railways and the states to
execute coal connectivity projects especially in Odisha,
Chhattisgarh and Jharkhand.
Collaboration
• Top level monitoring of the progress of coal blocks and
coal connectivity projectsMonitoring
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 Offers certainty for five years: The linkage auction is for five years and
offers a quantity commitment and could potentially command a
premium over imported prices (including inland transportation).
Hence, we believe there will be moderately aggressive bidding especially from
the end use plant located away from the coast and near mines.
B) Impact on CIL’s realization:
We estimate a 2.8% increase in CIL’s average realization on account of linkage
auctions from FY17 onwards. We expect the realization of linkage to the non-
regulated sector will increase to e-auction levels. CIL sold around 60mt to the
non-regulated sector under the FSA in FY15 at an average of INR 1,750/tn
against an e-auction price of INR 2,450. Hence, we see realization upside risk
for CIL from FY17 onwards if the upside is not passed on to power sector.
Figure 48 E-auction realisation trend
Coal block auctions – Speedy govt. actions but slow progress on the ground
Out of the total auctioned blocks capacity of 62mt, ~33mt are yet to become
operational. Most projects have clearances in place and could potentially ramp
up over the next three years.
Some observations related to non-operational blocks that are auctioned:
 More than 70% capacity has forest cover of more than 25% of total
land
 More than 30% capacity has more than 500 PAFs – significant for
forest areas.
For the power projects, coal blocks were won by the projects through
aggressive bidding. The project owner quoted aggressive thinking that they
will be able to pass on the burden to consumers by bidding for higher fixed
costs. However, the recent CERC directive has asked the state commissions to
cap the fixed tariff bids. The bidders have gone to the Supreme Court stating
that the law was changed after the bidding process was over.
1,846
2,599 2,544
2,182
2,450
-
500
1,000
1,500
2,000
2,500
3,000
INR/tn
23

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Figure 49 Coal blocks auctioned till date
Source: BESI Research, Ministry of Coal
Figure 50 Status of non-operational coal blocks that have been auctioned
Source: BESI Research, Ministry of coal
Block Schedule Status Successful Bidder End Use Date of
Auction
Winning Bid
(Rs/t)
Extractable
Reserves (mt)
Capacity (mtpa)
as per mine plan
Talabira I II Op GMR Chattisgarh Power 14.02.2015 478 28.8 3.0
Sarisatolli II Op CESC Power 15.02.2015 470 83.0 3.5
Trans Damodar II Op Durgapur Projects Power 16.02.2015 940 48.4 1.0
Amelia North II Op JPVL Power 17.02.2015 712 70.3 2.8
Tokisud North II Non-op/II Essar Power Power 18.02.2015 1110 52.0 2.3
Gare Palma IV/2 & IV/3 * II Op Jindal Power Power 19.02.2015 108 187.2 6.3
Jitpur III Adani Power Power 04.03.2015 302 65.5 2.5
Mandakini III Mandakini Expl. Power 05.03.2015 650 287.9 7.5
Nerad Malegaon III Indrajit Power Power 07.03.2015 660 10.3 0.4
Tara * III Jindal Power Power 07.03.2015 126 166.9 6.0
Ganeshpur III GMR Chattisgarh Power 08.03.2015 704 127.8 4.0
Utkal - C III Monnet Power Power 09.03.2015 770 123.9 3.4
Sial Ghoghri II Op Reliance Cement Non Power 14.02.2015 1402 5.7 0.3
Mandla North II Non-op/II JPA Non Power 16.02.2015 2505 84.0 1.5
Bicharpur II Ultra Tech Non Power 19.02.2015 3003 29.1 0.8
Gare Palma IV/8 III Ambuja Cements Non Power 08.03.2015 2291 11.8 1.2
Mandla South III Jaypee Cement Non Power 08.03.2015 1852 13.4 0.3
Lohari III Araanya Mines Non Power 09.03.2015 2438 58.4 0.2
Kathautia II Op Hindalco Non Power 15.02.2015 2860 26.0 0.8
Chotia II Op BALCO Non Power 17.02.2015 3025 18.0 1.0
Gare Palma IV 5 II Op Hindalco Non Power 19.02.2015 3502 50.0 1.0
Gare Palma IV/4 II Op Hindalco Non Power 21.02.2015 3001 15.4 1.0
Gare Palma IV/1 * II Op BALCO Non Power 21.02.2015 1585 49.6 6.0
Dumri III Hindalco Non Power 07.03.2015 2127 46.1 1.0
Belgaon II Op Sunflag Iron Non Power 15.02.2015 1785 14.2 0.3
Marki Mangli III II Op BS Ispat Non Power 16.02.2015 918 4.2 0.2
Ardhagram II Op OCL Iron & Steel Non Power 17.02.2015 2302 19.3 0.4
Gare Palma IV/7 II Op Monnet Ispat Non Power 21.02.2015 2619 56.6 1.2
Brinda & Sasai III Usha Martin Non Power 04.03.2015 1804 25.4 0.7
Moitra III JSW Steel Non Power 04.03.2015 1512 29.9 1.0
Meral III Trimula Industries Non Power 05.03.2015 727 12.7 0.4
Total 62.0
Block Production Coalfield Environment
Clearance
Forest Clearance Land Required Forest
Land
PAFs Accessibility
Tokisud North 2.3 South Karanpura, Jharkhand 10.4.2013 28.12.2011 584Ha Reqd distance of 2.5 km on Barakana-Barwaidh-Dehri line
Jitpur 2.5 Rajmahal, Jharkhand Obtained Stage-I 23.11.2012 300 Ha 36% 218 Pakur (Kiul-Bardhaman loop line of E Rly) about 70km
Mandakini 7.5 Talcher, Orissa 17.1.2011 09.10.2013 650 Ha 50% 958 Angul and Talcher
Nerad Malegaon 0.4 Vaidharbh Nadi, Maharashtra Obtained NA 465 Ha NA -
Tara * 6.0 Hasdeo-Arand, Chhattisgarh Approved Done 1801.31Ha 74% 397 Surajpur Rd Railway Station(40km away)
Ganeshpur 4.0 North Karanpura, Jharkhand 24.1.2014 19.12.2013 237Ha 71% 200 Mahuamilan 22 Km, Tori 27 Km
Utkal - C 3.4 Talcher, Orissa 5.10.2006 Done 576.55 Ha 156.81 Ha 143 Angul 16 Km
Mandla North 1.5 Pench , Madhya Pradesh 15.2.2012 18.10.2012 1034.48Ha 85% Parsia 12 km away.
Bicharpur 0.8 Sohagpur, Madhya Pradesh
Gare Palma IV/8 1.2 Mand- Raigarh, Chhattisgarh 22.12.2008 1.1.2013 491Ha 224.22
Ha
Howrah Mumbai line of South East Central railway.
Mandla South 0.3 Pench, Madhya Pradesh Obtained Done 560 Ha 210.8 Ha 16 Rawanwara Colliery – distance of 7km
Lohari 0.2 Daltonganj, Jharkhand Approved Approved 405 Ha 85.3 658 Kajri
Dumri 1.0 North Karanpura, Jharkhand 24.11.2014 Stage-I done 279Ha 66% 534 Ray railway station(40 km)
Brinda & Sasai 0.7 North Karanpura, Jharkhand 17.5.2007 11.02.2011- FC 1377.62 Ha 46% 45 Ray railway station(40 km)
Moitra 1.0 North Karanpura, Jharkhand 16.5.2007 obtained- 11.12.2013 293.54 Ha 35% 487 Patratu Railway Station (45km). By Road Hazaribagh
(40 km)
Meral 0.4 Daltonganj, Jharkhand 23.9.2008 NA 949.87 Ha NA 196 Kajri Railway Station (1km) on Gomoh-Dehri-on-Son
loop
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Opportunities in other sectors from coal production growth
We expect coal production growth momentum to improve compared to its
historical performance but also believe that the street is overly optimistic. We
believe CIL’s production will grow 6.7% CAGR in FY15-20E. While our
expectations are significantly better than a 3.7% CAGR over FY09-15, it is
lower than the street’s 9-10% CAGR growth expectation.
The improved growth momentum in coal production could lead to growth in
areas like mining equipment, MDOs and wagons.
Figure 51 Segments that benefit from coal production growth in the country
Source: BESI Research estiimates, Company Data
Mining equipment opportunity – US$4.5bn over next five years
We believe mining equipment players could see disproportionate growth in
market size not just because of coal production growth but also because of
increase in strip ratios. Moreover, coal blocks auctioned and allocated to non-
CIL entities will also add to the demand. CIL’s strip ratio is expected by the
company to increase from 1.8x to 2.7x and most non-CIL coal blocks have
significantly higher strip ratios.
We estimate the size of the opportunity to be US$4.5bn over FY16-20. Our
calculations assume a) 70% of CIL’s projected equipment will be ordered as
believe their coal production target may be at risk; and b) the private sector
demand will be half of CIL’s equipment requirement as we calculate the
private sector incremental production may add be around 100mn tn at higher
strip ratios.
Mining Equipment companies
Opportunity size : US$4.5bn
•BEML
•Caterpillar -GMMCO, TIL
•Kotmatsu
Mine developers (MDO)
Opportunity Size: US$2.5bn
•Adani mining
•Essel mining
Wagon manufacturers
Opportunity Size: US$800mn
•Texmaco
•Titagarh wagons
Power sector
Companies that depend on
linkage for fuel availability
Coal growth
beneficiaries
25

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Figure 52 Drivers of market growth for mining equipment Figure 53 Equipment order from CIL over FY16-20
Figure 54 CIL’s projected equipment ordering (nos)
CIL production growth of 6.5% CAGR which is
better than historic growth rates
Strip ratios Increase: CIL expects strip ratio
to increase from 1.8x to 2.7x. Also, most
private sector mines have strip ratio
upwards of 4x
Growth in non-CIL coal production: Auction
and allotment of coal mines to non-CIL entities.
Equipments CIL market size
over FY16-20 (Rs
mn)
Major Players
Dozer 12,212 BEML, Komatsu, CAT
Dumper 87,680 BEML, Komatsu, CAT
Shovel 74,546 BEML, Komatsu, CAT, P&H, HEC,
Tata-Hitachi, EKG (Russian)
Drill 3,854 RECP, Atlas Copco, SBSH
(Russian)
Dragline 7,000 Caterpillar, HEC, BEML,
Uralmash, NKMZ
Total 185,291
Per annum size 37,058
Equipment Capacity FY15 FY16 FY17 FY18 FY19 FY20 Total
Dozer 320HP or less 25 36 43 45 35 10 194
320-460HP 16 67 60 92 27 28 290
>460hp - 16 1 4 3 5 29
770 -850 Hp - 4 17 9 5 3 38
TOTAL 41 123 121 150 70 46 551
Dumper 190T or more - 18 36 124 40 136 354
120-190T - - 18 26 1 15 60
100-120T 19 116 69 63 41 33 341
60-100T 108 231 408 595 181 249 1,772
<60T 34 100 195 208 13 37 587
TOTAL 161 465 726 1,016 276 470 3,114
Shovel >34 cum - - 2 1 - - 3
20-22 cum - 4 2 6 5 8 25
10-20 cum - 11 6 9 7 4 37
5-10 cum 2 42 44 50 15 16 169
<5 cum 41 58 43 30 22 20 214
TOTAL 43 115 97 96 49 48 448
Surface miners 2200-3800 mm - 8 9 16 4 5 42
4200 mm - - - 5 2 2 9
TOTAL - 8 9 21 6 7 51
Drill 250 mm - 18 38 58 16 19 149
160-250 mm 40 46 68 63 34 19 270
TOTAL 40 64 106 121 50 38 419
Dragline 24 cum - 5 - - - - 5
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Wagons for coal – a US$800mn opportunity over FY16-20:
Based on our expectations of incremental CIL production of 196mt and non-
CIL production of 100mt, we expect a demand for 322 rakes over the next five
years. CIL has already said it will need 200 rakes to cater to its requirement of
coal evacuation.
We expect a market size of US$800mn or 19,500 rakes over the next 5years.
This would lead to growth in annual market size by ~35%.
Figure 55 Wagon market over FY16-20 from India’s coal production growth
Source: BESI Research for estimates, Coal India
Mine developer (MDO) opportunity – US$2.5bn opportunity
We are not very optimistic about the prospect of MDO opportunity in India.
While it is true that MDOs can bring in efficiency through technology, they
may not be capable of R&R and land acquisition. Most tenders expect the
MDO contractors to help the companies in land acquisition and liaison with the
authorities. Recent experience suggests that land acquisition is tough for
contractors (case of Mahaguj coal mine) if the project affected families are
high.
We have tried to list projects that we think could potentially be offered to
MDOs over the next five years. The opportunity size we calculate is 141mn tn
which at an estimated INR 1000/tn leads to a market opportunity size of
around US$2.5bn.
Particulars Unit Details
Incremental production - CIL+ non-CIL mn tn 296
Wagon capacity tn/day 60
No of wagons/rake 60
Rake capacity tn/day 3,600
% of empty run 30%
Rakes capacity mn tn/yr 0.92
No of rakes required - CIL 213.09
No of rakes required - non-CIL 108.72
Sub-total rakes 322
Cost per wagon Rs mn 2.5
Market size FY16-20 Rs mn 48,271
27

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Figure 56 Potentially a 141mt opportunity
Source: BESI Research for estimates, Company Data
Initiate on Coal India with SELL rating and FV of INR327
We initiate on Coal India (CIL) with a non-consensus SELL rating and FV of
INR327/share. The stock has outperformed the nifty by ~12% in one month,
possibly, we think, due to the street’s optimism about volume growth and
realisation. We differ to the street on both counts: a) our on-the-ground checks
and bottom-up analysis of projects suggests production growth of 6.7% CAGR vs
the street’s 9-10% expectations over FY15-20E; and b) while realisation will
increase due to auction of linkage to the non-regulated sector, we do not see any
scope for a price hike in power FSAs due to the financial constraints of state
utilities. Hence, our FY16/17 EPS estimates are 13%/27% below consensus.
Moreover, we believe that the dividend will reduce to a more sustainable
INR15/share. Although the FY16E DY at ~3.8% looks attractive, we don’t expect
any growth till FY17
Initiate on NTPC with SELL rating and FV of INR122
We initiate on NTPC with a SELL rating and a FV of INR 122 as we expect: a) fuel
availability risk to increase and restrict PLFs and ROEs; b) subdued earnings
growth of 5.2% CAGR over FY15-17E mainly due to lower forecast growth in
capacity addition; and c) increased regulatory risk of disallowing capital costs in
delayed projects. The stock is trading at a one year forward PBR of 1SD below
mean. Even then, we expect NTPC’s underperformance to continue (it has
underperformed the nifty by 18% in the last year) given our thesis above. While we
are not that different from consensus on earnings, we may be lower on valuation
multiple, which is a function of lower growth and return expectations over the
medium term.
Projects Entity Capacity
(mt)
Strip ratio
CIL projects
Itapara OC ECL 3.0 6.9
Ara OC CCL 2.0 4.9
DRD OC CCL 4.0 2.5
Jhingurdah Bottom NCL 2.0 6.2
Malachua OC NCL 3.0 13.8
Pelma OC SECL 15.0 3.5
Durgapur OC SECL 6.0 6.0
Madan-Nagar OC SECL 10.0 NA
Siarmal OC MCL 40.0 1.5
Garjanbahal MCL 10.0 1.0
Non-CIL projects
Government companies
Pakrih Barwadih NTPC 15.0 NA
Kerandari NTPC 6.0 NA
Talaipalli NTPC 18.0 NA
Dulanga NTPC 7.0 2.6
Total 141.0
28

NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON
OR ADDRESS IN THE UNITED STATES OF AMERICA
(v1.0.8.0)
COVERAGE INITIATION
India | Utilities | Large Cap | 19-June-2015
Coal India
Too much optimism?
We initiate on Coal India (CIL) with a non-consensus SELL rating and
FV of INR327/share. The stock has outperformed the nifty by ~12% in
one month, possibly, we think, due to the street’s optimism about
volume growth and realisation. We differ to the street on both counts:
a) our on-the-ground checks and bottom-up analysis of projects
suggests production growth of 6.7% CAGR vs the street’s 9-10%
expectations over FY15-20E; and b) while realisation will increase due
to auction of linkage to the non-regulated sector, we do not see any
scope for a price hike in power FSAs due to the financial constraints of
state utilities. Hence, our FY16/17 EPS estimates are 13%/27% below
consensus. Moreover, we believe that the dividend will reduce to a
more sustainable INR15/share. Although the FY16E DY at ~3.8% looks
attractive, we don’t expect any growth till FY17.
Expect CIL to miss its production target by a wide margin
We visited the key states of Odisha, Chhattisgarh and Jharkhand (East India)
to assess CIL’s 1bn tn production target by 2020 and the street’s optimism
around it. Our meetings in these states suggest that each state has unique
challenges related to land acquisition, coal evacuation and clearances. Based
on our detailed analysis of 30 key CIL projects, we estimate a 6.7% CAGR
growth, much lower than CIL’s 13% target. We have tried to quantify the
challenges in the thematic section.
Realisations – No room apparent for any price hikes in power FSAs
We expect the clamour for price hikes in power FSAs (75% of FY15 sales) to
increase after the wage settlement in FY17. However, we do not expect any price
hikes due to: a) subdued global coal prices; b) already stretched SEB financials.
For instance, Rajasthan state power distribution company has asked for a
INR550bn loan recast. Moreover, the merger of the coal and power ministry under
single minister will lead to officials taking an aggregate view. We are building in a
3% realisation increase due to the linkage auctions to the non-regulated sector.
Can the high dividend payout be sustained?
Given the forecast increase in capex requirements, we expect dividends to be
reduced to a sustainable level of INR15/share from the current INR20/share. We
expect capex to double in FY16 given CIL’s investments in railway projects and
increased cost of land. The FY16E dividend yield is still at ~3.8%, which looks
attractive. However, we do not expect any growth in dividends for FY17 given that
the impact of the wage settlement will hit the PAT and the cash flows. At a
dividend of INR15/share, the cash position remains unchanged and hence
sustainable, in our view.
Initiate with SELL and FV of INR 327
In the last month, the stock has outperformed the Nifty by ~12% and is now
trading at 9.6x one year forward EV/EBITDA, which is 1sd above mean and
seems expensive. Going forward, most positives like the linkage auctions seem
to have been priced in. We now expect negative newsflow in terms of no price
hike after the wage settlement and the possibility of the FY16 production
target being missed. Also, there is a possibility of the government announcing
a 5% stake sale given the regulatory requirement of reducing its stake to 75%.
Accounting & corporate governance GREEN
Franchise Strength GREEN
Earnings Momentum AMBER
SELL 17% downside
Fair Value Rs327.00
Bloomberg ticker COAL IN
Free Float 20%
INR m Y/E 31-Mar 2014A 2015A 2016E 2017E
Revenue 688,100 720,146 760,375 828,456
Employee cost 277,694 298,741 301,462 365,290
EBITDA 159,631 152,300 168,511 155,182
EBITDA adjusted* 192,497 190,567 207,359 193,948
EBIT 139,667 129,102 142,062 123,734
Other income 89,693 86,761 88,739 89,052
PAT 151,102 137,216 146,735 140,390
EPS 23.9 21.7 23.2 22.2
*EBITDA adjusted for over burden removal
Y/E 31-Mar 2014A 2015A 2016E 2017E
EBITDA margin (%) 23.2% 21.1% 22.2% 18.7%
ROE (%) 35.6% 34.0% 33.3% 29.9%
Dividend per share 29.0 20.7 15.0 15.0
Dividend yield 7.4% 5.2% 3.8% 3.8%
Book value/share (adj) 106.5 109.3 121.2 132.0
P/E (x) 12.0 16.7 17.0 17.7
P/BV (x) (adj)* 2.7 3.3 3.3 3.0
EV/EBITDA (x) (adj)* 6.7 9.2 9.5 10.2
* adjusted for over burden removal
All share price data as at close on 17-Jun-2015
Source: BESI Research, Company Data, Bloomberg
75
80
85
90
95
100
105
Jul 2014 Oct 2014 Jan 2015 Apr 2015
COAL IN vs BSE500 Index
Share Price Performance
Analysts
Jay Kakkad
+91 22 4315 6832
Jay.Kakkad@espiritosantoib.co.in
Espirito Santo Securities India Private Limited
29

of 12
Valuation Metrics FY14 FY15 FY16E FY17E
Recommendation: SELL P/E (x) 12.0 16.7 17.0 17.7
Fair Value: Rs 327 P/BV (x) (*adj.) 2.7 3.3 3.3 3.0
EV/EBITDA (x) (*adj.) 6.7 9.2 9.5 10.2
Share Price Rs 394 * ratios adjusted for over-burden
Upside / (Downside) -17.1%
Key ratios FY14 FY15 FY16E FY17E
Free Float 20.3%
52 Week Low / High Rs 331 - 413 EBITDA margin (%) 23.2% 21.1% 22.2% 18.7%
Bloomberg: COAL IN ROE (%) 35.6% 34.0% 33.3% 29.9%
RoCE (%) 32.8% 31.6% 32.0% 26.1%
Dividend Payout 121.2% 95.3% 64.6% 67.5%
Shares In Issue (mm) 6,316 DPS 29.0 20.7 15.0 15.0
Market Cap ($m) 41,509 OBR Adjustment/share 39.3 45.3 51.5 57.6
Net Debt ($m) -8,115 Book value/share (adj) 106.5 109.3 121.2 132.0
Enterprise Value ($m) 33,394
P&L Summary (Rsm) FY14 FY15 FY16E FY17E
Forthcoming Catalysts Revenue 6,88,100 7,20,146 7,60,375 8,28,456
Q1 FY16 results July 2015 % change 0.7% 4.7% 5.6% 9.0%
Wage settlement July 2016 EBITDA 1,59,631 1,52,300 1,68,511 1,55,182
% change -11.7% -4.6% 10.6% -7.9%
BESI Analyst % margin 23.2% 21.1% 22.2% 18.7%
Jay Kakkad Depreciation 19,964 23,198 26,449 31,449
(91) 22 4315 6832 EBIT 1,39,667 1,29,102 1,42,062 1,23,734
jay.kakkad@espiritosantoib.co.in % change -14.2% -7.6% 10.0% -12.9%
% margin 20.3% 17.9% 18.7% 14.9%
Interest expense 580 73 73 73
Other Income 89,693 86,761 88,739 89,052
Exceptional Items 14 50 0 0
Pre Tax Profit 2,28,795 2,15,839 2,30,728 2,12,712
Shareholding Pattern (March 2015) Income Tax Expense 77,679 78,573 83,993 72,322
Net Income 1,51,116 1,37,266 1,46,735 1,40,390
Net Income tax adj 1,51,102 1,37,216 1,46,735 1,40,390
Shares in issue (m) 6,316 6,316 6,316 6,316
EPS (Rs/sh) 23.9 21.7 23.2 22.2
Adj EPS (Rs/sh) 23.9 21.7 23.2 22.2
Cash Flow Summary (Rsm) FY14 FY15 FY16E FY17E
Net Income 2,28,796 2,15,839 2,30,728 2,12,712
Depreciation 19,964 23,198 26,449 31,449
Others operating cash -1,03,508 -1,32,743 -1,31,300 -1,17,136
Revenues and EBITDA margins of CIL Operating cash inflow 1,45,252 1,06,295 1,25,877 1,27,025
Capital expenditure -41,164 -44,941 -1,00,000 -1,00,000
Change in other assets, investments 50,955 96,496 79,592 70,758
Cash flows from investing 9,791 51,556 -20,408 -29,242
Debt -12,634 7,010 4,500 4,500
Equity
Dividends Paid (Incl. Tax) -2,42,430 -1,52,976 -1,10,852 -1,10,852
Others 1,561 -4,858 -73 -73
Cash flow from financing -2,53,503 -1,50,824 -1,06,425 -1,06,425
Change in net cash -98,459 7,026 -956 -8,643
FCFF 1,04,088 61,354 25,877 27,025
Trend of segmental realisation
Balance Sheet Summary (Rsm) FY14 FY15 FY16E FY17E
Cash & Equivalents 5,23,895 5,30,925 5,29,969 5,21,327
Other net current assets -2,90,962 -3,23,601 -3,64,960 -4,09,125
Net Block (incl. CWIP) 1,91,001 2,12,744 2,86,295 3,54,847
Investments 37,749 28,134 37,281 55,575
Total Assets 4,61,684 4,48,203 4,88,586 5,22,624
Debt 37,004 44,014 48,514 53,014
Equity capital 63,163 63,163 63,163 63,163
Reserves 3,60,881 3,40,367 3,76,250 4,05,788
Minority Interest 636 658 658 658
Total Liabilities + Equity 4,61,684 4,48,202 4,88,585 5,22,623
Source: Company data and BESI Research for estimates, Bloomberg
Coal India
Promoter
79.7%
FII
9.0%
DII
8.8%
Others
2.5%
1,294 1,314 1,327 1,327 1,258
2,544
2,182
2,450
2,205 2,205
2,413
2,451
2,348
2,348 2,348
-
500
1,000
1,500
2,000
2,500
3,000
FY13 FY14 FY15 FY16E FY17E
Rs/tn
FSA E-auction Washeries
683 688
720
760
828
0%
5%
10%
15%
20%
25%
30%
500
550
600
650
700
750
800
850
900
Rs bn
Revenue EBITDA margin
30

of 12
We expect CIL to miss its production target by a significant
margin
We visited the key states of Odisha, Chhattisgarh and Jharkhand (East India)
to assess CIL’s 1bn tn production target by 2020 and the street’s optimism
around it. The three states we visited constitute -70% of India’s coal reserves
and ~75% of CIL’s incremental production in 2020. Our meetings in these
states suggest that each state has unique challenges related to land
acquisition, coal evacuation and clearances.
Based on our detailed analysis of 30 key CIL projects, we estimate 6.7% CAGR
growth in FY15-20E, which is lower than CIL’s 13% target. We have tried to
quantify the challenges in these projects and also provide case studies to
appreciate the challenges (see the thematic section).
Figure 1 We expect 6.7% CAGR production growth over FY15-20
Figure 2 Expect coal off-take growth of 7%/6% in FY16/FY17
We estimate a 7% off-take growth in FY16 given coal evacuation constraints.
Even though Coal India is hopeful of securing a 11.4% increase in rake
availability in FY16, we don’t expect such a steep increase. During Apr-May
2015, production grew by 11.8% but the off-take increased only by 7.4%.
548
598
661
774
908
528
555
584
634
684
400
500
600
700
800
900
1,000
MT
CIL target Our estimate
6.7% CAGR
13% CAGR
401 416 424 433
465 472
489
523
555
0%
1%
2%
3%
4%
5%
6%
7%
8%
0
100
200
300
400
500
600
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
MT
Offtake Offtake growth
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Figure 3 Rake availability – CIL expects 11.4% increase in FY16
Source: BESI Research, Company targets
Realisations – No room apparent for price hikes in power FSAs
We expect the clamour for price hikes in power FSAs (75% of sales) to
increase after the wage settlement in FY17. We do not expect any price hikes
due to: a) subdued global coal prices; b) already stretched SEB financials. For
instance, Rajasthan state power distribution company has asked for a
INR550bn loan recast. We think it´s conceivable that other troubled
distribution companies might follow.
The clubbing together of the power and coal ministry ensures that the officials
take a holistic view. If the coal price for power FSAs is hiked, the stress on
state distribution companies’ financials will further increase, leading to
negative consequence for banks, power demand, etc. Hence, we think it is
unlikely that CIL will increase the power FSA prices. Moreover, the recent
steps taken by the power ministry, eg no ROEs for gas projects, are steps in
this direction, in our view.
The linkage auctions should help increase realisation by 3% in FY17E as we
expect 60mn tn of non-regulated FSA coal to be sold at e-auction prices
(INR2,250/share) up from its existing price (INR1,750/share estimate).
Figure 4 Realisation – overall realisation should increase by 3% in FY17E
154 159
168
184 190
210
234
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-
50
100
150
200
250
FY10 FY11 FY12 FY13 FY14 FY15 FY16E
Rakes/day
Rake availability Growth yoy
11.4%
1,294 1,314 1,327 1,327 1,381
2,544
2,182
2,450
2,300
2,250
1,468 1,459 1,471 1,454 1,494
-
500
1,000
1,500
2,000
2,500
3,000
Rs/tn
FSA E-auction Overall
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Figure 5 Volume mix – Power FSA and E-auction
Increase in employee cost to impact margins: However, this increase in
realisation may not be sufficient to shield the impact of the wage settlement
for CIL employees due in Jun-16. In the last wage settlement (2012), wages
increased 31%. Hence, even if we assume a 25% increase in cost per employee,
and a reduction in employee strength by 10,000 in each of FY16 and FY17, we
calculate the impact would be INR64bn at the EBITDA level.
Hence, we expect EBITDA margins to fall by 340bps to 18.7% in FY17.
Our EPS FY16 and FY17 estimates are 13% and 27% below consensus
estimates.
Figure 6 Employee cost and Employee cost as % of sales
350 356 362
397
396
426 456
424
46 48 51
49 58
47 52
55
20 20 19 18 17 12 15 15
75%
80%
85%
90%
95%
100%
FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
MT
FSA E-auction Washeries
197
167
189
253
273 278
299 301
365
0%
10%
20%
30%
40%
50%
60%
0
50
100
150
200
250
300
350
400
INR bn
Employee cost Employee cost as % of sales
33

of 12
Figure 7 Number of employees and growth Figure 8 Cost per employee and growth
Source: BESI Research for estimates, Company Data Source: BESI Research for estimates, Company Data
Figure 9 EBITDA margins – Expect decline in FY17E after the wage settlement
Figure 10 PAT and PAT growth (Rs bn)
Can the high dividend payout be sustained?
Given the forecast increase in capex requirement, we expect the dividends to
be reduced to a sustainable level of INR15/share from the current
INR20/share. This is still a ~3.8% FY16E yield at the CMP and is healthy.
412 404
383 372 358 347 337 327 317
-6%
-5%
-4%
-3%
-2%
-1%
0%
-
50
100
150
200
250
300
350
400
450
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16EFY17E
'000
No. of employees Growth yoy
0.49
0.68
0.76 0.80
0.89 0.92
1.15
0%
5%
10%
15%
20%
25%
30%
35%
40%
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Rs mn
Cost per employee Growth yoy
7%
23%
27%
25%
26%
23%
21%
22%
19%
0%
5%
10%
15%
20%
25%
30%
EBITDA margin
41
98
109
147
173
151
137
147
140
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
0
20
40
60
80
100
120
140
160
180
200
INR bn
PAT PAT growth
34

of 12
However, we do not expect any growth in dividends for FY17 given that the
impact of the wage settlement will hit the bottom line and cash flows. At a
dividend of INR15/share, the cash position remains un-changed and hence
sustainable, in our view.
Figure 11 At dividend of INR15/share: CFO+ other income and capex + dividend
Figure 12 Dividend per share – don’t see any growth in FY17E
Coal India funding the railway projects: CIL has formed JV with railways and
state government to execute the railway projects. CIL’s stake in each JV is
65%. These JVs will execute the three critical railway lines. They will also
execute other major coal evacuation projects which are currently in the
planning stage. As per our discussion with railway officials, there is a logical
possibility that these JVs will also fund the main line (rail) augmentation
projects given the financial constraints of railways. However, an exact funding
model is yet to be decided. These augmentations are required given increased
traffic after commissioning of these rail projects. CIL is also planning to buy
200 wagons for coal evacuation.
Capex -18,758 -19,804 -24,870 -34,094 -24,540 -41,164 -44,941 -100,000 -100,000
Dividend -17,054 -22,100 -25,832 -74,291 -79,070 -242,430 -152,976 -110,852 -110,852
subtotal (A) -35,812 -41,904 -50,702 -108,385 -103,609 -283,594 -197,917 -210,852 -210,852
Cash flow operations 117,325 105,956 89,975 198,878 91,094 145,252 106,295 125,877 127,025
Other income 47,783 49,006 48,721 75,369 87,467 89,693 86,761 88,739 89,052
subtotal (B) 165,108 154,962 138,696 274,247 178,561 234,946 193,055 214,616 216,077
A+B 129,296 113,059 87,994 165,862 74,952 -48,648 -4,861 3,764 5,224
3 3
4
10
14
29
21
15 15
-
5
10
15
20
25
30
35
INR
Dividend/share
35

of 12
Figure 13 Initial estimates of investment required in railway projects by CIL
About Coal India
Coal India Ltd produces ~ 82% of the country’s overall coal production. CIL is a
holding company with 7 wholly owned coal producing subsidiaries and 1 mine
planning and Consultancy Company. CIL also fully owns a mining company in
Mozambique called 'Coal India Africana Limitada'. The company came into
being in the year 1975 with the government taking over private coal mines.
The company targets to produce 1bnt by FY20 from current production of
494mt, which is more than double in the next 5 years.
Figure 14 CIL Key Subsidiaries - FY14
Figure 15 Shareholding Pattern as of March 2015 Figure 16 Subsidiaries with higher contract mining earn better margins
Source: BESI Research, BSE India Source: BESI Research, Company Data
Line Project cost
(Rs bn)
CIL's share (Rs
bn)
Odisha - Jharsuguda Barpalli (53km) 15 10
Chhattisgarh - east corridor (60km) 16 11
Jharkhand - Tori shivpur Kathautia
(100km)
40 26
sub-total 71 46
Other bankable railway projects 82 52
Wagon - 200 rakes 30
Total investments - Railway evacuation 225 174
Subsidiary State Production
(Mty)
Manpower Net Sales
(Rs mn)
EBITDA
(Rs mn)
PBT
(Rs mn)
PAT
(Rs mn)
Eastern Coalfields ECL West Bengal 36 71,826 88,878 8,042 12,993 8,722
Bharat Coking Coal BCCL Jharkhand 33 58,960 82,880 13,701 20,890 17,144
Central Coalfields CCL Jharkhand 50 46,686 85,560 21,517 25,259 16,718
Northern Coalfields NCL Madhya Pradesh 69 16,741 93,039 25,378 33,557 20,080
Western Coalfields WCL Maharashtra 40 52,484 66,138 (1,322) 3,259 2,236
South Eastern Coalfields SECL Chhattisgarh 124 70,910 168,566 59,009 72,027 47,723
Mahanadi Coalfields MCL Odisha 110 22,278 99,897 36,716 54,291 36,243
North Eastern Coalfields NEC Assam
Central Mine Planning &
Design Institute
CMPDI Jharkhand - 3,135 6,474 391 346 196
Promoter
79.7%
FII
9.0%
DII
8.8%
Others
2.5%
54%
29%
55%
68%
63%
25%
14%
26%
8% 9% 9%
15%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
10%
20%
30%
40%
50%
60%
70%
80%
SECL MCL CCL ECL WCL NCL
Employee benefit expenses (% of sales)
Contractual Expenses (as % of saes)
EBITDA margin
36

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Valuation Methodology
We value the stock at 8x EV/EBITDA (adjusted) FY17E, which is near its
historical mean. At the CMP the stock is trading above +1STD and may be
pricing in a lot of optimism, in our view. In the last one month, the stock has
outperformed the Nifty by ~12% and we expect the outperformance to reverse.
We differ to the street’s optimism on both production growth and realisation:
a) our on-the-ground checks and bottom-up analysis of projects suggest
production growth of 6.7% CAGR vs the street’s 9-10% expectations over
FY15-20E; b) while realisation will increase due to the auction of linkage to the
non-regulated sector, we do not see any scope of a price hike in power FSAs
due to financial constraints of state utilities. Hence, our FY16/17 EPS estimates
are 13%/27% below consensus. We are using EV/EBITDA multiple to value the
company as DCF is difficult to use given variability of cash flows and to
account for the different capital structures in the industry.
Figure 17 One year forward EV/EBITDA chart
Source: BESI Research, Bloomberg, EBITDA adjusted for Overburden adjustment.
Risks to Fair Value
Production growth higher than expectations: The increase in production
growth higher than our expectations is possible if government implements
structural reforms in the land acquisition, environment and forest clearance,
etc. Moreover, given the federal structure the state government also needs to
agree to these reforms. This in our view is tough to implement over the next 2-
3 year period.
Realization: A price hike in FY17 is a big risk to our estimates. However, we
suggest that it is impractical to enact a price hike given the financial
constraints of the state distribution entities. Moreover, a price hike also goes
against the government’s target of affordable power.
Significant operational improvement: The Company has been talking about
reducing the number of employees and their age profile. While we build in an
approximate 10,000/yr reduction in employees and factor in a lower increase
in cost/employees, any substantial change may act as a risk to our estimates.
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6
7
8
9
10
11
12
Nov-10 Nov-11 Nov-12 Nov-13 Nov-14
x
EV/EBITDA Avg +1SD -1SD
37

of 12
Please visit our website at www.EspiritoSantoIB.co.uk for up to date recommendation charts.
Coal India COAL IN
Report date Recommendation Fair value Share price (INR)
Recommendation history is not available
Source: Bloomberg, BESI Research
200
250
300
350
400
450
Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
Buy Trading Buy Neutral Trading Sell Sell Restricted Dropped Coverage
38

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