Technical Assistance Consultant’s Report · 2014. 9. 29. · about the coal sector in India; it...

Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 26095 October 1998

India: Implementation of Clean Technology through Coal Beneficiation

Prepared by Montan-Consulting GMBH in association with International Economic and Energy Consultants, and CMPDI International Consultants, India

Asian Development Bank

T.A. NO. 2266-IND

Implementation of Clean Coal Technology

through Coal Beneficiation,

4

. . ., ., . .

: !-'. !.. .

India

Final Report

October 1998

Text File

MONTAN- CONSULTING GMBH

Asian Development Bank

T.A.-Me. 2266-IND

Implementation of Clean Coal Technology

through Coal Beneficiation,

India

Final Report

submitted by

Montan-Consulting GmbH, Germany

in association with

International Economic & Energy Consultants, United Kingdom

and

CMPDl International Consultants, India

October, 1998


0.

1 .o 1.1

1.2

1.3

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

2.9.1

2.9.2

2.9.3

2.9.4

2.9.5

Table of Contents

page

Executive Summary 1 - 4

Objectives of the Study and Introduction 5 - 7

7 - 8

8 - 1 0

1 0 - 16

Power Plant Capacity - Present and Future

Quality of Raw Coal supplied to Power Plants

Analysis of Data received from Power Plants

Policy Framework 17

Introduction 1 7 - 18

Policy Context for Coal and Energy Developments 1 8 - 2 3

Policy Concerning Use of Cleaned Coal 24 - 27

Market Assessment 27 - 28

Institutional Context 28 - 32

Organisational Options for Implementing

Coal Washing 32 - 36

Other Supporting Measures 36 - 37

Conclusions and Recommendations 37 - 40

Market and Pricing Study 40

Introduction 40 - 41

Review of Current Policy and Practice 41 - 4 4

44 - 45

45 - 50

50 - 51

Review of Alternative Systems

Implementation of Revised Pricing System

Conclusions and Recommendations


3.0

3.1

3.2

3.2.1

3.2.2

3.2.3

3.2.4

3.3

4.0

4.1

4.2

4.3

4.3.1

4.3.2

4.3.3

4.4

5.0

5.1

5.2

5.3

5.4

5.4.1

5.4.2

5.4.3

5.5

5.6

Daqe

Evaluation of Establishment of Coal Preparation Plants 52

Collections of Coal Samples and Testing

Computer Simulation

Selection of Flowsheets

Standard Flowsheet, Variant I

Standard Flowsheet, Variant I I Comments

Conclusions

Effects on Use of Beneficiated Coal Impacts at the Mine Site

Impacts on Infrastructure

Impacts on the Performance of Power Plants

Technical Effects

Environmental Effects

Synopsis of Effects on Infrastructure and

Power Plant Site

Evaluation of Environmental Effects

Initial Environmental Examination

Description of the Project

Description of the Environment

Potential Environmental Impacts

Description of the Environment after

Implementation of the Project

Physical Environment

Biological Environment

Socio-Cultural Environment

52 - 55

55 - 56

56

57 - 59

59 - 60

61 - 6 3

64 - 65

66

66 - 67

68 - 69

70

70 - 72

72 - 75

75 - 76

76 - 81

82

82 - 86

86 - 87

87 - 88

88

88

88

89

Institutional Requirement and Environmental Monitoring 89

Findings and Recommendations 89


6.0

6.1

6.2

6.3

6.3.1

6.3.2

6.4

6.4.1

6.4.2

6.5

6.6

6.7

6.7.1

6.7.2

6.7.3

6.8

6.9

6.10

6.10.1

6.1 0.2

6.1 0.3

6.10.4

6.1 1

6.12

6.12.1

6.1 2.2

6.1 2.3

6.12.4

Economic Analysis

Introduction

Computer Model for FinanciaVEconomic Analysis

Capital and Operating Cost of the

Coal Preparation Plant

Capital Investment

Operating Cost

Economic Context of the Project

Coal and Electricity

Definition of Economic System

Economic Rationale for the Project

Project Objectives

Project Alternatives

Other Means of Improving Use of Coal in

Power Generation

Improving the Use of Coal in other Applications

Implications of the Above Discussions

Project Costs in Economic Prices

Project Benefits in Economic Prices

Project Worth

Summary Results for Representative Mines

Composition of Economic Costs and Benefits

Key Factors in the Viable Projects

Conclusions

Sectoral and Macroeconomic Effects

Financial Charges and Returns

Financial Internal Rate of Return (FIRR)

Weighted Average Cost of Capital (WACC)

Financial Appraisal: FIRR versus WACC

Accounting Statements

page

90

90 - 92

92 - 93

93 - 94

94 - 96

97 - 98

98

98 - 99

99 - 101

101

102

102

102 - 104

104

104

104 - 108

109 - 112

112

112-114

114-115

115-116

116- 117

117

118

118-119

119-124

124 - 125

125 - 130


6.13

6.14

6.15

6.16

6.16.1

6.1 6.2

6.16.3

7.0

7.1

7.2

7.3

8.0

8.1

8.2

9.0

9.1

9.2

9.3

9.4

9.5

9.6

9.7

Distribution of Project Effects

Project Risks and Sensitivity Analysis

Project Justification

Practical Measures to Achieve the

Economic Benefits

Achieving Price Reform

Internalising Environmental Effects

Other Externalities

Need for Consultancy

Project Preparation Phase

Planning Phase

Implementation Phase

Manpower Development and Training Phase

Introduction

Training Programme

Conclusions and Recommendations

Technical Aspects

FinanciaVEconomic Aspects

Policy/lnstitutional Framework

Scope for Installation of Coal Washeries Modules

for Existing and New Thermal Power Plants

Capital Requirement - ADB-Loan

Justification for ADB - Loan

EiZE

131

131 - 133

133 - 134

134

134

135

135 - 142

143

143 - 144

144

144 - 145

146

146

146 - 148

149

150 - 151

151 - 152

152 - 154

154 - 155

155

155 - 157

Implementation Plan 157


List of Tables

Table Page

1 .I

1.2 1.3

2.1

3.1

3.2

3.3 3.4 3.5

3.6 3.7

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

List of Major Indian Coalfields

Future Requirement in Million Tonnes of Raw Coal

Power Station Supply

Present System of Grading

List of Major Indian Coalfields

List of Mines from which Coal was tested

Results of Computer Simulation, Variant I Results of Computer Simulation, Variant II

Yield and Ash of Rejects likely to be obtained on

Washing Coal to 34% Ash

Rejects suitable for FBC Technology

Selection of Flowsheets (Variants)

Annual Coal Requirement

Annual Freight Savings

Quantity of disposable Ash generated at different

Ash Levels of RawWashed Coal

Land Requirement for disposable Ash at different

Ash Levels of RawWashed Coal

Water Requirement for disposable Ash at different

Ash Levels of Raw/Washed Coal

Annual C02-Emission at Stack of a 1,000 MW Power

Plant at different Ash Levels

Synopsis of Effects

Potential Stressors and Impacts

7

8

11

21

53

55

58

60

62

63

65

68

69

73

74

74

75

76

77


Table Page

4.9

4.1 0

6.1

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

6.10

6.1 1

6.12

6.13

6.14

6.1 5

6.16

6.17

6.18

6.19

6.20

6.21

6.22

6.23

6.24

6.25

Screening Analysis

Omissions, Biases and Uncertainties

Project Cost Table, Variant I

Project Cost Table, Variant II

Calculation of Operating Cost, Variant I

Calculation of Operating Cost, Variant II

Screening Analysis

Derivation of Economic Cost for C02

Derivation of Economic Cost for SO2

Derivation of Economic Cost for Dust

Technical Data of Selected Mines

Economic IRR

Economic NPV

FlRR and FNPV before Tax

FlRR and FNPV with Tax

FlRR and FNPV with Tax under Existing and

Proposed Pricing System

Possible Composition of Final Interest Rates

ADB/Private Sector Capital Composition

WACC (0% Tax)

WACC with 35% Income Tax

ADB/Private Sector/Government of India

Capital Composition

WACC with 35% Income Tax

Comparison of FlRR to WACC

Income Statement, Hesalong

Sources and Application of Funds, Hesalong

Balance Sheet, Hesalong

Income Statement, Manuguru

78

80

94

95

98

98

107

108

110

111

112

113

113

118

118

119

120

122

122

122

123

123

124

126

127

127

128


Table Page

6.26

6.27

6.28

6.29

6.30

6.31

6.32

9.1

9.2

Sources and Application of Funds, Manuguru

Balance Sheet, Manuguru

Accounting Ratios without Tax

Accounting Ratios with Tax

Distribution of Project Effects

Sensitive Analysis for Hesalong, CPP Variant I

Sensitive Analysis for Manuguru, CPP Variant II

Distance wise Requirement of Thermal Coal

Implementation Bar Chart and Disbursement

Plan for Washeries under Phase I

129

129

130

130

131

132

133

154

158


0. Executive Summary

Government of India has decided to expand the production of coal during the next years to cover the existing and future demand for energy. Whereas coal off-take during 1996/97 for thermal power plants was about 200 million tonnes it is expected that demand will increase by around 70 million tonnes by 2001/02 and will increase further. This growth in coal production and coal utilisation causes environmental effects at the mining sites and particularly on the power plant side due to the fact that in nearly all cases unwashed raw coal with high ash contents is used for power generation. There has been an intensive discussion over the past years in India about the advantages and disadvantages in using washed coal with lower ash contents for power generation.

This Technical Assistance Project shall help the Government to address substantial financial, economic and environmental benefits of using washed coal.

The study gives a comprehensive picture of coal washing taking into account the whole production chain from mining, coal washing, coal transport and burning coal in power plants. This study is a sectoral study about the coal sector in India; it is not a feasibility study for one special coal washing plant or a special power plant.

Therefore,

-

-

-

-

capital and operating cost studies for coal washing plants based on coal sampling and testing, an analysis of the environmental and technical effects using coal with reduced ash content after beneficiation, an assessment of the financial benefits to power plants in terms of freight savings and other savings and an analysis and evaluation of the financial and economic viability of the whole system mine / washing plant / transport / power station

were carried out.

To find out the actual demand for beneficiated coal, a market survey was undertaken and the existing pricing system was reviewed.

At the power plant sites, benefits in using washed coal like savings in

- transport cost, - operational cost and - ash disposal cost

were examined. Environmental benefits like reduced Con, dust and SO2 emissions, reduced water and land requirements for ash disposal were


- 2 -

identified. The effects of reduced CO2 emissions. on the global warming and effects of reduced dust and SO2 emissions on human health were valued according to ADB standards and considered in the economic evaluation.

The first recommendation based on the technical evaluations is that power coal should generally be washed up to 32 k 2%, but this should not be a blanket approach for all coalfields due to varying raw coal ash and washability characteristics. In this context it is important to see that the rejects should have an ash content (> 60/65%) which allows safe disposal without the danger of self-combustion. If this is not possible it will be worth utilising the rejects in a Fluidised Bed Combustion (FBC) at the washery site for power generation.

For the financial and economic appraisal, a special computer model was developed consisting of ten different modules each designed for one specific element of the system coal mining / power plant.

It could be demonstrated that the implementation of a new economically sound pricing system with premiums for washing and giving credit to the gains resulting from lowered ash content is a pre-condition for attracting investors for coal washing. The existing Indian pricing system for thermal coal is unsuitable for the future because:

- -

it is based on the artificial concept of the Useful Heat Value (UHV) and as coal is categorised into different grades, the existing system gives no incentive for lower ash contents and no credit for washing because it under estimates the value of low ash coal to the customers.

With the new proposed pricing system, financial and economic evaluation gives a clear justification for washing suitable coal (with ash contents in the rejects > 60/65%) and using washed coal.

As the full potential benefits of coal washing are not well understood by the power sector due to lack of experience in using washed coal, a widespread implementation of coal washeries will not occur spontaneously.

Therefore three policy initiatives by Government of India are essential. Government must:

- -

change the pricing of power station coal to the new proposed system, actively encourage private investors to enter into the business of coal washing. It will be necessary to persuade customers and producers that they both benefit from the change, internalise environmental costs by a properly enforced system of fees and fines reflecting the economic costs of pollution (emissions, land and water use).

-


- 3 -

Indian economic enerqv policv is moving towards a liberalised market. Policy for coal is following the general economic policy of the country though deregulation in coal lags some other sectors. Recent policy announcements could however significantly accelerate liberalisation in coal supply.

- Coal policy guideline in India will be, that after June lst, 2001 for all coal used for distant (more than 1,000 km) power plants the ash content should not exceed 34%. This policy has both economic and environmental roots and is encouraged by the fact that international practice is to use washed coal. But, a blanket policy applied to every case is likely to be very expensive and is unlikely to provide good environmental value for the money spent. Policy should focus upon the environmental standards to be achieved allowing suppliers and consumers to find the most economic means to achieve those standards.

- As Coal India Ltd. (CIL) does not have the funding to build washeries, there is a need for alternative models involving the private sector. One model which has been thoroughly investigated in India is the Build, Own, Operate (BOO) model. Due to contractual complexity of this model it is judged to be very difficult to implement, but the possibility is not excluded that a solution will be found satisfactory to Indian companies using Indian capital. Another possibility is the Build, Own, Operate and Trade (BOOT) model which will become permitted when recently announced policy changes are implemented. This model will be attractive to some investors as it offers better balance of risks and rewards than with the BOO model. Both of these models should be based on a partnership between Coal India and private capital.

- To promote the implementation of washeries, a Clean Coal Fund could be created. The sources of capital for such a fund could include international financing institutions, domestic banks and the state budget. In some countries environmental levies or fines on plant operators for permits or violating standards are recycled to fund environmentally desirable projects. This would be an appropriate system for India, too.

Among the many organisations and ministries involved in questions about using washed coal, the Ministry of Coal should have the clear responsibility to co-ordinate and implement policy regarding coal washing.

According to the latest guideline issued by Ministry of Forest and Environment thermal coal which is transported more than 1,000 km has to be washed to an ash content not exceeding 34%. At present, 60 million tonnes of coal fall under this guideline for which about 24 coal washery modules of 2.5 MTY each are to be set up. Up to the year 2001/02 the


- 4 -

amount of coal which will be transported for more than 1,000 km will further increase and simultaneously the demand for washeries will rise.

As the required funds to set up this huge number of washeries are beyond private entrepreneurs or international agencies’ possibilities, it is suggested that as a first step five washeries for existing power stations and four washeries for the future demand should be considered. These nine modules will be requiring about US$273.

For procurement of Plant and Machinery and developmental activities an amount of US$ 160 million is required which could be funded by international agencies like the Asian Development Bank.

As this study is a sectoral study about the coal sector in India and not a feasibility study for one special washery or power plant, in a next step, a feasibility study should be carried out for one of these five washeries. The effects of using washed coal could then be examined at the special power plant which is linked to this mine / washery.


- 5 -

1 .o Objectives of the Study and Introduction

Objectives of the Study

This study entitled ,,Implementation of Clean Coal Technology through Coal Beneficiation" was entrusted by Asian Development Bank (ADB) because of the following:

0

0

India's dependence on coal as primary source of energy and its availability in abundance Government of India as a part of its overall plan for increasing energy production in the country has decided to expand the production of coal

0 This growth in coal production and coal consumption due to inherent high ash and low calorific value of the Indian coal brings with it environmental problems

Preliminary evaluation of beneficiating thermal power coals, i.e. reducing the ash contents, indicates that environmental, financial and economic benefits will result from improving coal quality for power generation.

This Technical Assistance project therefore shall help the Government to address the a.m. benefits.

The scope of the Technical Assistance project comprises

0 examination of the institutional arrangements for setting up washeries in the private or public sector on a financial viable basis and

0 the examination of the technical and economic feasibility of investments in establishing coal washing plants

This project intends to confirm preliminary evaluation of beneficiating and using beneficiated coal with lower ash contents compared to using unbeneficiated raw coal with higher ash contents. It is therefore a generic study about coal beneficiation or coal washing taking into account however financial, economic and environmental effects at the entire fuel route:

0 mine 0 beneficiation plant site 0 railway transport 0 power plant site

thus giving a comprehensive picture of the effects of coal washing. It is not a feasibility study for one special washery or power plant.


- 6 -

The basic alternative to be considered in this study is using washed coal for power generation or using unwashed coal for power generation, as it is standard practice in India today.

The study therefore is confined to the coal sector and is not intended to evaluate alternative schemes for energy generation like nuclear power, hydroelectric power generation etc. and compare it to coal washing or to examine the best environmental alternative in power generation.

The detailed Terms of Reference for this project are attached as Annexure 1.01.

For the preparation of this project, the Asian Development Bank engaged Montan-Consulting GmbH, Germany, who associated themselves with International Economic & Energy Consultants (IEEC), United Kingdom and Central Mine Planning & Design Institute Ltd. (C M P D I L) , India.

In this set-up, Montan-Consulting GmbH and IEEC work as the International Consultants, whereas CMPDIL acts as the local consultant having perfect knowledge of Indian situation. The staffing schedule and the organisational chart are attached as Annexures 1.02 and 1.03.

Introduction

This report is based on detailed field work in India of study of coal characteristics of major (producing more than 10 million tonnes per annum) coalfields and important mines operating and with potential of future development. Bulk coal samples were taken from the identified mines of these coalfields and then tests were carried out on washability investigations and coal characterisation.

As far as the coal consuming industries are concerned, steel plants and thermal power plants are the main consumers of coal. Steel plants consume coking coal and the coal beneficiation is already in vogue. Thermal power plants are the largest consumer of non-coking / steam coal. In contrast to the steel sector, beneficiation of non-coking coal is not in practice. Therefore, only coal for thermal power plants have been considered in the study.

On the power generation front, the study is based on collection and examination of various technical and operating parameters of major operating and important power producing companies (public and private both), State Electricity Boards and also requirement of future power stations (private, public and Independent Power Plants (IPP)).


- 7 -

-

-

a

a

a

a

a

a

a

a - -

1.1

For the purpose of coal characteristics and washability investigations, nine major coalfields were studied. The operating coal mines selected, the likely increase of production from the coalfield by 2001-02 over the off-take in 96-97 and approximate geological reserves of coalfields are tabulated below:

Table 1.1 : List of Major Indian Coalfields

Coalfields

Raniganj Coalfield } Mugma Salanpur Coalfield } Rajmahal Coalfield Jharia Coalfield Giridih Coalfield East Bokaro Coalfield D.V.C. Berino Coalfield South Karanpura Coalfield North Karanpura Coalfield Singrauli Coalfield Wardha Valley Coalfield Umrer Coalfield Kamptee Silewara Coalfield Patharkhera Coalfield Pench Kanhan Coalfield Korba Coalfield Central Indian Coalfield Ib Valley Coalfield Talcher Coalfield Singareni Coalfield Total

**Geological reserves as on

01.01.96 19,194 }

1 11,739 6,102 23.00 11 1 .oo

Part of East Bokaro 4,875 13,043 9,198 4,996

1,640 } 438.00 1,580

19,538 9,432

21,237 25,449 10.093

85 1

158,773

(figures Off -ta ke 1996-97

18.11 }

9.91 26.65 0.34 10.59 0.10 3.51 13.52 36.99 19.04 5.62

1

2.62 3.61

35.20 20.92 13.88 23.33 29.34

273.28

I million tonnes) Demand in

2001 -02

26.75

12.53 23.01 0.40 5.41 0.1 0 4.93 25.25 46.52 20.2 3.26 2.94 2.67 2.88

44.90 24.68 23.30 33.76 36.50

339.99

** (Mostly producing more than 10 million tonnes per annum) - Studied. Non-coking coal reserves down to 600 m depth (as on 01.01.96)

Power Plant Capacity - Present and Future

During 1996-97, a total of 73 coal fired power plants with a total installed capacity of 49,498 MW are in operation. In that year, the off- take of coal to the Power (Utilities) was 200 million tonnes.

In future there will be a tremendous increase in the demand of electrical energy. The coal based power plant capacity is expected to increase to 65,358 MW by 2001-02 and to 116,400 MW by 2006-07. The coal demand by Power (Utilities) is likely to increase to around 278 million tonnes by 2001-02 and to 447 million tonnes by 2006-07, the terminal year of Xth plan period.


- 8 -

Sector

Power (Utilities) Steel

Table 1.2 shows the hard coal demand (inclusive imported coal and from all Indian coalfields) of all sectors taken together by the end of Ninth & Tenth Plan periods.

Coal Off-take Coal demand 1996-97 2001 -02 2006-07 200.16 278.1 1 447.00 34.1 3 51.6 64.00

Table 1.2: Future Requirement in million tonnes of raw coal

Others Total

61.76 89.96 142.00 296.05 41 9.67 653.00

This growth in production brings with it environmental problems at the mining site and causes environmental effects on the power plants, steel plants and cement plant sites.

Preliminary evaluation indicates that the effects on the power plants and other industries can be mitigated by improving coal quality through coal benef iciat ion.

Over the past few years there has been an intensive discussion between ministries and relevant authorities about the advantages and disadvantages in using beneficiated coal for thermal power plants. This study addresses these issues.

1.2 Quality of Raw Coal supplied to Power Plants

Figure 1.1 shows the trend of the average Gross Calorific Value of coal as supplied to power plants during the years from 1960 up to 1994. The Gross Calorific Value in the year 1960 was 5,900 KcaVkg and dropped to a value of 4,200 KcaVkg in the year 1988-89 and remained more or less at the same level afterwards.

The reason for the deterioration in the coal quality is mainly due to change in the mining method and steep increase of steam grade coal production from the opencast mines as shown in the figure 1.2.

The next page shows figures 1.1 and 1.2.


- 9 -

300

250

200

15

10

50

a

ALL INDIA POWER COAL QUALITY (1960-61 TO 1993-94)

GCV (kcal/kg.) m

6.500

6.000

5.500

5.000

4.500

4.000

3.500

T T\

60-61 62-6364-6566-6768-6970-71 72-7374-7576-7778-7980-81 82-8384-8586-8788-8990-91 92-93

YEAR

Figure 1.1

COAL PRODUCTION IN COAL INDIA LTD.

TOTAL OC -- .. ..

UG 1 -.-.-. ... . ~ ~ 223.1

I

.. .

237.2f

74-7575-76 77-78 79-80 81- 83-84 85-86 87-88 69-90 91- 93-94 95-96 YEAR

Figure 1.2


- 1 0 -

In the year 1974-75 approx. 79 million tonnes of coal was produced, out of which 58.2 million tonnes (equalling to 73.7%) was the production from underground mines and only 20.8 million tonnes (equalling to 26.3%) from opencast mines. As against this, in the year 1995-96, the coal production increased up to 237.3 million tonnes and is now three times higher than in 1974-75. In 1995-96, the portion of coal produced in underground mines is 54.9 million tonnes which is lower than that in the year 1974-75. Coal produced in open cast mines has achieved a level of 182.4 million tonnes equalled to 76.9% of the total production.

Opencast mining in general results in some quality deterioration, but today almost all Indian coalfields with high ash content are under exploitation by opencast mining and are mined only when the ash content of the mineable raw coal does not exceed 42 - 45%. This cut-off point of 42 - 45% means that in general the quality of the coal mined for supply to power plants is not going to deteriorate any further.

1.3 Analysis of Data received from Power Plants

To find out the present difficulties at the power plant site in using unwashed raw coal and to ascertain the willingness for future use of beneficiated coal, two types of questionnaires were formulated and, after approval by Ministry of Coal, Govt. of India, were circulated to 20 identified power plants to seek required information from them. The identification of power plants was based on the location of the plants (either pit head or distant from the mine), capacity, whether in Private Sector or Public Sector, etc. Annexure 1.1.1 shows a list of these 20 power plants which put together have an installed capacity of 17,535 MW which is 35.4% of the total installed capacity in operation.

Whereas the first set of Power Plant Questionnaires asked for technical details regarding general station details, power plant performance, possible difficulties related to coal quality and environmental aspects, the second set of questionnaires was regarding market survey to ascertain the willingness and the actual need for using beneficiated coal (Annexure 1.1.2 and 1.1.3).

14 power plants have responded to this questionnaire. The response is 70%. The vital / relevant information given by these power plants are presented in Annexure 1.1.4 and brief analysis is given in following parag rap hs.


- 1 1 -

No. of Power Stations

73

Coal Quality Data

No. of Power Stations supplied from specified number of fields.

Only 1 2 fields " 3 fields - 4 fields

39 24 8 2 field

Coal from the mines is supplied mostly by railway wagons to the receiving station of the power plant and consists generally of top size of 200 mm. However, some of the power plants receive coal of size up to 1 m on few occasions.

In each case, the coal is unwashed and mostly a high ash material.

A few power plants obtain small portions of washery middlings from the coking coal washeries.

The number of power stations for which coal is supplied from a single coalfield and those which are supplied from more than one coalfield, is summarised in the table 1.3 below:

Table 1.3: Power Station Supply

Power stations which obtain coal from more than one coalfield are getting coal of varying quality and size.

Due to fluctuations in the grain size distribution, top size, ash and moisture content and in the heat value of the coal fed to the thermal power plant, it is not possible to ensure adequate homogenisation of the coal grades in absence of proper and adequate blending facilities at power plant end. Due to this, the grinding mills and boilers are not utilised at their optimal level. Old boilers designed for low ash coal are not receiving the desired quality coal resulting in poor performance of the power plants. Cement plant and other coal consuming industries are also affected due to varying coal quality and high ash content.

Qualitv Data

The quality of raw coal received presently by the power plants varies as follows:

Ash content: between 25% to 55% Though in general it is around 41%, it is consequently 11 units higher than the ash content most of the boilers are designed for.


- 12 -

Moisture content: between 4% to 7% In rainy seasons the moisture may increase substantially.

Sulphur content:

Gross Calorific Value:

between 0.2% to 0.7%

between 3,100 Kcal/kg to 5,100 KcaVkg Though in general it is around 4,200 KcaVkg. On an average, 0.73 kg of coal was used for the generation of 1 kWh

Volatile Matter: between 20% to 25%

Besides shale and sand stone, occasional presence of iron pieces in the coal received has been reported by the power plants.

Power Plant Operation

It may be noted from the consolidated statements (Annexure 1.1.4) that all the power plants contacted have reported problems relating to coal quality especially to high ash, moisture content and volatile matter of coal not matching with the design parameters. Apart from this, a lack in consistent quality parameters is reported. Some power plants have complained about receiving big stones in the coal.

Most of the power plants have expressed their willingness for use of beneficiated coal as they are expecting benefits on use of beneficiated coal.

There is, of course, no uniform opinion among the power plants about the exact benefits on use of beneficiated coal as a majority of them have experience with bad raw coal only. The power plants have indicated that the improvement in the plant use factor (PUF) will be up to 3% for each 5% reduction in coal ash and the improvement in the thermal efficiency will be up to 3% for each 5% reduction in the ash.

Considerable savings in transport costs on use of beneficiated coal will accrue to the distant power plants like Guru Govind Singh TPS at Ropar, Guru Nanak Dev TPS at Bhatinda, Mettur TPS, Ennore TPS, Nashik TPS, Sabarmati TPS, Raichur TPS and Kota TPS.

Regarding difficulties due to poor raw coal quality, following problems were mentioned:


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Handlinq & Storaqe of delivered coal Excessive stone and shale contained in coal cause damage to conveyor belts, feeders, primary crushing elements and frequent choking of wagon-tippler-hopper-grizzly and chutes. During the rainy season, coal from opencast mines may contain sticky mud and very high surface moisture resulting bridging, clogging and choking. Coal Fines cause delay in unloading the bunker, bunker feeding and flow restrictions in feeder chutes.

Crushinq and millinq of coal, transport of pulverised coal to the boilers When coal with low Hardgrove Index (HGI) and hard stones is received, it reduces the pulverising capacity of the mills. For lower quality coal, more coal is required to be handled and used in the power plants. Due to this the coal handling and milling system gets overloaded and the originally designed spare capacity is also used-up for handling this additional quantity. Because of high ash content, there is more erosion of grinding elements of coal mills, coal pipes and nozzles. Availability of coal mills also gets reduced due to frequent shut- down for cleaning.

Throttle of one or more units because of capacitv problems of the pulverised coal There are reports of capacity restriction due to high ash content and shales and stones of delivered coal. More mills have to run than designed. This problem is often solved by putting oil support.

Throttle of one or more units because of capacitv problems of the transport line Due to increased operation of the mills and its auxiliaries due to poor qualitv of coal, the transport lines face severe wear problems. Whenever problems arise fuel oil is used as support boiler performance.

Flame stabilitv or iqnition Due to high ash content, low volatile matter and high season) oil support is sometimes used for flame stability

to stabilise the

moisture (rainy


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Slaqqinq and foulinq of the water walls Due to the high ash content of the coal, the slagging problem arises occasionally. Calcium Oxide is given on such occasions to reduce this problem .

Erosion The high ash content of the coal causes erosion at the coal burners and the flue gas path (superheater, economiser, air heater tubes). The effect is minimised by providing erosion shields on the tube bends, hard facing in the burner tips area and renewal of parts within the flue gas path.

Ash transport and disposal in ponds Due to the higher ash content in the coal than designed the ash capacity has increased by more than 50% in some cases. This leads to erosion problems of ash slurry pumps and pipelines, a higher rated demand for the ash transport and in some cases to an additional installation of slurry pumps. At present, approximately 50% of the total area of the Power Station is required for ash ponds. In some cases, there are problems in finding new sites. Mostly the pond capacity can be augmented by raising the height of the ash dam.

Plant use factor and Power station thermal efficiencv In some cases the ash content in the delivered coal is between 10 to 15 units higher than designed. This reduces the plant use factor and the thermal efficiency. In one special case, the power station's thermal efficiency is reduced by approx. 4.5% compared to the designed efficiency.

Environmental aspects, actual data Based on the information furnished by the power plants, environmental aspects are analysed as follows:

Land It is observed from the feed back from the power plants under study that in general, the total land requirement is 0.7 to 0.9 ha/MW installed capacity. Only in case of two TPS the figures are as high as 2.5 and 4.0 ha/MW. Land requirement for ash pond generally is 0.3 to 0.5 ha/MW, but in two cases it is 1.22 and 1.90 ha/MW installed capacity.

Water The water requirement for ash disposal varies between 4 m3/t of ash to 12 m3/t of ash. Only in one exceptional case the figures is as high as 60 m3/t. From the information, it can be concluded that generally the water requirement for ash disposal per tonne of ash would be 10 to 12 m3/t of ash.


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Industrial Water Industrial waste water discharge also varies in a wide range and a major portion of this is recycled and reused for ash slurry preparation purpose. The remaining effluents are discharged to nearby rivers and other water bodies.

Solid Waste It is observed that the solid waste constitutes of bottom ash and fly ash in 20 : 80 ratio. The ash is disposed off by mixing with water (1 : 12 ratio) to ash pond in form of slurry. Filled up ash ponds are then provided with green cover through tree plantation for ecological benefits. The ash slurry generation figures arrived at from the figures supplied by four power plants from 50 - 80 m3/day/MW installed capacity. The solid waste generated is reported to be non-toxic in all cases. A general composition of ash arrived at from the figures available from the four power plants is as follows: SiO2 6O-7O0/o Alumina 2 3 -2 5 Yo Others: in small quantities

Stack Emission Suspended Particle Matters (SPM) level in the stack gas of different power plant vary between 100 to 966 mg/NM3 against the standard of 150 mg/NM3 maximum. It may be noted that plants consuming coal containing ash as high as 42% could maintain the SPM level in flue gas within the permissible limit of 150 mg/NM3 whereas SPM level of some of the plants consuming coal at the same ash level is much higher. This may be attributed to the malfunctioning of the electrostatic precipitators which are installed to arrest the fly ash. Taken adequate care for proper maintenance of ash arresting device, restricting SPM level in the flue gas within the permissible limit is feasible. The SOX value is not measured out in all the plants. Out of the plants under study, two plants have indicated the value which is within limit and the values of three plants are in the range between 189 and 780 mg/NM3. NOx data in stack of gas of only one power plant is available which is well within permissible limits.

Ambient Level of SOX, NOx, SPM Ambient level of SOX, NOx, SPM is almost in all cases within permissible limits.


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Occupational Health & Safetv Most of the plants have reported using mitigation measures by providing personal protective devices such as face mask, ear plugs, hand gloves, safety shoes, safety helmets, etc.

Existinq Health Status of workers Most of the plants have reported a good / normal health status. Nashik TPS has reported that out of the 958 workers of CHP and Boiler House area for whom x-ray Screen tests were carried out, abnormality has been detected in 12 cases.

Cost Estimates Cost incurred for Environmental Management are not brought out clearly in the answers to the questionnaires and differ from power plant to power plant. As an example Nashik TPS mentioned for

water pollution control 600,000 Rps/a air pollution control 500,000 Rps/a

green belt development 170,000 Rps/a 8,170,000 Rps/a

- solid waste control 1,900,000 Rps/a

For workers' health protection an amount of Rs. 1.8 million per annum was spent. With the other power plants, the figures for environmental control vary between Rs. 0.5 million and Rs. 9.0 million per annum. It should be noted that these costs generally will not be reduced by using beneficiated coal in the power plants.

Some Extracts from the "COMPREHENSIVE INDUSTRY DOCUMENT SERIES, COINDS/21/1986". "MINIMAL NATIONAL STANDARDS, THERMAL POWER PLANT" published by CENTRAL BOARD FOR PREVENTION AND CONTROL OF WATER POLLUTION, New Delhi are enclosed in Annexure 1.1.5.

The National Ambient Air Quality Standard as of April 1994 are also attached in Annexure 1.1.6.


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2.0 Policy Framework

2.1 Introduction

This review of policy, regulatory and institutional factors concerning the use of washed coal in power generation has been undertaken by IMC Economics (formerly International Economic + Energy Consultants) with CMPDIL, under subcontract to Montan-Consulting GmbH. This Final Report has drawn upon three main sources:

our submission on similar issues contained in the Interim Report and in the Draft Final Report, and discussions thereof. We were asked to amplify suggestions for a more market-oriented approach to achieving environmental standards. It was emphasised that we should take a wide look at policy and institutional factors so as to provide an overview that will be useful to ADB in formulating its support for the Indian coal and power sectors;

policy developments in India since the Interim Report was issued and further meetings held in February 1997. Important announcements were made in January which have yet to receive parliamentary approval. The most important facts are that

coal prices would be completely deregulated by 2001 the system of linkage will be terminated in the future, allowing organisational options like BOOT- (build, own, operate, trade) models to be implemented

We were able to discuss their implications with parties in the coal and power sectors. The changes will provide significant movement to freeing prices, dismantling linkage and encouraging private capital into coal production. The shift in policy is consistent with the recommendations made in our Interim Report;

results from the economic analysis. Since the Interim Report was issued the financial and economic case for coal washing has been evaluated. We draw here just on the conclusions of the financiaVeconomic analysis. We have also been able to draw upon the analysis of the market survey.

In evaluation of the policy and institutional aspects we have benefited from frank discussions with a wide range of patties who will be affected by a shift to coal washing. These include:


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2.2

Central government - Ministry of Coal - Ministry of Environment and Forests - Department of Power

National production - Coal India Ltd. companies - National Thermal Power Corporation (NTPC)

- Singareni Collieries Company Ltd.

State electricity - APSEB boards Punjab SEB

Private sector - Calcutta Electricity Supply Company (CESC) companies - Hinduja NP

- Indo-US Washing Company Ltd. - Madhucon Projects Ltd. - Reliance Power Ltd.

Development - Asian Development Bank (ADB) agencies - World Bank

- Overseas Development Agency, UK (ODA)

We have also been able to draw upon the experience of CMPDIL which is intimately connected with developments in India towards the use of clean coal for power generation and is a participant in the key committees overseeing coal production and distribution.

Policy Context for Coal and Energy Developments

Introduction

We review here the general objectives of national economic and energy policy before focusing on issues more specifically associated with coal washing.

Over the past years the thrust of national economic policy has been towards allowing increased freedom for market operations, increased role for private capital and pursuit of open international trade. Historically economic activity has been highly regulated and, since the 1970s when some Indian industries were nationalised and restrictions put on private investment in many sectors, subsidies and investment needs have been a large drain on the national purse. While much of this regulation has been dismantled, the situation is far from a mature market economy such as is found in North America or Western Europe. However the opportunities of so large a market have led to India being a large recipient of foreign industrial investment although much less than, for example, many economies in South East Asia. The Government of


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India (GOI) is keen to encourage further foreign investment. The assumption that these national policy trends will continue underlies all the analysis in this report.

Although there are a few examples of long-standing private sector operations, as in many other countries the core energy sector is nationally or state owned. It has been, and largely continues to be, highly regulated. There are important initiatives to establish a place for new private sector operations both regarding coal and electric power production. However, particularly as regarding coal production, these initiatives are at a very early stage although policy announcements in January 1997 could be significant in attracting private investment. Regarding coal, we regard the following items as being pertinent.

Coal Supply

Subsidiary companies of Coal India Ltd (CIL) provide the dominant source of supply. Another state sector company, Singareni Collieries Company, provides much of the remaining supply with private sector mines (principally Tata) mining small quantities for their own use. There is, therefore, effective monopoly in Indian coal supply. Until recently Coal India Ltd received large government funding to cover operating deficits and provide investment funds. These subsidies have now ended and a consequence has been the virtual drying up of funds for investment to expand coal supply. There is already evidence of overall shortage of coal supply, which is reflected in responses by power stations to a Market Survey Questionnaire. It is certain that supply will have to be expanded to meet increased demand for power generation, cement manufacture and industrial use and this will require very large investment.

Some small part of the required funding is expected to come from a World Bank credit. This has been under discussion for some time and not yet agreed. Although there is no explicit ‘conditionality’ attached to this credit, it is inferred by many that progress will be helped by the extension of market mechanism, notably, competition in supply and free pricing. In this respect external pressures from the World Bank are merely reinforcing the policy intentions of the Indian Government. At the most senior levels in Coal India there is also a willingness to embrace liberalisation. Recent policy announcements will maintain the momentum to this end.

The most important supply-side initiative so far has been to allow, indeed encourage, private operators to develop new blocks of coal. This is as yet at the very early stages. At the present time private coal production must be linked to named sources of demand, typically new power stations. Under the recently declared policy this will change,


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implying a go-ahead for coal trading and gradual dissolution of the linkage system (see below).

There is a view by some potential private investors, that the blocks available to them are generally less favourable than those remaining with Coal India and may be difficult to mine economically. It is natural that Coal India wishes to retain blocks in which it has invested heavily in exploration, and even more, where there has been infrastructure developments. However it should be possible to design a system of auctioning of the blocks that recognises the investments made by Coal India and allows change of rights to the private sector.

This could be a step- by- step system where a potential investor has to pay for relevant information and data e.g. geological and washability data according to their importance. At the end, the investor should have compensated Coal India for its exploration expenditures. As far as infrastructure investments are concerned, there should also be a compensation to Coal India for those investments which are directly connected with coal mining.

Imports are no longer controlled and in principle provide competition to Coal India. However in most areas (other than coastal) they are likely to be uneconomic compared with domestic supply although the costs of washing Indian coal might change this balance. Nevertheless import infrastructure is limited.

In summary we anticipate that, despite a constant policy thrust towards liberalisation in coal supply conditions of shortage will persist for some years with Coal India remaining the near-monopolist supplier. Although we anticipate that new private sector sources of supply will develop, the overwhelming likelihood in near future is that most consumers will not have a choice of supply and that negotiating power will be with the dominant coal producer. The genuine diversity of supply in the shortlmedium term may come from a restructuring of Coal India operations (Any proposals to restructure Coal India, however, are beyond the scope of this study. To this end a separate study is required.)

Coal Pricing

Coal has traditionally been subject to price control. The administered price is based upon an analysis of costs of a sample of mines made from time to time and adjusted by appropriate inflation indices. Our impression is that the administered price deviates far from both the value in use to customers and the long-run marginal cost of producers. The inadequacies of the administered price are compounded by a system of pricing for different coal grades based on Useful Heat Value


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Grade

(UHV) for non-coking coals which we believe is unique to India. We are convinced this pricing system has nothing to recommend it and should be abandoned. Table 2.1 shows the present system of grading as it is used in all States other than Assam, Arunachal -Pradesh, Meghalaya and Nagaland.

UHV Ash

Table 2.1 : Present System of Grading

r (kcal/kg) (%) A > 6,200 c 15 B 5,600 - 6,200 15 - 19 C 4,940 - 5,600 1 9 - 2 4 D 4,200 - 4,940 24 - 29 E 3,360 - 4,200 29 - 35 F 2,400 - 3,360 35 - 42 G 1,300 - 2,400 42 - 50

In line with its economic principles, the Government has progressively freed coal prices over the past few years. Prices of coking coal and the better grades (A, B and C) non-coking coal have been deregulated since March 1996. These coals represent 40°/b of all Coal India production. The result of decontrol has been sharp price increases. By contrast the administered price (at February 1997) was last increased in June 1994. Neither case is likely to reflect true supply economics. The price increases for freed grades may have been imposed through unbalanced supplier power whilst the administered price appears to be somewhat influenced by domestic political considerations.

The grades of coal (D, E, F, G), which are almost exclusively used for power generation are still covered by price control. The governing acts do allow special exemptions to price control to be granted. These have not generally been used. However, Coal India is at present discussing long-term supply contracts for some power station customers and expects that these would be exempt from price control. The flows of coal concerned are ones that are likely to be processed in a washing plant. In these cases Coal India is seeking to negotiate a ‘commercial’ price for the coal. ‘Commercial’ is defined by Coal India as being the price level which provides them with a satisfactory return on investment and, in particular, would repay all the costs associated with coal washing.

The policy announcements of January 1997 would completely deregulate coal prices by 2001. We strongly commend this important decision of the Government of India. In harness with liberalisation of production and trading, this decision will undoubtedly create the conditions for effective and competitive coal supply over the longer term. However free pricing will only be effective when the market is fully-


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supplied and there is diversity in supply

If we recognise that there are impediments for creating competitive supply by 2001 then consumers and suppliers could be protected by widespread introduction of long-term supply contracts.

Coal Linkage

There is no coal market in India in the normal sense of the word. For many years the flows of coal between producers and consumers have been defined by Linkage Committees comprised of representatives of the Planning Commission, railways, coal and industry ministries and public sector coal producers. No new coal-using facility (for example, industry or power plant) can be established without the user industry first receiving a linkage specifying his source and quantity of coal. For major power plants such a system has evident benefits in economic planning including coal movement planning. However, in India today linkages cover even small industrial and commercial users. Only very small amounts of coal are outside the system, with bidding being allowed.

The system of linkages has very important consequences in relation to coal washing since it precluded the option of the so-called BOOT (build, own, operate, trade) though the concept of BOO (build, own, operate) for coal producer or coal user is possible. More generally, linkages limit the potential benefits of price decontrol by introducing external constraints into commercial negotiations. The necessity for linkage between supplier and producer adds greatly to contractual complexity and may have been an impediment to getting new private sector coal production/power station projects off the ground.

According to recent policy announcements, the system of coal linkage will change in the future. It will only be a facility and not binding as in the past. Of course the existing pattern of coal flows will remain largely unchanged since these are governed by the concrete possibilities of the railway system. We recommend that, as long-term supply contracts are agreed between Coal India and its major customers, these should be backed by parallel long-term contracts governing the rail transport of coal.


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Coal and Environment

In harmony with thinking across the world, the Government is giving increased weight to environmental issues. We have the impression that the voice of the Ministry of Environment and Forests (MOEF) is increasingly heard in policy formulation on energy issues, and plays a vital role in approving (or not) large individual energy projects. The impacts of coal and electricity production are potentially very severe requiring large amounts of land for production or fly ash disposal, sometimes requiring large population movement off land to be mined from the surface, and requiring or damaging local water resources and forest land. Atmospheric pollution from power stations can also be severe. This is mainly due to particulate emission, while sulphur oxide emissions are generally not a problem with Indian coals.

The increased emphasis in India on environmental issues is welcome to international agencies that might provide funding for energy investments. It has certainly been an issue with the prospective World Bank credit to the Indian coal sector. The World Bank is also supporting a technical assistance project started in mid 1996 to develop economically and environmentally optimum development routes for the power sector of some states.

Stricter environmental standards should not be a disincentive to foreign investment in Indian energy projects. Many of the most likely candidate investors will be well used to meeting high standards in their home country. The system of environmental regulation and standards though developed fully in India, their implementation is yet to be at desired level.

There are many aspects connected with energy production and use in India where the achieved standards are not at satisfactory level. In the major cities air quality is unsatisfactory, problems mainly arising from transport. Ad-hoc measures are being proposed to deal with this, for example, in encouraging cleaner auto-rickshaws. In smaller towns small scale use of coal for cooking leads to several local air quality problems. In defining environmental performance required of energy operators, there appear to be differences across states which may not be justified by objective factors. We have been informed of requirements which would be excessively expensive or technically very difficult to achieve.

Although there are wide differences between coal and energy producers, it is probably a fair observation to note that foreign operators, when compared with the Indian counterparts, will be expecting environmental standards to be enforced, and will be discouraged by any elements of arbitrariness in the system for setting and defining standards.


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2.3 Policy Concerning Use Of Cleaned Coal

Current Status

The view that coal used for power generation should be washed is of relatively recent origin in India. It has been stimulated by the observation that most other countries use lower ash coal for power generation. Since India hauls coal over much greater distances, from mine to power station, the case for washing thermal coals is thought to be stronger than in most other countries. The case has been re-inforced because it is confidently predicted that coal use at power stations will further increase over the next 10 years and put extra strain on an already stretched railway system and on land area for dumping power station ash. According to its proponents, coal washing can simultaneously provide lower economic costs and deliver environmental benefits. It has received support through a variety of interdepartmental working committees.

It has been recognised that the benefits would be most pronounced where coal is hauled over long distances. The Ministry of Environment and Forest was considering for a long time the issue of a guideline which will require use of washed coal for power projects being located beyond a certain distance from the coal source. There has also been debate about the degree of coal cleaning with some arguing for coal to be washed to below 30% ash.

There have been several excellent studies of this question which have progressed understanding. Important amongst these has been work by coal sector organisations which have addressed the technical and cost feasibility of different degrees of washing. This work has generally supported target ash levels above 30% for the washed coal. There has also been limited work at power stations to quantify operational benefits of lower ash coal. This present study draws on and extends this earlier work to make to new, independent judgements on the issue.

Discussions with Ministries concerned suggest that while washing coal is generally supported, the detail of the policy is not firmly defined. (We discuss the views of different parties in a following section). Recently, the Ministry of Environment and Forest (MOEF), Government of India has decided that all thermal power stations located at a distance beyond 1,000 km from pitheads or located in urban areas, sensitive areas or critically polluted areas, irrespective of the distance (except pithead stations) must use coal with an ash content not exceeding 34% from 1st June, 2001.


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The study carried out in this assignment has not been able to support this blanket policy approach of washing to 34% for all coal fields in India and for combustion at various distances. Our own analysis suggests that implementation of washing coal to 34% ash will not be justifiable for all cases due to unfavourable techno-economics of washing of some very difficult to wash coals with low yields.

However, it may to be taken as a broad guideline towards a positive approach to encourage washing and use of washed coal in power generation, particularly for new power plants to come-up with definite cost-benefits to distant power houses.

Our study brings out that for power generation, use of washed coal is desirable and coal washing should be widely adopted based on its economic viability. We are of the view, however, that central direction on level of ash in coal for either economic or environmental objectives is inappropriate and at variance with moves to liberalise the economy.

Economic / Environmental Optimisation

Full discussion of economic analysis is given elsewhere and we discuss here only the implications for policy. The costs of coal washing will differ for every coal mainly because of variations in coal characteristics. The benefits will depend on the distance between mine and power station (and therefore freight cost savings) and power station operational benefits. There is no reason in principle why free negotiation between the parties concerned should not lead to the economically optimum outcome on a case by case basis. Rather than impose ash requirements on all coal flows, it would be more effective to encourage these negotiations within the framework of establishing long-term coal supply contracts. As some of the operational benefits at the plant are seen as theoretical by the power plant operators in the sense that there is no direct experience in the savings and some benefits accrue at the national level rather than the power plant level, we do believe it is reasonable for the government to take steps to encourage use of washed coal beyond what free negotiations alone would achieve. However we would recommend measures that retain flexibility.

One of the environmental benefits is associated with reduced land requirements for ash disposal. It is worth noting that the questionnaire to power stations typically gave a very low cost of ash disposal. This is one clear case where the monetary value does not reflect the true environmental benefits. We will take into account this fact in the economic analysis (section 6). Some regulation therefore will be needed to arrive at an environmentally optimum situation.


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The objective of environmental policy is to ensure the achievement of environmental standards. It is appropriate for these standards to be determined centrally by an environment ministry. Use of clean coal is one possibility of achieving the policy objective. It may be one of several possibilities and may or may not be amongst the cheapest route to achieve the environmental objective. This is certain to depend on the characteristics of the particular case. Therefore how to achieve the environmental objective should be decided by the power station operator, taking account of the options available to him.

In the Interim Report we suggested that market mechanisms could play a role in environmental optimisation. We had in mind not ideas like emissions trading as used in the USA but rather a system of permits, fees and fines as used, for example, in Poland. Taking again the land requirement for ash disposal under this system, a power station would, as in current Indian practice, receive a permit to dispose of a certain quantity of ash; the permit could be case specific and would be agreed with a local environment enforcement agency. The fees would be paid on actual disposals and would be related to the environmental value of land used for dumping. It might cover the future costs of full re- instatement of the lands used. Fines would be paid on disposals in excess of permit. They would be set at a high enough level to act as a deterrent so that the power stations avoid excess dumping. They may be at a level which makes use of washed coal an attractive option. However other options may be available. The system would encourage, for example, productive use of the waste material for brick or cement manufacture. At present the use of power station waste is much less in India than many other countries. Discussions with power companies suggest that many new schemes might go ahead if there were strong financial incentives.

We regard flexible approaches such as given in this example as being superior to inflexible measures such as setting limits on coal ash content.

A disadvantage of flexibility is that it requires judgements to be made locally, with a local monitoring capacity. This is rather weak at the moment. However we believe the development of local capability should be a very important priority to oversee, in particular, the private sector operations which are expected to grow in the future.


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Pricing

Pricing was discussed earlier in the general context of pricing control versus price liberalisation. These are specific features of the current regulation system, however, that relate to coal quality. Coal is banded into quite wide grades D, E, F, G. At any point within each of these grades coal is sold at the same price. The producer has an incentive, therefore, to produce coal at the highest ash level of the grade. In practice, according to the market questionnaire, coal is often delivered outside of the grade specification. In this context, the current discussions to build coal washing plants to reduce the ash is difficult to understand when, at the same time, the pricing system gives producers an incentive to maximise (within limits) the ash in the coal they sell. Necessary revisions to the existing system are discussed in a later part of this report.

2.4 Market Assessment

We have supplemented our discussions with power generating companies using a market questionnaire specifically focusing on problems with current coal supply and expected benefits from using cleaner coal. This questionnaire covered some of the same ground as the technical questionnaire sent to power stations, and the information obtained has also been used in the economic analysis to refine estimates of technical parameters like potential efficiency gains from using lower ash coal.

The survey indicated that almost all power stations have some problems with coal supply. The received ash level was around design specification of the equipment for only about a quarter of respondents. Most coal delivered was 10 to 20 ash percentage points above specification. Variable quality seems to be as much a problem as poor average quality. Some power stations complained about receiving large sized shales and stones along with the coal. Problems of flame stability were reported at most power stations. It is very clear, therefore, that power stations would be very pleased to receive better quality coal. However some of the problems mentioned by the power plants could be solved without going for washed coal. Local blending at the power station is one possible route to reduce variability of quality. However only a quarter of the power stations currently have a facility for proper blending.

The most immediate perceived benefit from lower ash coal is that there will be reductions in freight costs. Two examples shall demonstrate the range of possible savings which are substantial. A 1000 MW power plant needs around 3.77 million tonnes of raw coal per annum with 41% ash. Using coal with an ash content of 36%, the amount of coal needed


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decreases to 3,33 million tonnes per annum. Assuming a transport distance of 700 km the freight savings amount to 218 million Rupees per year or around 65.5 Rupees per tonne. Assuming a reduction in ash to 32% and a transport distance of 2000 km, freight savings increase to 881 million Rupees per annum or Rs. 287 per tonne (for details of these calculations please see chapter 4.2, page 67)

What came out of the interaction with the power plant operators is that they recognise other (than the savings in transport cost) benefits in principle, but very low monetary value is given to these benefits by the power stations. Saving in ash disposal cost, for example, was put at less than Rs. Utonne. As mentioned before, this is clearly a case where money price does not reflect the broad environmental benefit due to

reduced land requirement, reduced handling & transport costs, other social benefits like reduced resettlement, reduced effects on the cultivation in the impact zone and improved health and living conditions.

Due to lack of experience, the power plant operators find it difficult to assess financial benefits accruing to the power stations on account of greater plant availability, increased efficiency or better flame stability etc. with the use of beneficiated coal. Such benefits to power stations are most important in reducing the need for national investment in building new power stations, but this is not perceived at the operating power station level.

Most power stations report being able to achieve the required standard for particulate emission and they did not anticipate shortage of land for ash dumping, because land was too cheaply allocated. Therefore environmental pressures as exist at present are unlikely to lead to freely negotiated contracts for washed coal.

We have a situation, therefore, where the savings directly perceived by the consumers are only a part of the true economic benefits of using washed coal. The true economic balance is estimated more precisely in one of the following chapters of this report.

2.5 Institutional Context

In this section we discuss the key set of institutions concerned with policy formulation and implementation regarding clean coal use. (Many other bodies are involved in a smaller way) The institutions concerned, and the way the coal flows between them is shown diagramatically in the Figure 2.5.1. Discussion refers to this diagram. The diagram does not show the ad-hoc commissions which have been set up specifically to develop policy on coal washing.


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The Ministry of Coal has oversight of coal production regulation and the activities of the state owned coal companies. On matters of major investment by Coal India reference would also be made to the Ministry of Finance.

Although it has not taken the lead on policy formulation, the Ministry of Coal is most directly concerned with implementation of coal washing. It is strongly favourable towards increased beneficiation of coal. However, it insists this must be implemented within the very severe financial constraints that exist. Where public funding is involved, coal washing plant is put at lower priority than investment to rehabilitate and expand coal production, although new mines with external or private funding are being required to incorporate washing plant. The Ministry is very favourably disposed to schemes like BOO (build, own, operate) which avoid the need for public investment. Private management of these plants is also believed to offer potential operational advantages.

The coal supply sector consists of Coal India as the dominant supplier with a second company, Singareni Collieries Company, supplying much of the balance. Some long-established private sector suppliers exist, but these are small. It is likely that coal for washing will be nearly exclusively supplied by Coal India, at least initially. Singareni Collieries Company supplies mainly NTPC power stations and does not perceive a need to wash coal. Although this may change in the future, washing coal is not a topic of current concern to the company. In the future coal may be supplied from new private sector projects. Should these private companies be required to produce washed coal, or otherwise see a customer demand for clean coal, we are convinced they would build, own and operate such a plant themselves, following the general model adopted internationally for coal producers to wash coal.

The principal issue, therefore, is how to get washing plants built to wash coal produced by Coal India subsidiaries while avoiding the company itself becoming involved either as investor or operator of coal washing plants. We must recognise however, that because of the existing system of coal linkages Coal India cannot sell its coal to a specialised coal washing and trading company. Ownership of the coal to be washed must, therefore, either remain with it or with the power stations owning the linkage, regardless of ownership of the coal washing plant. This will change, however, according to the latest policy announcement of Government of India.

Figure 2.5.1

Institutional Context for Coal Fired Electricity Generation

' I

I I I I

I I

I I 4 c

Prospwiivc

. . .. . . . . - . . -

I I I I

Departmcnr of Power


-31 -

Electricity generation from coal is mainly undertaken by National Thermal Power Corporation (NTPC), by State Electricity Boards (SEB) or in exceptional cases, by long-established private electricity boards (for example, Calcutta Electricity Supply Company (CESC), Calcutta). There are prospective private sector coal fired stations, but none have yet been built. The electricity generating companies have a spectrum of attitudes to coal washing. In relation to existing coal burning plants the general view is for use of washed coal (10 out of 14 power plants). There is an acute awareness of the immediate extra costs this will add to coal supplied. It is generally conceded by the electricity generating companies that there will be some countervailing savings on transport but the break-even distances (that is, when transport cost saving equals washing costs) are assumed to be high.

Only limited account seems to be taken by some power plants of savings in operational costs; in their view these appear somewhat theoretical and untested. NTPC make their point that for existing plant, potential benefits arising from savings due to coal washing cannot be realised ( may be due to the fact that NTPC gets more consistent quality coal than others). There appears to be a general belief that although lower ash coal will give benefits these will not be sufficient to repay the costs of washing.

There are exceptions to this. The Punjab SEB is interested in using low ash coal for some long distance coal flows. It is actively pursuing a BOO scheme in which it, rather than the coal producer, would have a contract with the coal washing company.

In the case of new coal-fired plant there is expectation and acceptance by the generators that washed coal will have to be used. CESP is anticipating a new mine/power station investment based on washed coal. It has not, however, done any calculations to demonstrate that this is economically optimal. We have also discussed this issue with NTPC and a major private sector potential entrant, Hinduja National Power. This second case, Hinduja National Power is the most topical and critical case for implementation of coal washing in India. Coal for the plant will come from Coal India and a potential BOO had been under discussion for several years. The negotiations around this highlight the difference between the methods of doing business in the Indian coal/energy sector over the past decades and standard international business practice. Hinduja NP intend to generate electricity adopting world-leading management and operational practice. They wish to limit their activities and obligations tightly to this area of their expertise and interest. They are not interested in defining what the Indian regulations should be regarding coal quality. Rather they have wanted, and obtained, a clear and enduring permit (in fact, using 34% ash). They are negotiating a power supply agreement with distributors ensuring that fuel cost increase to them is passed on to the purchaser of electricity.


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Therefore, they are not greatly concerned about the cost add-on for coal washing, but are vitally concerned, however, about the reliability of fuel supply to them. A failure of supply would cause them costs (through a power plant standing idle) which could not be passed on to the electricity purchaser. They are seeking a fuel supply contract therefore in which the fuel supplier (Coal India) would pay compensation for a failure in coal supply. Our impression is that the highly legalistic approach of Hinduja NP, requiring all eventualities to be covered in contracts and placing reliance on the courts in case of dispute, is a feature that the Indian parties have not yet learnt to deal with. It is noticeable, also, that the foreign parties in discussions on coal washing place much higher reliance on well specified contracts than their Indian partners - this is discussed further in the following section. Over the past months it has become evident that only Coal India is in a realistic position to shoulder some of the contractual risks involved and there has been a change in the proposal draft contractual conditions regarding the BOO scheme.

The attitude of NTPC is somewhat softer than Hinduja NP regarding contractual issues. It is in less strong position and, therefore, has to reach agreements. In general, however, its aspirations appear similar to Hinduja NP.

The Department of Power is responsible for oversight of electricity generation, transmission and distribution. We have the impression on the basis of limited discussion that it has some concern that coal washing could force up the price of electricity.

The Ministry of Environment and Forests is an active supporter of coal washing and its views have been prominent in some of the committees supporting policy on the topic. Its main powers in relation to implementation of coal washing relate to specific permits for mines and power stations to operate.

2.6 Organisational Options for Implementing Coal Washing

In this section we review the main organisational options that are available in principle for establishing coal washing plant. In evaluation of each option we have taken account of international experience, of the views and resources of Indian organisations who have an interest in coal washing, and of the framework of policy, law and regulation in India. These issues have been covered in general in earlier sections of this report and we focus here on the implications for specific options for implementing coal washing. We comment also upon the implications of the policy changes announced in January 1997.


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Coal Companv Plant

The normal model for coal washing is that the plant is owned by the coal company. Washing coal is generally seen as the final element in the production of coal before dispatch to the customer and there are close operational interactions between mining and washing processes. In order to minimise transport costs there is a need to have the plant physically close to the mines, at pithead or a central position when the raw coal comes from several mines. We think it is very likely that new private sector coal producers in India will build their own plant should their coal need washing either because it is required to obtain production permits, or is demanded to meet customer requirements. However, it appears not to be an option regarding Coal India. It does not have the funds and such investment as is available will be pre-empted by urgent needs on the mining side. For its part Coal India is not particularly wishing to operate plants. Both it and the Ministry of Coal believe that a private operator could operate more efficiently.

Electricity Companv Plant

The electricity generator could own and operate a plant to wash coal. This would be a very unusual model, different from international practice. Electricity companies have generally very limited understanding about coal washing, even when they have a long history of using coal. The coal washing plant would be near the mine and not near the power station on economic considerations reinforcing their reluctance to get involved directly in coal washing. Although some power station operators in India wish to use washed coal, none we have met have any desire to take responsibility for owning or operating coal washing plant.

Private Companv BOO

This model is the one being pursued most actively in India and we had discussions with two of the leading contenders to build and operate plant, Madhucon and Indo-US Washing Company. Both have overseas partners. Madhucon had bid in partnership with Kilborne of Canada. lndo-US is a joint venture with Roberts and Schaeffer of the USA and had previously operated in India as Roberts and Schaeffer.

There appear to be no technical impediments to implementing the schemes being promoted by either company. Technical design has been completed for some years. There are some contractual problems however.

A draft contract governing the operation of BOO Schemes was shown by the prospective BOO operator. The draft contract was hindered by


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0 the lack of a tradition of legal contracts covering long term coal supply agreement in India; the great complexity necessary to cover the operational variations that could happen over the life of the plant.

The draft pro-forma agreement covers a period of operation of 20 years, with 5 year reviews and modification by mutual agreement. This is quite reasonable. The contract addresses: coal feed in, washed coal out, land use, water, power, access, railways, rejects, financial stages and liquidated damages. We have the impression that in some respects the definition of some of these issues does not meet international legal norms but clearly this aspect could be strengthened.

Most actual discussion and disagreement relates to the system of penalties and compensation covering variations in quantity and quality of raw coal in and washed coal out. It appeared to potential BOO contractors that the initial drafts were seriously imbalanced, providing disproportionate penalties on the contractor where he fails to perform to contract, compared with the penalties on the coal supplier when they fail. We understand improvements are under negotiation with the potential operators. A further problem has arisen because of penalties that might be imposed by the power station operator should supplies of clean coal fail and the power station caused to stand idle. It is becoming apparent that the magnitude of the worst case scenarios is too great for the potential BOO operator to bear and the only way forward will be for Coal India to offer relief.

It is noticeable from discussions that the Indian partners to BOO are more relaxed about these problems than their international counterparts. This may be because of the relative lack of experience of the Indian parties, and the lower reliance traditionally placed on legal contracts with involvement of the courts.

It is possible that some BOO will proceed with Indian led-schemes using Indian finance which is reported to be available, although much more expensive than international capital since Indian long term debt markets are relatively under developed. There is intense pressure to agree a BOO scheme to provide coal to the Hinduja-NP proposed project. We do not exclude the possibility that this may go ahead. It is learnt that a Contract agreement between coal company, Mahanadi Coalfields Limited and Build Own Operate company, Roberts & Schaeffer (India) has been signed for installation of a coal preparation plant at Kalinga mine for supplying beneficiated coal to Hinduja-NP power plant at Visakhapatnam. However we maintain a strong view that BOO is not a concept which is well matched to the realities of coal washing.


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We have looked at the proposed BOO linked to Punjab SEB. The problems we expect to arise are generally similar to those discussed above but may be much less severe. This may be financiable but we do not believe it to be an ideal model that will be widely applicable because of electricity companies' general reluctance to involve themselves with coal preparation.

Private Companv BOOT Schemes

This scheme differs from BOO in that the contractor would purchase the coal, wash it and then trade as a principal in the washed coal. Under present regulations governing coal supply in India such an arrangement cannot exist. However it will become allowable under the recently announced policy changes. It has been promoted as a concept in India and we think it has merit compared with BOO. It does not involve complex contracts. The BOOT would simply have raw coal purchase and clean coal sale agreements. These would be separate and could be based upon well established models. BOOT could benefit from the growth both in coal trading and in long-term coal contracts that we believe are urgently required in India. There is no need, as there is a need with BOO to try to capture the performance of the operators in the contract. If a BOOT performs well, it will make more profit and vice versa. This is normal business operation. Although it involves greater risk to the operator it also embodies much greater potential for profit. We believe this may be attractive to some potential operators. At least one of the two companies considering BOO would prefer a BOOT if it were available.

Joint Venture Schemes

It seems possible that some of the disadvantages discussed above in relation to BOO could be overcome by joint ventures between Coal India and a private operator. Joint ventures with a power generator might also be considered but they appear to us to be less natural.

The key advantage of joint venture compared with BOO is that Coal India and the contractor would have a shared interest in the plant operating efficiently. BOO appears to require highly complex contract clauses based on penalties and bonus to motivate and control the performance of a contractor. Joint venture, on the other hand, would use profit motivation. It may also enable issues regarding plant operation to be discussed in a collaborative rather than confrontationalkontractual mode.

We do not underestimate the difficulties of implementing this approach. We do not, however, regard the problem that Coal India has no capital as necessarily precluding the option. Instead of investment, Coal India's equity in a venture could be justified through it ownership of the coal


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linkage. Coal India would not need a majority stake; this could be agreed in negotiation. Indeed the advantage of only a small Coal India stake is that it would make it easier for the plant to be managed according to the norms of the private sector.

2.7 Other Supporting Measures

Clean Coal Fund

It is possible to conceive of a Clean Coal Fund which could encourage building washing plants. Such a fund would not eliminate the problems discussed above in finding a satisfactory institutional framework but it would considerably ease those problems.

The sources of capital for such a fund could include international financing institutions, domestic banks and the state budget. The former two would generally expect normal commercial rates of return. International banks would almost certainly wish to lend in hard currency; this could involve a high premium for exchange rate protection, since all project income will be in rupees. Domestic loans, if available, may therefore be more attractive to investors.

The Indian Government may justifiably be able to lend below the Indian banks’ commercial rates. Coal washing provides environmental benefits at national level which are not captured in the financial accounts. Preferential lending to such projects may be economically sound. Because of the global and transboundary nature of some pollutants these considerations may also be considered by certain international lenders; an example is preferential credit from the Global Environmental Faci I ity .

Section 9 of this report sets out a schedule for implementation including the establishment of a Working Party to promote coal washing projects. It is envisaged that this Working Party would have management responsibility for the Fund, including the assessment of competing tenders for loans. The actual management of individual loans should be entrusted to an Indian financial institution following competitive tender; there would of course be a fee for this service.

In some countries environmental levies or fines imposed on plant operators for permits or for violating standards are recycled to fund environmentally desirable projects. We believe this would be entirely appropriate to India. In particular if the levies were made on ash disposal from a power station, this could encourage the operator to sign a long-term clean coal supply contract with, say, a potential BOOT company, giving that company the firm foundation to raise funds for the washing plant. The Fund might support alternative projects with similar


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benefits, for example, fabrication of building materials from power station wastes or other clean coal technologies. Figure 2.7.1 shows a possible organisational set-up for such a Clean Coal Fund.

2.0 Conclusions and Recommendations

The coal and power sectors have been highly regulated and mainly in public ownership. However they are liberalising, following movement in the general economy and policy announcements made at the beginning of 1997 which could significantly accelerate the pace of reform. Movement towards freeing prices is quite rapid and getting ahead of plans to diversify sources of supply. Therefore widespread introduction of long-term coal supply contracts is needed, ahead of further de-control, to protect producer and consumer interests. Such contracts are also a natural medium to govern the supply of washed coal.

Policy on washed coal is derived from both economic and environmental considerations. It has been widely believed (encouraged by general practice in other countries) that for coal flows which travel long distances, washing coal leads to lower overall costs, so that environmental benefits are effectively free. Our economic analysis suggests that this is not always the case. Savings in transport costs are only one element. Other factors like improvement in thermal efficiency, reduced land requirement for ash disposal or reduced support fuel have to be considered, too.

0 A blanket policy to use washed coal, applied to every case, is likely to be very expensive and is unlikely to provide good environmental value for the money spent. Washing all electricity coal may produce benefits but at a cost that will ultimately be reflected in higher electricity tariff. In reality, a flexible approach which takes account of specific circumstances of mines, railways and power stations will be much more effective in the use of scarce funds. Policy should focus upon the environmental standards to be achieved, allowing suppliers and consumers to find the most economic means to achieve those standards. Mechanisms that give financial incentives (or, equivalently, avoidance of financial penalties) should be used as far as possible. In parallel with this is the need to build up the understanding and monitoring capability of local environmental agencies so that a flexible system operates without abuse. Price plays a dominant part in market decision making. At present the pricing system encourages to produce (within limits) higher ash coals. Revision of this system towards international norms is an urgent priority which will, in itself, lead to lower ash coal being delivered.

Implementation of Clean Coal Technology through Coal Beneficiation

International Development Credits ................................... GO1 Credits

I I 1

. ......................... ................................ Clean Coal

Fund b Envlronmental

fees I fines

I . Private Sector Funds

I

Qualifying Projects

. . . . - - ...................................................................................................

. . . . . . . . . . . . ' .?

Key: - funds for investment ........ repayments/dividends .................................................................................................................................................................................... ............................................................................


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There is widespread concern about the quality of coal delivered to power plants, as expressed in the survey of power stations. However this does not unambiguously determine a need for coal washing plant. Rather it points to an absence of quality assurance by the producers, something that could be modified with a change in the pricing system.

Our analysis suggests that in most of the cases the comprehensive balance of costs and benefits justifies coal washing . However, due to the fact that at the power plant level only one part of the benefits (from freight savings) will be immediately visualised and other benefits (like improvement in plant availability and thermal efficiency) are felt on long term only, it is therefore unlikely that freely negotiated contracts will lead to a spontaneous demand for washed coal. Environmental benefits of using washed coal are to the local area, region, nation and even to the global environment. While the environmental benefits to the local area due to power house are taken into account by the power house, those accruing to the region, nation and global environment are not. For this the regional Government, the national Government and the world community have to play their role and provide support beyond market forces to encourage using of washed coal.

0 The most usual organisation for coal washing throughout the world is that the plant is owned and operated by the coal producer. As private sector projects take off in India we have no doubt that these will be built as part of the main mining activity. However Coal India does not have the funding to take this route and there are important policy and practical reasons for not wanting to go in this direction for its operations. It is quite unusual internationally for electricity companies to own or operate coal washing plant. Indian electricity generators in general do not wish to go down this route. There is a need, therefore, for alternative models involving the private sector.

The BOO model is the one that has been most thoroughly investigated in India to implement coal washing. It has not been used elsewhere and we judge it will be very difficult to implement. The problems arise from contractual complexity and striking a fair balance of risk and reward between the contracting parties. We do not exclude the possibility that a solution will be found satisfactory to Indian companies using Indian capitals. We doubt, however, that BOO will be attractive to international investors.


- 40 -

The BOOT model, involving coal trading, will become permitted when recently announced policy changes are implemented. This is not a usual model but we believe that it offers a more satisfactory profile of risk and reward that will be attractive to local and international investors. A BOOT operation would also wish to be underpinned by raw coal supply and coal sales contracts for most of its production.

0 There is a need to alternative institutional models if coal washing is to be widely implemented. These should be based on partnership between Coal India and private capital. Coal India's ownership of physical assets and permits (including ownership of the raw coal) could be used to buy the equity in a joint venture activity. The resulting operations should be managed with a private sector ethos. This proposal has implications that go far beyond the issue of coal washing and should be appraised in the wider context of Indian coal supply.

To the extent that policy to implement coal washing is driven by environmental objectives, it would be appropriate to consider the creation of a clean coal fund. This could draw on capital from international development banks and domestic funds to provide loans for beneficiation plant at relatively favourable terms. Monies from environmental fees and permits could also be used to feed the fund.

It is clear that the full potential benefits of coal washing are not well understood by the power sector, and that some benefits will only be seen over the longer-term. Therefore widespread implementation will not take place spontaneously. A regulatory requirement to use washed coal is one approach being adopted by Government. A more positive approach would be for Government to increase understanding of the benefits and costs, and to insure that this understanding is widely disseminated.

2.9 Market and Pricing Study

2.9.1 Introduction

This study Terms of Reference A(ii) require us to

0

0

review current pricing policies and determine their adequacy assess revised types and levels of charges needed to fully recover the costs of beneficiated coal. recommend a revised tariff policy for adoption by the Government of India


- 4 1 -

Terms of Reference A (iii) requires us to undertake a market survey of the likely users of beneficiated coal to identify actual benefits and policy related constraints.

The market survey was sent to 20 power stations which represented a cross-section of the power generation system. Fourteen responses were eventually received. This is a satisfactory level of response. We have no reason to believe that those responding are in any untypical of the wider system of power stations. Information from that survey has been used here to assess the likely acceptability of new pricing regimes and in the economic analysis to help estimate some technical parameters.

2.9.2 Review of Current Policy and Practice

The market survey reports widespread dissatisfaction with coal supplies. All have problems with one or more attributes of the coal. A majority of respondents reported problems with ash level, size make-up, moisture, handleability, flame stability and foreign matter in coal. However it is clear that there is a major concern about the reliability and the variability of quality of coal supply.

Majority of received coal is worse than the design specification. Joint monitoring at the mine is often not undertaken. Generally the operation of the pricing system is not providing a discipline on the coal producers to improve the quality of coal sent out.

Non-coking coal in India is priced according to its ‘useful heat value’. Coal is graded into one of seven grades (s. chapter 2.2.3) (A, 6, C, D, E, F, G), each grade covers a range of ‘useful heat’ values. Until recently the price of all grades has been controlled. Currently the better coal qualities, A, B and C are free and negotiated prices have quickly increased compared with the administered level. Almost all coal used in power generation falls into the poorer grades and therefore remains under price control. According to recent policy announcements, all coal prices will be freed from 2001.

Any system of price control leads to distortions. The present system of control in India is intended to reflect costs of production. However, the general reservation is that the current pricing system is at variance with the general thrust of the Government policy and will not lead to optimum levels of resource being put to the coal sector. However, even if the price of all grades is decontrolled we have three specific views of the current and future situation.


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The Useful Heat Value Concept

The term ’useful heat value’ (UHV) is a misnomer. In fact it is an artificial concept which relates to the normal usage of the term ‘useful heat value’ only when the coal was burnt on very specific appliances which are not used in the power generation market. The concept is to our knowledge, unique in India. We strongly recommend a move to selling coal according to its Gross Calorific Value (GCV) in common with the near universal practice. A description of the useful heat value system with some historical background, is excellently covered in an internal CMPDI paper ‘Change Over from UHV to GCV’ (Annexure 2.9.1) We have annexed the paper to this report.

Problems of Grading

Grouping coal into grades means that consumers can pay quite varying amounts per unit of ‘useful heat value’ depending on whether the coal received is near the top of its grade in quality, or near the bottom. Figure 2.9.1 ‘coal price per unit of heat’ displays this phenomenon, using current administered prices. The grading gives a zigzag effect with very sharp differences in prices across the grade boundaries. The grading gives producers an incentive to ship coal at the highest ash end of the grade since this will generally give rise to the highest income. It is clear this system gives them no incentive to try to produce lower ash coal. Experience throughout the world shows that through careful attention at the production stage, cleaner coal can be produced at both surface and underground mines. The pricing system should reward this practice.

Figure 1 Coal Price per Unit of Heat

s G

& = 0.100 e 2

8

0.125 cn Q)

Q)

0.075 - Q

0.050

0.025

0.000

0

0.200

0.175 -

0.150

I

10 20 30 40 50 60

Ash Content (YO)

. . . . . . . . . . - .. .- ._ .. _1

i + UHL’ Rup/M.Cal i - . . . . . . . . . ... .-I


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Ash Penalty

Most pricing systems depress the price per tonne of higher ash coal for two reasons. The first and most important reason is that the calorific value reduces as ash increases. A correction needs to be made for this effect. The second factor is that higher ash coal has less value to consumers because.

it increases transport costs per unit energy; it leads to higher operational costs at the power station, and; it leads to higher ash disposal costs.

The element of a pricing regime correcting for these effects is often designated ‘secondary ash penalty’. The most obvious and direct costs which will be recognised by consumers is, in fact, transport costs. Our market survey shows that power stations are very aware of the operational advantages of lower ash and more consistent coal. India’s own concept of useful heat value sufficiently covers the secondary ash penalty. For the grades of Coal D, E, F and G removing the effect of grading by taking the average grade price, cost per unit of useful heat remains constant. We presume this is a feature of the pricing system. This is evident from Figure 2.9.1.

2.9.3 Review of Alternative Systems

Price System Characteristics

Most systems of pricing coal embody two elements:

a reference price for coal of a specific quality (essentially defining the cost per unit energy); a formula or other set of rules defining how the price of a particular batch of coal relates to the reference price. Secondary ash penalties are an example of this. There may also be penalties relating to consistency of quality, sulphur and so on.

The Indian grading system is an example of this. As described above, price is determined by reference to useful heat value. There are also more minor adjustments for volatile content, moisture and area of production. In countries like India where prices have been controlled and most production is in the hands of the Public Sector, price formulae have generally tried to reflect costs of production. As India takes on the mantle of the market economy, price formulae should increasingly also reflect the value to the customer. The formulae should, for economic optimisation, lead to price and quality at which producers are happy to sell and consumers are happy to buy under free conditions.


- 45 -

This principle has important consequences in relation to coal beneficiation. The Terms of Reference ask us to assess the level of charges necessary to recover fully the costs of beneficiation. However, for economic efficiency the charges must also reflect the added benefit to consumers arising from the use of beneficiated coal. In this context ‘economic efficiency’ means deploying the correct level of national resources to coal washing plant.

2.9.4 Implementation of Revised Pricing System

Although the proposed system incorporates radically altered principles for pricing it does have some major features which are similar to the present system. The present system is based upon ‘useful heat value’ and has stepped grades. Nevertheless, by smoothing out the steps and converting ‘useful heat’ to calorific value, a pricing formula of the type recommended can be reproduced. This is shown in Figure 2.9.2. Figure 2.9.3 amplifies the graph for the grades of most interest (D, E, F, G). It is important to note that, except for the effect of smoothing out the steps, a given sample of coal would have the same value on this scale as under the current system. At the mid-point of each of the grade steps, coal under this formula and the existing system would have identical (or near identical values).

Thermal Coal Pricing Formulae

Much coal traded between mines and power station line a formula relating price to quality. A relatively simple system relating the price of coal to its gross calorific value and ash content would be of the form:

Pi = QR - k x (Ai- AR) Pi is the price of unit energy of the coal defined by its gross calorific value Ai is the ash content of the coal, QR is the price of a unit energy of coal of reference quality, and AR is the ash content of the reference coal

On the basis of the market survey we believe it is justifiable in India to have further correcting factors which will bring the price of a specific coal closer to its value to a user.

Low volatile coals impose a cost penalty on power stations because of certain difficulties in the combustion process. Lack of consistency appears to be a major problem. In some countries direct consistency penalties have been introduced into pricing contracts. However, these are often complex and require extensive quality monitoring for application. We believe it is justified


- 46 -

in Indian conditions to use coal washing as a proxy for increased consistency, and add a premium for washed coal.

Adding these extra factors our recommended formula becomes:

Pi = QR-k x (Ai AR) + W Vt The symbols P, Q and A are defined above W is a premium added for coal that has been processed through a beneficiation plant Vt is a penalty when volatility falls between a threshold level t. The line shown in figure 2.9.3 is:

.. .- . .- . _. . - .

.Approximation to current formu.la

Price/M.Cal=Qr-k(Ai-Ar)+W-Vt

Reference coal: 41% A, 5% M, GCV 3970, '83.63 . Rs/M.Cal . .- .- GCV . . . . .. . . . . . . . . . . . . . -. . . . . - -. .. . - . iQ r 83.63 w

0 .-.I 19.00%

k 0.9 Vt Ar .. . . . ... . . 41 Min. Vol. . . .. . .- . . . . . . .


0.175

0.150 a d

2 0.100--

2

8

0.125 z a, a W

a,

0.075 - ep

0.050

0.200 -1

--

-

0.025

0.000 -1 I I I I

0 10 2 0 3 0 40 5 0 60

Ash Content ((YO)

_. . . . . - . . . -. . . . . -_ .

-+- UH\’ Rup/M.Cal ~ + GCV Rup/M.Cal I . . . .. - . . . ..

0.1000

0.0875

0.0750 3 5 @ 0.0625 6 & 3 %

0.0500 0,

0.0375 - u

0.0250

0.0125

0.0000


I I I

25 3 0 35 40 45 5 0 55

Ash Content (YO)

. .. - . .. . . . - - . . . 1'- GCV (R:M.Cafi 1

,-Linear .-..- (FUM.C*


- 49 -

This line gives the best approximation to the present system. It is not a suitable formula for use in pricing power station coal for two reasons:

it gives no credit for washing the gradient of the line, which should reflect the secondary costs of ash at the power stations, requires checking

Washed coal gives two advantages to the power station - lower ash content and better consistency. These result in five identified operational savings at the power station, on:

Generating cost (from improved thermal efficiency and availability) Reduced build requirement (from the same factors - this is an additional benefit only if depreciation does not fully cover replacement cost, as is often the case in high inflation economies) Ash disposal Operation and maintenance requirements Support fuels

in addition to the savings on transport cost.

Of these, all except ash disposal cost are partially attributable to the increased consistency resulting from washing. Our analysis, using the financiaVeconomic model, shows that on average the gain attributable to consistency improvement from washing is of the order of 15 Rs/MCal coal supplied. This premium has no relationship to the cost of washing: it reflects the extra value to consumers of consistent washed coal over inconsistent raw coal at the same averaqe ash level.

The remaining gains resulting from lowered ash content are to be captured by the gradient of the price formula. Our analysis shows that this should be considerably steeper than the approximation to the present system shown above - i.e., the existing price system siqnificantlv underestimates the value to the customer of lower ash in the coal supplied. Note that this observation applies to raw coal as well as to washed.

Analysis of typical power stations with our computer-model (section 6) indicates that the gradient of the line should be about 4, as opposed to 0.9 in the approximation to the present system.

To continue the philosophy of rooting the proposed new price system to current levels, the recommended price formula assigns the exact current price to a raw coal of 41% ash, 5% moisture - a typical present power station fuel. It thus becomes:


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Recommended Pricing Formula

Price/M .Cal=Qr-k(Ai-Ar)+W-Vt

Reference coal: 41% A, 5% M, GCV 3970, 83.63 Rs/M.Cal GCV Qr 83.63 W 15 k 4 Vt 0 Ar 41 Min. Vol. 19.00%

__ ~ ~ -___

Note that the penalty for low volatile coal is set at zero for the general case. There are a small number of power stations which receive coal of a volatile content well below their specification. This causes significant operational problems requiring the use of excessive amounts of support fuel to maintain flame stability. These stations should be compensated if they are forced to accept such fuel. However, no general term is proposed here, for two reasons:

0 It is believed that only a few such linkages exist. They are not in the interest of producer or consumer. Low volatile coal should be redirected to stations designed for it, as would happen in a free coal market. If there are any cases where this is not possible, the financial effect of burning low volatile coal will depend critically on the specific power station’s operating characteristics, and the appropriate penalty should be negotiated between producer and supplier based on anticipated extra costs of generation.

Much discussion has been held in India on the possibility of simply adding a washing premium to the present pricing system. This is totally incompatible with our recommendation; such adjustment would continue to use an inappropriate gradient for the price formula, and so would continue to overvalue high-ash coal and undervalue low-ash. In the model runs (section 6) presented in this report, both pricing systems are used to bring out this important difference.

2.9.5 Conclusions and Recommendations

We have recommended a new basis for coal pricing in India. It relates price to various coal parameters and seeks to represent the value of coal in use to the customer. The formula does away with ‘useful heat value’, an India peculiarity, and replaces it with the international norm of calorific value. It does away with price grades which severely weakens the relationship between price and quality and actually can give incentives to producers to send out higher ash coal.


- 5 1 -

The formula has been calibrated using information collected on the value in use of coal at power stations and addresses some of the problems reported by coal uses in India. It includes a component reflecting the high value, through improved consistency, of washed coal.

We recommend that this formula should be incorporated into long-term supply contracts between mine companies and power stations. These contracts should also define monitoring regimes which properly protect the interest of both parties.


- 52 - -

3.0 Evaluation of Establishment of Coal Preparation Plants

A general questionnaire was developed by the Consultants to ascertain the list of mines with location, production rate and reserves of major coalfields producing power grade coal. This questionnaire was circulated to collect from the following coal companies producing 95% of the coal production in India:

ECL BCCL CCL NCL SECL MCL WCL SCCL

Eastern Coalfields Ltd. Bharat Coking Coal Ltd. Central Coalfields Ltd. Northern Coalfields Ltd. South Eastern Coalfields Ltd. Mahanadi Coalfields Ltd. Western Coalfields Ltd. Singareni Collieries Company Ltd.

Data regarding coal resources, type of coal and coal rank, coal specifications range, coal supply rate etc. was also collected for the purpose of this study. Evaluation of answers to this questionnaire are given in annexures 3.1.1 to 3.1.1 8.

3.1 Collection of Coal Samples and Testing

The Standing Linkage Committee constituted by Government of India allocates coal linkages to various thermal power plants. The following table 3.1 indicates the major Indian coalfields and also those most of which are supplying 10 million tonnes or more to the power plants. (Map of India at Fig. 3.1)


- 53 -

Coalfields

Raniganj Coalfield } Muqma SalanDur Coalfield 1

- a

a

a

a

a

a

a

a

a - -

**Geological reserves as on 01.01.96

19,194 } 1

Table 3.1 : List of Major Indian Coalfields

1996-97 18.11 }

2001 -02 26.75

Rahahal Coalfield Jharia Coalfield Giridih Coalfield East Bokaro Coalfield D.V.C. Berino Coalfield South Karanpura Coalfield North Karanpura Coalfield Singrauli Coalfield Wardha Valley Coalfield Urnrer Coalfield Karnptee Silewara Coalfield Patharkhera Coalfield Pench Kanhan Coalfield Korba Coalfield Central Indian Coalfield Ib Valley Coalfield Talcher Coalfield Sinqareni Coalfield

11,739 6,102 23.00 1 1 1 .oo

Part of East Bokaro 4,875 13,043 9,198 4,996

1,640 } 438.00 1,580

19,538 9,432

21,237 25,449 10,093

85 1

Total I 158,773

. (figures in million tonnes) Off-take I Demand in

1 9.91

26.65 0.34 10.59 0.10 3.51 13.52 36.99 19.04 5.62

2.62 3.61 35.20 20.92 13.88 23.33 29.34

12.53 23.01 0.40 5.41 0.10 4.93 25.25 46.52 20.2 3.26 2.94 2.67 2.88 44.90 24.68 23.30 33.76 36.50

273.28 I ~ 339.99-

a **

(Mostly producing more than 10 million tonnes per annurn) - Studied. Non-coking coal reserves down to 600 rn depth (as on 01.01.96)

18 mines were identified from the major coalfields supplying power grade coal for compiling data like proximate analysis, ultimate analysis, CV, ash analysis, etc. with respect to the power grade coal being supplied to thermal power plants. Following are the mines identified:

1. Jagannath 2. Ananta 3. Bharatpur 4. Lakhanpur 5. Belpahar 6. Dipka 7. Dudhichua 8. Bina 9. Gevra 10. Muraidih 11. Lajkura 12. Sasti 13. Rajmahal 14. Bachra 15. Durgapur 16. K.D. Hesalong 17. Manuguru OC II 18. North & South Tisra

Data as received from the mines with respect to general information like mine capacity, production rate and coal and ash characteristics are attached as annexures 3.1.1 to 3.1.1 8.

Out of the above 18 mines identified, samples from 12 mines (Table 3.2) representing around 78% of the demand in 2001/2002 were collected and transported to CMPDl’s Laboratory, Ranchi for washability investigations and other characterisation studies.


- 55 -

Table 3.2: List of Mines from which Coal was tested

I _u- ...

. .. .- ... I Bharatpur .+ ' Talcher -~ ~

Jagannath Talcher . . ... ~ ~

--'.

4 jseb?ahar ... j Ib Valley .. . i Rampur . -. . .

! . . . . L a k r a . . . . .- ... 7 1 6 . . . V X e y i - ~ x u ra

- Bina - : Singrauli ~ . - . I Bachra .~ j North-Karanpga ......... . . . . . . . Lower Dakra . . . . . . . . .

...... - . . . . . . - -_ . . . . . . . I i ....... DIJ ka Korba . . . .+ Lower .. Kusmunda ... .

I Sasti . . . - . . . -_ . . I . . . . Wardha _- . . . . .

. . . . Turra

K.D. Hesalong North Karanpura Upper Dakra -.

Rajmahal - Muraidi h I Jharia

. . : . . . Ballarpur .- . . . .- - . . . . - .... - .............. .- ........

I

. . . . . . . .......... . . ... -. - . . -_ . . . . ....... . . . . . . . . . . . . . . . . .- ._ R aj m a h al "/V Lalmatia I/" I. I.. .-

..... . . . . . . . . ... ..... . . . . . . . . . .- . ....

The data with respect to washability and characterisation of raw coal, clean coal and reject as well as characterisation of ash generated from tests are given as annexure 3.1 . I 9 to 3.1.30.

As per the experience of CMPDI, the local consultants in this project, it has been observed that the optimum level of crushing for steam coal is 100/75 mm.

During the months of October and November 1996, coal samples were tested.

3.2 Computer Simulation

Calculations to find out the most appropriate flowsheets for the given coal were run on the basis of a computer programme developed by Montan-Consulting GmbH during the last years.

The programme simply requires the input of the washability data generated from sampling and testing, the density cutpoint and the separation efficiency for the chosen equipment and then yield and ash content are calculated.

Indian coal is extremely difficult to wash. Whereas in most other coal producing countries (with the exception of the countries of the former Soviet Union) thermal power coals are supplied with an ash content (after washing) below 20% and coking coal with an ash content of maximum lo%, Indian thermal power coal being supplied today is of 38 - 42% ash (before washing) and coking coal (after washing) is of 17 - 19%.


- 56 -

The washability data (annexure 3.1.19 - 3.1.30) show the reason for these high ash levels. Even on a purely theoretical basis, the lowest ash level which can be achieved is around 16% (Manuguru). In most cases, however, the theoretically lowest ash level is around 22% at yields which may come down to 16 to 20%. Basically, under practical conditions given in a washery, ash levels below 30% (at a reasonable yield) will be reached at only in a very few cases. Annexures 3.1.31 and 3.1.32 give a short summary about the general characteristics of Indian Coal and the principles of coal washing.

3.2.1 Selection of Flowsheets

Basically every flowsheet is tailor-made taking into account the different raw coal characteristics and washability data of the respective mines or coalfields. For this project, this would have resulted in 12 different flowsheets. As this project however, aims at a generic approach of coal washing, two different basic flowsheets have been developed, the so called Standard Flowsheet Variant I (chapter 3.2.2) and the Standard Flowsheet Variant II (chapter 3.2.3): Whereas Variant I stands for a rather simple flowsheet for partial washing or deshaling, Variant I1 presents a more sophisticated solution for washing the whole grain range from 0.5 to 100 mm.

Selecting these least-cost flowsheets based on the washability data and analysis of coal samples and based on experience with the Indian situation major importance was given to the following aspects:

possibility to reach the required ash levels equipment selected for the flowsheets should ensure smooth and safe continuous operations low capital expenditures and low operating cost process should have minimum impacts on the environment

The washeries are laid out to a modular design allowing modifications regarding quality requirements or capacity by simply adding further modules. The basic module was designed for a capacity of 500 tph or 2,500,000 TPY. This size is based on Indian experience in supplying a 500 MW power plant block.


- 57 -

3.2.2 Standard Flowsheet, Variant I

Annexure 3.2.1 shows the Standard Flowsheet for a 500 tph washery to reach an ash level of 34% in the washed coal. Annexure 3.2.la gives a description of the process.

Based on this Standard Flowsheet, annexures 3.2.2 and 3.2.3 show the arrangements of the major equipment of the washing plant section. Annexure 3.2.4 gives the equipment flowsheet for the coal preparation plant as a whole, comprising of

- - - - the washing section and -

the receiving pit cum primary crushing section, the screening cum secondary crushing section, the crushed raw coal storage section,

the reject and prepared coal loading section.

The layout of the Coal Preparation Plant (CPP) according to the a.m. equipment flowsheet is shown in annexure 3.2.5. This layout plan shows not only the CPP as described by the equipment flowsheet but also all the auxiliary facilities like

- thickener, - slime ponds, - administrative building , - electrical sub-station, - workshop, - store, - canteen etc.

Annexures 3.2.4 and 3.2.5 are the basis for calculating the capital and operating cost (see chapter 6).

Results

The results achieved with the Standard Flowsheet, Variant I are wrapped up in table 3.3, the summarised results of the simulation calculations are to be found in annexure 3.2.6.


- 58 -

Table 3.3: Results of Computer Simulation, Variant 1

.. . . . . . ... . . . . . . . 25 k 1% Ash 34 f 1% Ash 30 - & 1% Ash 28 f 1% Ash ... .- . . . . _- -.

I a.....

'n.a. .. . . . . . . . . . . . . . . . . I . . . .-

. . . ...... .... ...-..-I..... .-

. . . .

!.a.

Bi na . . ... . . . 94.80 . i73.10

Hesa!ong .-; 75.30 ......... ,70.00

Laikura . 6%?0 ... -. 56.60

Manuguru :90.80 ,.. 175.70 Mu.ra.idih 158.80 ,, '61.10 ,

RaFahal 1179.50 , 54.50 Sasti . . 91.00. , ,67.20

Dipka. ~. ........

. Jagannath .76120 159.00

........... '78.80 . . ~ 157.00 .......... :71.00 .. . ..... n.a. ....... ! n.a,. i n.a: ...-

. n.a. . . . . . *.a . -. ....... ".a. - ..

...... ~ n.a. .!?:a. .. in.?, . . . !80.40 . . . . . . . 6.9.90 ..... 75.90 .....

. n.a. . . . . . . n.a. . . . . !n.a. .....

. . . . . . . n.a. .... ''.a. !n.a.

72:60 57.30 69.20

.... i . .

34% Ash As table 3.3 shows the target ash content of 34% f 1 could be reached for all the tested samples. Though the desired ash content could be reached in all cases! there are important differences in the yield ranging from 100% with Bina (i.e. the raw coal already is within the required range of ash and therefore no beneficiation is needed) to only around 57% with Belpahar OCM or 59"/b with Muraidih OCM. Another point to be looked at, is the ash content of the rejects. Basically, the ash content of the rejects should be as high as possible. A low ash content in the rejects is an indication for a raw coal which is extremely difficult to wash. The next step of washing coal to the ash level of 30% will prove this fact even more.

30% Ash For only four mines out of the selected 12 mines, the ash level of 30% k 1 could be reached with the Standard Flowsheet, Variant I. Here again, the ash content of the rejects is within a range of around 57 to 71 Yo with yields varying between 91 and 73%.

28% Ash In addition to the Terms of Reference, another ash level of 28% * 1 was looked at, because even in preliminary calculations it became quite obvious that the required ash levels, as per TOR, of 25 and 20% can only be reached at in some few cases. As there is only a small difference between 30 and 28% ash in the washed coal, the 28% ash level could be demonstrated with the same mines as with the 30% ash level.


- 59 -

The next step, an ash content in the final product of

25% Ash could be achieved for Bina OC as the Bina coal has easy washability characteristics (in the Indian context).

20% Ash With the Standard Flowsheet, Variant I, the required ash level of 20% could not be achieved for any of the selected mines.

3.2.3 Standard Flowsheet, Variant I I

As demonstrated, the required ash levels of 34%, 30%, 25% and 20% (as per the Terms of Reference) could only be reached in some cases. As a consequence, a different flowsheet had to be designed. Again, this Variant II is based on the modular concept of washeries within this project, i.e. a further module with a further jig was added to the Standard Flowsheet, Variant I . Annexure 3.2.7 shows the new process layout. Annexure 3.2.7a describes this new variant.

For this Variant II, the annexures 3.2.8 and 3.2.9 show the arrangement of the most important equipment within the plant. The equipment flowsheet is given in annexure 3.2.10, while the layout of the CPP can be found in annexure 3.2.1 1.

The results achieved with the Standard Flowsheet, Variant II are listed in Table 3.4; detailed results are shown in annexure 3.2.12.

As the ash content of 34 f 1% could be achieved in all cases with Variant I, the flowsheet of Variant II was not applied to reach this ash level. Variant II was only applied in those cases where the desired ash content could not be reached with Variant I. In those cases where the ash content could be reached with Variant I, this is marked ,,Var. I" in Table 3.4.


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Table 3.4: Results of Computer Simulation, Variant II

30 & 1% Ash 28 f 1% Ash 25 klYo Ash 20 f 1% Ash ............. ... _.

51.00 n.a. n.a. n.a. n.a.

.......... . . . . . . . . . ............. .n.a... ?.a,. n.a. n.a. I n.a. Var. I ..... .... ... ....

. . *

. .

n.a. a

n.a.

I n.a. .......... . ..

n.a. . . n-a:. . __

Bina

+

......... ..

. . . . . . . ...

. . . . . . . ... ......

.I "a. ?.a. n.3. n.a. n.a.

. . Var. ! ..... .- n.a.-In.a. . . . . . . . , ....... :Val, I . __ n: a: . . . - ~Var. I

30% Ash With the exception of Jagannath OCM, 30% f 1 ash could be reached in all cases. Here again important differences in yield and ash content of the rejects are to be considered. Whereas the yield lies in the range between 43% (Muraidih OCM) and nearly 70% (Bharatpur), ash content of the rejects is ranging from below 50% (Rajmahal OCM) to 64% (Bharatpur). These figures clearly indicate the difficulties in washing Indian coal, even with an improved process for washing the whole material from 75 mm up to 0.1 mm.

28% Ash Though there is only a small difference between 30 and 28% ash, out of the seven mines reaching at 30% ash with Variant I I , only Bharatpur and Hesalong OCP could get the required ash level of 28% f 1, even with reasonable yields and ash content of the rejects.

25% Ash Manuguru OCP is the only mine besides Bina OC where the ash level of 25% f 1 could be reached. The next level of

20% Ash is only possible in case of Bina OC due to its good raw coal properties.


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3.2.4 Comments

General Comments

Compared with the requirements within the Terms of Reference, the desired ash level of 34% could be reached in each case with the relatively simple Standard Flowsheet of Variant I.

For the coal of Jagannath OCM, no further reduction in ash is possible.

The next level, 30% ash in the clean coal, could be demonstrated for all mines (with the exception of Jagannath OCM) with the Standard Flowsheet of Variant I or Variant II.

A further ash reduction to 25% is only possible for Bina OC and Manuguru OCP, any further reduction to 20% works only for Bina OC producing coal not typical for Indian conditions.

Taking into account the technical difficulties described above or even the impossibility to reach lower ash contents than 30%, an ash content of 32 t- 2% should be the target.

As to the rejects, problem will arise what to do with the rejects if the ash content is below a certain level that may lead to self combustion. One possibility of managing low ash rejects is the appropriate construction and shaping of the reject dumps building only small layers with vibrating machines thus preventing the oxygen from entering into the dump. As this way of preventing self combustion is not very expensive it should be looked into at due time. However, this is cumbersome and likely to be not strictly followed.


- 62 -

Feasibility of Using Middlings / Rejects in Fluidised Bed Combustion Units

Keeping in view the indigenous coal resource quality, its demand and availability, it could be demonstrated that the beneficiation of power coal to an ash level of about 34% or even 30% may be technically feasible in India. On the above basis, the beneficiation of non-coking coal for supply to power plants will result in generation of washery rejects having GCV in the range of around 1000 to 3000 kcal/kg with corresponding ash contents of 75.7% to 54.5% respectively. The yield of rejects and its ash content for a washed coal with 34% ash are given in table 3.5.

Table 3.5: Yield and Ash of Rejects likely to be obtained on Washing Coal to 34% Ash

... .. . . . . . . . . . . . . . . . . ... .... ... - . . . - -

Mine -. - . ....I Rejects I

. . . . . . . . . . . . ... . . . 1 Yield Ash % 18.70 . . . . . . . i59.00 . . . . ... . . Bachra - ; 4.2.90 -.

Bebahar I 56.50 . I _._ . . . . . . . . . . . . . . . . . . . . . . . . . . ._

BharatDur I 18.50 '68.30 1.688 ..... . . . . . - .. . . . . . . . . - - . I -- I - _ - ' i Bina I -- ..-I . -

. . . . . . . . . . . . . . . . ... . . . . . . . .... . . . . . . . - . -. - Dipka - -. ' 5.30'- .. . 73.1 o I i ,.238 . . 1

.. . . ............ ........ . . - . . .-,

Manuguru .. . . . . I75.70 .. - ~ 999.00 -. ..-,

. I - - K.D. .... Hesalon% ~ . . . . . . -r j 24.70 .. 4 6900 1 . j l . 1- 627 .. ... ..

.~ Muraidih ~ , i41.20 .2-o-50_~_'54. i61.10 . - /2,365 . . .~ .- I

Jagannath .- -. ! 23.80 59.00 2,567 2,7g-3-- Lajyra - ..... . . . . . - ... ... - .... ---. -

I - . Rajmahal ._

Sasti -1 9 : 00 i-_.! .......

.... 17.20-. S O + g - ' 2,993 -~ ~ 2

* Moisture has been assumed to be 3%

Rejects having gross calorific value of 1800 - 2000 Kcal/kg and above can be utilised for the generation of electricity utilising atmospheric fluidised bed combustion technology (FBC). The technology for fluidised bed combustion of rejects for the generation of electricity has been indigenously developed in India. The capacity of individual unit for this purpose may be as high as 30 MWe and as such, wherever larger quantity of rejects is available, power plants may be set up for utilising the rejects. The capacity of the power plants has to match with the assured availability of rejects and for this purpose, individual boiler, having capacity of 10 to 30 MWe, may be installed.

Up to 30 MWe the Atmospheric Bubbling FBC may be used, for higher capacities up to 250 MWe the Circulating FBC technology is available in India.


- 63 -

Mine Bachra Belpahar

Based on available information on the investment of such plants, the fund required for a 30 MWe capacity power plant based on fluidised bed combustion of washery rejects may be of the order of Rs 60 million/MWe, which in the case of smaller capacity units (10 MWe) may be around Rs 70 million/MWe; this investment is for a green field plant with the necessary infrastructures. In any case, the plant should be located near the coal washing plant.

Ash % GCV (kcal/kg) 59.0 2,565 56.5 2,806

It should be mentioned however, that a major part of the rejects after combustion in a FBC is to be handled in the form of ash in the mining area. This may also lead to more pollution and degradation of land.

Jagannath Laj kura M u raid i h

The quality characteristics of the rejects from different coal washeries are given in the characterisation studies (annexures 3.1.1 - 3.1.18).

59.0 2,567 56.6 2,793 61.1 2.365

Rejects available from washing of Bachra coal, Belpahar coal, Jagannath coal, Lajkura coal, Muraidih coal and Rajmahal coal might be utilised for the generation of power. The rejects of the other mines are not suitable for the generation of power on application of FBC technology.

Table 3.6: Rejects suitable for FBC Technology

One aspect discussing the use of FBC technology should be mentioned, however. For many years, the FBC was believed to be part of a piece of combustion equipment which would burn ,,rubbish" in an environmentally acceptable manner. As a consequence, it was argued that there would be only a few restrictions on the coal quality for the FBC-process. In practice, this has not been the case. Besides sufficient calorific value, a basic prerequisite is the consistency in fuel quality. As a coal washing process normally aims at consistent quality parameters in the washed product, quality variations in the rejects are inevitable, a fact which limits the use of the FBC technology to only a few cases.

The TOR asks ,,to evaluate the economics of more than one product washing, such as for coal transported more than 1,500 km with 15% ash content and secondary product (middlings) with 35 - 40% for pithead consumption" (para B ix). For details please see Annexure 3.3.1


- 64 -

3.3 Conclusions

It could be demonstrated that an ash content of 34% in the washed coal could be reached in all cases, in some cases however, at the expense of clean coal yield and quality of rejects.

In view of above, coal washing basically should be confined to those raw coals having suitable raw coal properties for washing.

Because of the danger of self-combustion rejects with an ash content below 65/67% should not be dumped.

In the further course of this study, work will concentrate on those mines with raw coal properties allowing an ash content in the rejects of at least 65%.

Out of the mines in Table 3.5 only

- Bharatpur (Talcher coalfield)

- K.D. Hesalong (North Karanpura)

Bina (Singrauli coalfield) Dipka (Korba coalfield)

Manuguru (Singareni coalfield) and Sasti (Wardha coalfield)

should be considered for coal washing based on the aspect of safe dumping of rejects.

However, considering the difficult nature of Indian coal with respect to washability and the possibility of using rejects gainfully for power generation with FBC the following mines are also to be considered for coal washing:

Bachra Jagannath

- Rajmahal

These nine mines represent around 90% of the future demand out of Table 3.2.

Only three mines, namely Belpahar, Lajkura (both in Ib coalfield) and Muraidih (without potential for expansion) are found not suitable for washing because of poor yield of clean coal.

Therefore it is justifiable to plan at least nine washeries for each of the a.m. mines.


- 65 -

Name of Mine

B haratpu r

Dipka K.D. Hesalong Sasti Manuguru Bachra Jagannath Rajmahal

Bina

Taking into consideration the Indian policy guideline of washing coal to ash contents not exceeding 34% and the difficulties in washing Indian coal, further studies should basically be confined to ash contents in the washed coal between 30 - 34% though there may be exceptions where lower ash contents can be achieved. The next table shows for each mine m. a. the respective flowsheet (variant) to reach the ash content between 34 and 30%. (Brackets indicate that the ash content in the rejects allows no safe disposal.) For the sake of completeness, Manuguru is mentioned because in this case with the flowsheet, variant II an ash content of 25% could be reached.

Ash Content in Clean Coal 34% 30% 25%

I II I I I ( 1 ) I ( 1 1 ) I ( I ) I I I1

( 1 ) ( 1 1 ) ( 1 ) n.a. (I) (11)

Table 3.7: Selection of Flowsheets (Variants)


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4.0 Effects on Use of Beneficiated Coal

4.1 Impacts at the Mine Site

Beneficiation of coal is associated with discarding considerable quantities of rejects; the amount of rejects to be disposed of depends on the coal characteristics. As coal beneficiation is a physical process, an ideal separation between burnable (coal) and unburnable (rejects) material does not take place. Therefore, a small amount of burnable material will be found within the rejects and vice versa resulting in an overall loss of heat value. This phenomenon shall be explained by the following example:

If one tonne of raw coal with an ash content of 41% is separated into clean coal with 34% and rejects with 65% ash, this results in 770 kg of clean coal and 230 kg of rejects; i.e. the yield is 77%. The GCV of the raw coal with 41% ash is approx. 3,970 kcal/kg or 1 tonne of coal represents an overall heat value of 3,970,000 kcal. After washing, the ash content in the clean coal is reduced to 34% and the GCV increases to 4,628 kcal/kg. The clean coal now represents an overall heat value of 3,563,560 kcal (770 kg clean coal multiplied with 4,628 kcal/kg). The ash content in the rejects is 65%, equivalent to a GCV of approx. 405,440 kcal (230 kg rejects multiplied with 1,763 kcal/kg). This is the loss of heat value which will be disposed off in the rejects.

1 t raw coal (3,970 kcal/kg) 3,970,000 kcal

41% Ash

230 kg rejects (1,767 kcal/kg) 406,440 kcal 65% Ash

770 kg clean coal (4,628 kcal/kg) 3,563,560 kcal 34% Ash


- 67 -

With the use of beneficiated coal, there is a reduction in power plant heat rate and therefore, for the same electricity output, the quantity of coal to be transported to the power plant gets reduced. However, the amount of raw coal to be mined to produce a sufficient quantity of clean coal is higher compared to the amount of raw coal supplied directly to the power plant. The reason for this is the loss of heat value in the rejects as explained above. The additional mine production depends on the ash reduction in the clean coal and on the raw coal characteristics.

Taking the above example again, a 1,000 MW thermal power plant needs 3.77 million tonnes of raw coal per annum with 41% ash. In the case of clean coal with 34%, only 3.19 million tonnes of coal are required. To produce this amount of 3.19 million tonnes of clean coal with 34% ash - due to the yield of 77% - 4.14 million tonnes of raw coal with 41% ash are required.

3,770,000 t/a 41 %Ash Raw Caol or

4,140,000 t/a Raw Coal

3,190,000 t/a 34 % Ash

Clean Coal

1,000 MW Power Plant

For general Indian coal, the additional requirement of as high as 10%.

raw coal may be


- 68 -

4.2 Impacts on Infrastructure

Savings in Transport Cost

For movement of power coal in India, particularly for power plants located away from the coal source, Indian Railway transportation system is utilised and as such, almost all the railway routes are already overloaded. With the increased emphasis on industrialisation and power generation, there will be unusually high burden on Indian Railways for the transportation of coal. Enhancing the railway transport capacity is highly capital intensive both in terms of rail routes laying as well as production of rolling stocks. The use of beneficiated coal, particularly by distant power plants in India, may result in substantial saving in capital investment. This will also benefit the power plants by way of substantial freight saving for coal transportation.

On adoption of the beneficiation technology for power coal, power plants are expected to receive consistent quality coal at relatively lower ash level of at least around 34%. On use of beneficiated coal, there will be a reduction in the quantity of coal consumed by the power plants for the generation of power due to an increase in calorific value of the feed coal and reduction in specific energy consumption, which is 2500 kcal/kWh for the raw coal (As per the guideline of Dept. of Power, Government of India) and 2462.5 kcal/kWh for the beneficiated coal.

Table 4.1: Annual Coal Requirement

-. . - .. .~

GCV (Calculated) Annual coal requirement I I kcal/kg ---A- million ____.- tonnesJ --.A 1

4.. .3!?74-.. .-.: ~

I i

T . . __ . .

/Ash %

Raw Coal: i41 3.77 I Washed Coal: i I36 4,440 3.33

I30 j 5,004 2.95 j

I34 i 32

1

-..-__.___ ~

3.19 I 3.07 I

I 4,628 4,816 I

________. ___.-___

Table 4.2 shows the freight savings for different distances between power plant and coal source and different ash levels in the coal to be transported. E. g., to transport coal with 41% ash over a distance of 500 km Rs. 1,341 Million are required. In the case of coal with 36% ash, for the same distance of 500 km only Rs. 1,184 Million are needed resulting in savings of Rs. 157 Million (Figures for this example are underlined in table 4.2). In the assessment of freight saving, freight rate, as was prevailing on 03.12.1996 for transportation of coal by Indian Railways plus 12% increase as announced in the Railway budget for 1997-98 has been taken into consideration.


- 69 -

Table 4.2: Annual Freight Savings

I- /Ash % 'Distance Freight Rate Total Freight for (in km) (Rdtonne) annual coal

I 41.00 500 1 355.82 I 1341 I 700 492.58 1 1857

I i r [ransport I s. Mil l ioa at ion ' - - __ 3- __ - --

Freight saving 1 compared to raw coal of 41 % ash LB. s. Million) -_ -

I

1000 j 703.47 ! 2652 I I

1500 1013.04 381 9 I 2000 , . .... 1254.29 .. .. - . . 4729 -. . -. . -. . -. . . -. .. -. . . . .- . . . . . . . . . - . . .- . .. -. -

i 36.00

- . . . . . -. ...

34.00

. . . . . . - . . . .

32.00

1 -. .. -

30.00

I

500 ' 700

1000 1500 I

500 700 1 1000 1500

500 700 1000 1500 1

- 4- 2000 500 I

700

1500 1

- 2000

. 2000 -

_ _ _ ~

1000 I

355.82 492.58 703.47 101 3.04 1254.29 355.82 492.58 703.47 1013.04 - 1254.29 _.

355.82 492.58 703.47 101 3.04 - 1254.29

355.82 492.58 703.47 101 3.04

__ - _-

. -.

-.

1184 - 157 1639 218 2341 31 1 337 1 448 41 74 555 1136 205 1573 j 284 I

i 2246 406 3234 585 4004 ! - 724 .

1092 250 346 494

1511 21 58

I 88 1 291

3848 i

403 I 1051

1454

828 i 2077

I

2991

. . . . . . . . - . - . - . . . -. . . _- . .- . . . .- . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- -

31 08 ! 71 1 I

i

1 -_ - -..-j

I I 575 i

2000 I 1254.29 3703 I 1025 j _. ---_--

In the context of reduced quantities of coal to be transported due to lower ash contents in the coal it should be noted that there will also be a reduction in diesel fuel demand for the railway engines. This lower consumption of diesel fuel leads to reduced C02-emissions generated by the railway engines. The range of C02-reduction is around 6,000 to 20,000 t C02 per year (depending on the transport distance and the ash level in the coal to be transported) for supply of one 1,000 MW power plant.


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4.3 Impacts on the Performance of Power Plants

4.3.1 Technical Effects

Decrease in auxiliarv power

For efficient performance of coal fired power plants, it is essential to have assured supply of coal with consistent quality so as to meet the design coal specification. On use of beneficiated coal with consistent quality and size, the power plant is expected to achieve higher capacity utilisation with reduced heat rate and improved efficiency. Coal fired power plants consume a substantial quantity of power generated for the auxiliaries like coal handling systems, mills, feed water pumps, fans, particulate control system etc. Auxiliary power consumption for high ash Indian coals varies in the range of 8 to 12% of the gross power output. On the use of beneficiated coal containing relatively lower ash content, the auxiliary power consumption may get reduced by about 10% for every 10% reduction in the feed coal ash. Use of coal with design specifications is expected to have its impact on the steam supply characteristics, which in turn, may improve the turbine cycle efficiency significantly resulting in improvement in the overall performance of the plant.

Reduction in auxiliaw fuel requirement

The auxiliary fuel requirement in the coal fired thermal power plant covers start-up fuel oil requirement, fuel oil required for maintaining flame stability at low load operation and for providing support when utilising low volatile coal. The average support fuel consumption in India is as high as 10 ml/kWh generated with an average of 4 mI/kWh, which is attributed to all the above factors. On use of beneficiated coal, it is expected that the overall performance will be improved, which in turn, may substantially decrease the consumption of support fuel. For any assessment of support fuel requirements, it may be prudent to assume a reduction by 50% as has been considered by some of the committees dealing with the subject in India.

Thermal eff iciencv improvement

In the process of conversion of coal energy to electrical energy, the boiler plays a significant role and its improved performance helps in overall improvement in the efficiency of the power plant. As such, the loss of heat from the boiler should be reduced to a minimum. With the use of high ash coal, the likelihood of increased loss is due to combustibles in the ash and increased loss of sensible heat in the ash.


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With the use of washed coal in place of ROM, the thermal efficiency of the boiler is expected to improve. The extent of improvement varies between 1% to 2% for every 10% decrease in ash content of the feed coal. The exact value of thermal efficiency improvement, as determined in one of the thermal power plants in a field trial, was 2.9 O/O for an ash reduction in the feed coal to the boiler from 39.8% to 31.7%.

However, for any assessment the average improvement in thermal efficiency of the power plant may be assumed as 1.5% for every 10% reduction in feed coal ash.

Improvement in plant load factor

The availability of power plants is important for the power generating company, both for the reliability of the system and the financial performance of the company. 80 to 90% of the forced outages are due to water wall, super heater, reheater and economiser and tube leaks etc. On use of beneficiated coal, these effects can be substantially reduced resulting in increased availability of the power plant. In terms of a study conducted by the Central Electricity Authority, India, the expected increase in the plant load factor (PLF) may be in the range of 5 to 10% depending upon the situation.

Reduction in operatinq and maintenance cost

Presence of inert materials like stone, shale etc. increases load on the coal handling system, pulverising mills, conveying system, fans, ESP etc. resulting in increased auxiliary power consumption as well as frequent breakdowns causing higher maintenance cost. Use of consistent quality beneficiated coal in replacement of ROM coal may eliminate these effects substantially resulting in higher availability of a.m. systems and improved economic performance. In terms of some assessment made earlier in India, 10% reduction in coal ash may result in 15 to 30% reduction in operation and maintenance cost. For any exercise on quantification of the monetary benefit on use of washed coal, 20% reduction in maintenance cost for every 10% reduction in feed coal ash may be considered.

Reduced capital investment for new Dower Dlants

With the use of beneficiated coal in replacement of ROM, there will be a reduction in coal consumed by the power plant for the same electricity output. Consumption of reduced quantity of coal for power generation will result in saving in capital investment for coal handling system, boiler and auxiliaries. The extent of saving in capital investment is dependent


- 72 -

on the magnitude of ash reduction in the feed. For the purpose of assessment, the capital reduction for the coal handling system, the boiler and auxiliaries for a new power plant utilising coal at around 34% ash level in place of coal containing 41% ash may be as high as 5%.

4.3.2 Environmental effects

The most important environmental aspects in relation to beneficiated coal supply to the power stations are as follows:

- Reduction in ash handling and saving in ash disposal land requirement.

- Improvement of the overall thermal efficiency resulting in lower C02- Emission for the nominal power generation.

- Savings in transport capacity between mines and power stations resulting in lower demand of diesel fuel for the railway engines and consequently lower C02-Emissions (see chapter 4.2).

Impact on Air Quality

The air pollution level in respect of CO2, SO, and NO, will be reduced due to lower demand of coal fuel as the beneficiated coal is higher in calorific value compared to raw coal. This leads to better power station thermal efficiencies resulting in lower heat rates and consequently lower emissions.

Emission of pollutants like SO,, NO, and suspended particulate matter from coal fired power plants is a source of major hazard for the surrounding areas unless appropriate measures are taken. Fortunately for India, Indian coals, in general, contain low percentage of sulphur. However, the emission of NO, requires to be controlled with the introduction of low NO, burner at least for the future coal fired power plants. As is known, a substantial part of NO, comes from the combustion air. With the use of high ash raw coal, to achieve complete combustion, a higher percentage of excess air is used which may result in the formation of higher percentage of NO,. With the use of beneficiated coal which can be combusted efficiently with less amount of excess air, the formation of NO, is expected to be less.

The air pollution level in respect of SPM will be reduced due to:

- lower dust emission during unloading and stocking of supplied coal as beneficiated coal has more or less a constant moisture content,


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- lower dust emission during the pre-crushing operations before milling. The beneficiated coal has a maximum top size of 75/100 mm. There are less crushing activities for beneficiated coal in comparison to raw coal which has sometimes a top size of more than 200 mm. the use of low ash coal, the concentration of SPM in the flue gas will get reduced resulting in reduced load of particulate in the ESP / bag filter. At any particular efficiency level of operation for ESP / bag filter, reduction in the particulate load of inlet gas shall reduce the emission of SPM thus improving the quality of air.

-

Reduction in Ash Handlinq / Impact on Water Qualitv

Table 4.3 shows the quantity of disposable ash generated at different ash level of raw / washed coal per year for a 1000 MW capacity thermal power plant operating 6000 Hrs./year at designed capacity.

Table 4.3: Quantity of disposable Ash generated at different Ash Levels of Raw / Washed Coal

. . .- . __ . . .- . . - .......... -. . . . . . .- ........ . . . . . . . . .- .. -. ..

Ash I Annual Coal Requirement I Disposable Ash . % I ... illion ........... tonnes) ....... .L. Million - tonnes) I

..... 36.00 I 3.33 1.20 ..--. .................. ................ _. - .4 I

34.00 ~ _-.. i 3.19 .............. __ - . - 1.09 .~ i

3.07 ...... . 0.98 ~

2.95 . 1 . 0.89 .

The annual quantity of disposable ash in the case of using raw coal with ash content of 41% is approximately 1.55 million tonnes and in case of using washed coal with ash content of 30% is approximately 0.89 million tonne per annum.

The land requirement for ash disposal on an average is approx. 0.4 ha per installed MW, based on 41% ash in coal and an operational life of the power plant of 20 years. This amounts to a land requirement of 400 ha for ash disposal for a 1000 MW Power Station. The use of beneficiated coal with ash content of 30% would reduce the land requirement to 229 ha.

The land requirement for the disposable ash at different ash levels of raw / washed coal is shown in table 4.4:


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Land I Disposable Ash i (Million tonnes) requirement

Table 4.4: Land Requirement for disposable Ash at different Ash Levels of Raw/ Washed Coal

229 I . . . . . . 30.00 0.89 -. . -. . . . .. .

To transport the ash from the power plant to the ash pond, water is used. The water requirement to transport the ash is approx. 11 m3/t of ash. The following table 4.5 shows the water requirement at different ash levels of raw / washed coal.

Table 4.5: Water Requirement for disposable Ash at different Ash Levels of Raw/ Washed Coal

. . . . -. . . . . . . . . - . .- . ..--. ............ . . . . . . . . - 1 Ash i Disposable Ash i Water requirement I . . . Million ....... tonnes) . . . . . . 1 (Million rn3/annumJ . . . . I

I 1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . ........ 1.55 ~ . - - 17.05 ' ! ...... 3600 2 . . - . I 1.2 0 13.20

t-.-3o.oo-i 0.89

j.. Yo ( .- ,,

-. . . . . . . . 34.00 - ... 1 ........ 1.09 -. ..... 4 . . . 1 1.99. ..... d,

- 41.00 ~

-4 !

I .. .~ 32.00 . . . 10.78 ~. -.-I

In the case of washed coal with 34% ash the annual water requirement is only 11.99 million m3/a. Compared to the use of raw coal this means a saving of water of 5.39 million m3/a or approx. 30%.

In this context, another point needs to be mentioned about the use of ash commercially so that it is not permanently stored in a dead storage. In recent years, several plants producing building materials out of fly ash have been commissioned in India and are operating successfully. It is estimated that up to 50% of the fly ash produced could be utilised for the production of different types of building materials / components. However, there are still some impediments to reach this target, e. g. that the potential market of fly ash based building materials is generally far away from the fly ash generating plants.


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Reduction of C07-emission

The C02-emission at a stack of a 1000 MW Thermal Power Station has been calculated for different coal grades at different ash levels. The results are shown in table 4.6.

Table 4.6: Annual C02-Emission at Stack of a 1,000 MW Power Plant at different Ash Levels

. . - _. ...... __- - - .. .... - -.-. .... .- . ___ I Ash !COi - Emission

j , . 3 6 . 0 0 . i 561 4 . . . . . 34.00 5599 . . . . . 32.00 - . . . . . . . . . . . . . 5586

% in i 1000 te / year ! Emission in %

. . . . . . . -. .. .. .- - , ! . . . . . . . . . - . - . . . . . I 41.00 I 5730

i ........ 2.03

2.28 . j 2.51 -

- ...... ... - - . .

. . . . . . . . - - .. - . . . . . --

....... *:_.I 30.00 ........ . . . . 5574- ............... I . . . . 2.72 -. ..

Basis : Heat Rate of raw coal: 2500 kcal./kWh Heat rate for washed coal:

0 pe rat i on :

2462.5 kcal/kWh

6000 Hrs./year at designed capacity Combustion efficiency: 1OO"b

Impact on Noise Pollution

One of the main sources of noise pollution at the power plant is the coal handling plant (CHP) comprising screens and crushing and milling facilities. As beneficiated coal is free of large hard stones and rocks or foreign material, the noise pollution emissions in the CHP will be reduced.

4.3.3 Synopsis of Effects on Infrastructure and Power Plant Site

The following table compiles all the technical effects mentioned in the preceeding sections about infrastructure and effects at power plant site. All these factors are used in the financial / economic evaluation (section 6).


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Table 4.7: Synopsis of Effects

Item

1. Transport - Reduction in transport cost

- Reduction in C02-emissions due tc reduced fuel consumption

2. Power Plant Site - Decrease in auxiliary power

- Decrease in auxiliary fuel

- Improvement in thermal efficiency

- Improvement in plant load factor

- Reduction in operating and maintenance costs

- Reduction in capital investment fot new Dower Plants

- Reduced land requirement for ash disposal

- Reduced water requirement fot ash disposal

- Reduction in C02-emission

- Improvement in ESP efficiency

Effects

depends on distance and ash reduction (e.g. 1,000 km distance and ash reduction from 41% to 34% results in savings of 15%) depends on distance and ash reduction (e.g. 1,000 km distance, ash reduction from 41 Yo to 34% results in 15% reduction in C02-emission)

10% decrease for every 10% reduction in feed coal ash 50% reduction when using washed coal (Present averaae is 4 ml/kwh) 1.5% improvement for every 10% reduction in feed coal ash 10% improvement for every 10% reduction in feed coal ash 20% cost reduction for every 10% reduction in feed ash coal 5% reduction in capital investment when using coal with 34% ash instead of 41% Using coal with 34% ash instead of coal with 41 O/o reduces land requirement by approx. 30% Using coal with 34% ash instead of coal with 41 O/o reduces water consumption by approx.

Reduction in the range of 2 - 3% when using washed coal Using washed coal improves ESP efficiency from 98% to 99%

30%

4.4 Evaluation of Environmental Effects

In this chapter, the environmental effects using washed coal for power generation in thermal power plants are evaluated according to ADB- guidelines for ,,Economic Evaluation of Environmental Impacts" (Workbook) .

Table 4.8 lists the potential stressors and impacts from a coal fired thermal power plant and indicates also which stressors are influenced by the transition from using unwashed raw coal with high ash content to washed coal with lower ash content.


- 77 -

Stressor

Table 4.8: Potential Stressors and Impacts

Potential Impact Emissions Comment I Data (effected by using

Hazardous Chemicals lnorganics Metals Organics

morbidity no data No morbidity/mortality no data No morbidity/mo rtali ty no data No

Gases co so2

morbidity no data Yes, but emission probably low morbidity data available Yes, but sulphur content in coal

max. 0.9%

Potential Emission to Water

NOX Oxidants Greenhouse Gases Particulates (PM,,,) Particulates (> PMlo) Electro-magnetic Radiation Noise

Hazardous Chemicals I I I

morbidity no data Yes morbidity/mortality no data No global system data available Yes mo rbidity/m o rtal i ty no data Yes morbidity data available Yes morbidity no data No aesthetics no data (Yes)

lnorganics Metals Waste Products Acid Deposition Water DiversionNVithdrawal Thermal Alteration

morbidity no data No morbidity no data No

no data No morbidity no data No

data available Yes, water is used for ash transport No

This table was formed using the potential stressors identified for thermal coal plants in Exhibit 6.2 of the Workbook.

lnorganics Metals Waste Products Acid Deposition Erosion Land Use (for ash ponds)

The next table provides the screening analysis for those stressors which are influenced by a change from raw coal to washed coal.

morbidity ash pond No mo rbidi ty/m o rtal i ty ash pond No morbidity no data No resource use no data No resource use no data No welfare data available Yes


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Human health: incr.

Human health: incr. morbidity

morbidity

-

Table 4.9: Screening Analysis

Stressor I P o l Comment Potential Emission to Air

Incremental impacts will probably be sman

Incremental impacts will probably be very small due to low sulphur content in raw coal (S2)

(S2)

Gases

Human health: incr. morbidity Global climate change

Human welfare: aesthetics

Human health: incr. morbidity, mortality

Human welfare: aesthetics, material changes

Carbon Monoxide (CO)

Sulphur Dioxide (SOn)

Incremental impacts will probably be very small (S2) Impacts are uncertain, but can be estimated (S4) Impacts will be mitigated by installation of an ESP (Sl) Health impacts can be quantified (S4). As no data are available for PMlo, the whole amount of TSP (dust) is considered as PMlo; SO2 is considered as Secondary

Welfare impacts can be quantified (S4) PMio

Nitrogen Oxides (NOx)

Greenhouse Gases (Con)

Human welfare

Particulates (TSP) (> PMlo)

. . (Reduction in visibility) Impacts are mitigated (Sl)

Particulates (PMlo) from

- SOn emission - TSP

(Secondary PMlo)

Land Use

Noise

Human welfare: social / Impacts are unknown (S2) cu I tu ral

Screening criterions: S1 Impacts are mitigated S2 Impacts are relatively small S3 Impacts are too uncertain or sensitive for quantification S4 Impacts can be quantified

The summary of the screening analysis is presented below:

- Impacts receiving full or partial economic value (Yes to S4) 0 global climate change impacts of C02-emissions 0 human health and welfare from fine particulates formed by PMlo

(TSP (dust) and SO2)

- Impacts requiring qualitative assessment (Yes to S3) - human welfare and environmental resource impacts of water

withdrawal


- 79 -

- Impacts deleted from further analysis:

Impacts fully mitigated or relatively small (Yes to S1 or S2) - Impacts that are mitigated

0 human welfare impacts of TSP 0 human welfare impacts of noise

- Impacts that are likely to be relatively small human health impacts of CO

0 human health impacts of SO2 and NOx human welfare and environmental resource impacts of land usechanges

It should be emphasised that this screening analysis only considers those impacts which are effected by a transition from high ash raw coal to lower ash washed coal.

A short definition of the impacts is given below:

Global climate chanqe impacts from CO?-emission C02-emissions contribute to global climate change. Though the impacts of global climate change are still uncertain, they could be very severe and therefore have to be considered in the overall economic evaluation of the project.

Human health impacts: Increased Morbidity and Mortality from fine particulates

Health studies currently focus on airborne particles that are small enough to be inhaled deeply into the lungs (called PMI0). These aerosols resulting from the combustion of fossil fuels include sulphate and nitrate aerosols, acid aerosols, and other chemical constituents. Their impacts include both premature mortality and chronic and acute respiratory disease.

Fine J?articulat!? rnatter-fo~m-ed-by- IS!? and sQ~--e!-!?iss!ons

Human welfare impacts: Reduced Visibilitv and Materials Damaqe from air emissions Visibiljty -impacts Particulate matter (less than 2.5 micrometers in diameter) that is emitted directly from power stations or is formed in the presence of sulphur dioxide and nitrogen oxide gas emissions can reduce visual range.

Buikmg and materia! !mI?act.s. Particulate matter and acid deposition from sulphur dioxide emissions can damage materials. Damage can include surface soiling, surface erosion, blistering, paint discoloration, corrosion and tarnishing of metals and electronic components, fading, reduction of fabric tensile strength and spalling of buildings and monuments.


- 80 -

Human welfare and environmental resource impacts of water withdrawl

and noise Human welfare impacts of TSP

Human health impacts of CO

Human health impacts of SO2 and NOx

Impact

U / +

+

U

U / +

Valuation of Effects

Landusechanges Application of unit values

GDP-Adjustment

As at this generic stage of the project only emission levels, such as grams per cubic metre or tonnes per year are available and as population data are also not available, the emission-based unit value approach (dollar per tonne values) will be applied in the financialleconomic evaluation to calculate preliminary damage values caused by air pollution (PMlo (dust and SO2 as Secondary PMlo)) and effectively of C02. The risks, uncertainties and cautions on using the dollar per tonne values are excellently covered in the ADB-Handbook and shall not be repeated here.

U +/-

+/-

Table 4.10 shows the impacts that were not quantified or omitted from the analysis and contains also an analysis of Biases and Uncertainties.

Table 4.10: Omissions, Biases and Uncertainties

Likely Change to Net Benefit

Comment (Effects on using washed coal

with lower ash)

Damages are uncertain, but will be mitigated, as less water is required Damages caused by TSP and noise are generally likely to be small. but will become less Incremental CO-emissions will be verv small Damages are possible, but size is small, and will decrease due to less SO2 and NOx Damages are unknown Unit values are based on power plants located in New York that may not accurately estimate values for conditions in developing country locations like India Applied only to valuation results. Does not capture cultural or other differences between US and India

+ =

U =

Likely to increase benefits

Uncertain, could be + or - - - - Likely to decrease benefits


- 8 1 -

Table 4.10 shows that apart from the impacts which can be valuated there are certain other benefits which cannot be quantified. Also taking into account the risk and uncertainties in using unit values ($/tonne) which originally were calculated for power plants in -New York the overall effects of a transition from high ash coal to lower ash coal are positive.


- 82 -

5.0 Initial Environmental Examination

5.1 Description of the Project

This project aims at the introduction of clean coal technology through coal beneficiation, i. e. reducing the amount of unwanted burnable shale and stones (= ash) in the coal used in thermal power plants.

To reduce the ash content, raw coal is treated in coal beneficiation plants which are also called coal washeries. Methods used in coal washing are basically physical, as no change in the chemical properties is involved.

The process used in a coal washery can generally be divided into:

0 concentration operations, i.e. separating coal from stones/shale size reduction and screening operations and

(rejects)

Size reduction in combination with screening processes normally is the first step in any coal washing process. In this step usually jaw crushers, cone crushers or roll crushers (single or double roll) are used for the coarse material, whereas for finer comminution, various types of mills are in use. The process of size reduction is carried out in different stages so that each machine operates at its optimum range.

The separation of particles with different sizes, shapes and specific gravities (coal: 1.4 - 1.5 g/cm3; middlings: 1.5 - 1.8 g/cm3; rejects: + 1.8 g/cm3) into fractions of more homogenous nature is achieved by settling the particles in a fluid which is at rest or in motion. For washing coal, gravity concentration processes using water or heavy-media (water / magnetite suspension) are generally accepted.

For this project, a process was selected which uses only water, the so- called jig-process. In a jig the separation is carried out in a rectangular open-top container called jig. At the bottom of the jig, there is a screen which supports a bed of solids and allows alternative upward and downward movements of water. This oscillating movement of water is effected by compressed air. These cycles of upward and downward strokes of water result in opening the bed and lifting the particles during pulsation. The particles then settle in homogenous layers according to their specific gravity with heavy particles (rejects) at the bottom of the jig and lighter particles (coal) above them. Figure 5.1 shows a basic sketch of a jig.

B e d p l a t e

- ' - ompressed A i r

Pwat

r

LONGITUDINAL SECTION

er

Figure 5.1: Basic Sketch of 2 Jig


- 84 -

Material between 150 - 0.5 mm can be separated in a jig. As the separation efficiency in a jig is reduced when treating small particle sizes below 2 or 1.5 mm, another type of equipment, so called spiral separators are used in modern washing plants for particle sizes below 2 or 1.5 mm.

Selection of Process Flowsheets Based on raw coal data gained from sampling and testing two different flowsheets were worked out with the help of a computer model. Whereas the flowsheet under variant I represents a rather simple solution for treating only the coarse material (deshaling), the flowsheet according to variant II is more complicated allowing the whole grain size fraction (0.5 to 150 mm) to be washed. Here the whole grain size is treated in a coarse coal jig, fine coal jig and on spirals.

Fig. 5.2: Block Diagramme Variant II

4-?!qcess .. . Water ' .A Raw Coal, Grain Size: 75 - 0 rnrn

Coarse Coal Fine Coal I Fine Coal II Slurry

Clean Coal Dewatering

I

1 ! '* Thickener

Centrifuge

I i

i v v Coal Blending

+ Rejects .

I

i v

TO Consumers


- 85 -

Figure 5.2 shows a simplified block diagram for a washery according to variant 11. After separation into clean coal and rejects on jigs and spirals, the clean coal is dewatered on centrifuges and then blended. Normally, the water separated from the coal in the dewatering process is purified in a thickener. The thickener overflow, the purified water, is recirculated into the process and the thickener underflow is blended - after dewatering on a special type of centrifuge with the clean coal. Only in cases of emergency, ponds are used to purify the water. Also in this case, the water is recirculated into the process thus ensuring that in no case water can leave the plant except with the products.

This system of a ,,closed water circuit'' ensures a minimal consumption of water.

As this study about the implementation of clean coal technology through coal beneficiation is a generic study about the coal sector in India, the environmental impacts of coal beneficiation shall be demonstrated at one washery which stands as a proxy for the other washery projects in this report. The selection of only one project is justifiable because

the washery projects in this report are to be erected on existing coalfields where mines are already in operation the environmental situation at these coalfields may be assumed to be similar and coal washeries have only a very small impact on the environment compared to the situation at existing coalfields

As far as process technology for the washery is concerned, a washery working according to the flowsheet variant II is selected, because this variant

more water

consumes more land, has a bigger noise and dust emission potential and needs

than the flowsheet according to the rather simple variant 1.

Therefore, the K.D. Hesalong washery project in the North Karanpura coalfield in the State of Bihar was selected to stand as a proxy for the other washery projects. During the implementation phase following this study phase, for each of the other washeries a project specific IEE has to be worked out.

The K.D. Hesalong mine produces a raw coal with an ash content of 43%. After washing - according to the Standard Flowsheet, variant II - a clean coal product with 30% ash content can be produced, the clean coal yield is around 61%.


- 86 -

In this process the total grain size range is treated in a wet process. Coarse and small coals > 1.5 mm are washed on jigs, the fraction 1.5 to 0.1 mm is washed on spiral concentrators, the material < 0.1 mm is raw slurry (i.e. slurry with an ash content similar to the raw coal) and dewatered on a centrifuge.

The complete process comprises of a closed wash water circuit so that no waste water will leave the plant during operation. In case of maintenance and repair works the drain-off water from pump sumps, tanks etc. will be collected in sealed ponds and later on repumped to the beneficiation plant.

The feed capacity to the beneficiation plant is 2.5 million tonnes per year corresponding to 500 t/h and 5,000 h/a operating time.

From the 2.5 million tonnes per year feed capacity 1.53 million tonnes per year/a is a saleable coal concentrate. The other 0.97 million tonnes per year/a is reject material which has to be disposed off in dumps.

5.2 Description of the Environment


Land

The main land use within a 10 km radius from the plant is likely to be a mix of forest land, uncultivated land, agricultural land and waste land.

This is so, in general, for other coalfields also.

Settlements are centred in the nearby village of Burmu Revenue/Administrative Block in the coalfield of Bihar.

Water

K.O. Hesalong beneficiation plant is located 1 km from Oamodar river which is perennial and will serve as the water source for the project.


The K.D. Hesalong mining block is in Burmu Revenue/Administrative Block and consists of mainly forest land (50%). Other prominent land uses include sown area (17%) and cropped area (17%). The remaining land types are wasteland (3%) and fallow land (13%). The details of various land types are given below:


- 87 -

Land Types Forest Area Sown Area

~ ~~

Area (in acres) 181 44,OO 6464.00

Cropped Area Wasteland Fallow Land

Socio-Cultural Environment

~-

6464,OO 845,OO

4557.00

The area beyond buffer zone (10 km radius) is unaffected by the mining activities in the core zone. Burmu Block, in which K.D. Hesalong Project is located is connected by rail and has good road network. Apart from the North Karanpura coal mining area, other industries like Khalari Cement factory etc. are also located in this block.

A number of health care centres and schools are located in this block. Hence, this block particularly villages in core zone have experienced all- round development. In view of above, the population in Burmu Block is witnessing a constant increase. Similarly, literacy, occupation structure and income structure have also improved substantially in Burmu Block.

5.3 Potential Environmental Impacts

Land

K.D. Hesalong coal beneficiation plant would occupy a 9 hectare site plus about 150 - 200 hectare dump area for disposal of solid wastes (rejects + dewatered slurry). In some cases, rejects can also be dumped in decoaled area - if available - which will reduce the land requirement for disposal of solid waste. It may be so in the case of K.D. Hesalong, i.e. the entire quantity of rejects is proposed to be dumped in the available decoaled area. A 15 m wide greenbelt will be maintained around the washery in the site.

Water

During operation, the beneficiation plant draws approx. 1,000 m3 of water per day. This is make-up water requirement and includes the difference in adherent water (surface moisture) of the dry feed material before washing and the wet (mechanical dewatered) products (coal concentrate, rejects and slurries) after washing as well as water required for spraying for dust suppression, leakage and losses due to evaporation etc. Due to the closed water circuit of the washing process, there are no process water outlets back to the river.


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5.4

5.4.1

5.4.2

Air Quality

Air quality will not be affected seriously as the unloading stations and crushing station for the supplied raw coal are equipped with air suction and filtration devices.

Inside the beneficiation plant building the process is always wet so that dust generation can be avoided.

Noise Emissions

The noise level in the beneficiation plant varies from one process equipment to another but it is generally lower than 85 dBA. The highest noise level of 100 to 105 dBA is generated by the blowers of operating air for the jig. The blowers are installed in closes noise-insulated rooms inside the building.

The noise level outside the plant site conforms to the Indian Noise Standard of 50 dBA at night time and 55 dBA during the day.

Description of the Environment after Implementation of the Project


With the reduction of the COe- and SOx-emissions due to use of washed coal in the power station the air quality will further improve although there is no urgency for this as the existing ambient air quality is well within acceptable limits at power station site.

The same holds true for the water quality of the river due to the closed water circuit in the process of the beneficiation plant site.


The project will reduce the requirement of land for ash disposal on power station site but it needs area for disposal of rejects at beneficiation plant site. However, if reject disposal is arranged on any low lying area, it will reduce the requirement of land. According to a landscape building plan the reject dump will be planted with a vegetation which is adopted to the vegetation of the surrounding.


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5.4.3 Socio-Cultural Environment

Within and outside the beneficiation plant the project is estimated to generate around 240 jobs for skilled and unskilled labour force.

90% of the labour force will work as operators in the beneficiation plant and auxiliary sites. The remainder will be hired for replanting the dump area as well as maintaining the green belt in the plant site.

5.5 Institutional Requirement and Environmental Monitoring

The plant will have a laboratory which measures the quality of the washed coal and reject material for disposal regarding ash content and grain size distribution. Also the quality of make-up water will be checked. Special attention will be given to the ash content of the reject to avoid spontaneous self ignition.

The management of the mine and beneficiation plant reports monthly to the State Pollution Control Board of the concerned state of Bihar.

5.6 Findings and Recommendations

The project has no negative impacts on the environment in terms of reduction in air emissions, transport water and land requirement for ash disposal and in the creation of greater employment for unskilled and skilled workers.

The implementation of the project is strongly recommended.

The project does not require any further environmental assessment.


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6.0

6.1

6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15

Economic Analysis

Introduction

This section brings together the economic and financial information needed by the Government of India and the Asian Development Bank (ADB) to make a decision on the future of the coal preparation project. Subsections 6.2 to 6.4 introduce the computer model used, the basic financial prices for capital and operating costs associated with the coal preparation plant and the scope of economic/financial analysis. The main material is then arranged in the format specified by the ADB’s “Guidelines for the Economic Analysis of Projects”, May 1996, Appendix 1, as follows:

Economic Rationale for the Project Project Objectives Project Alternatives Project Costs in Economic Prices Project Benefits in Economic Prices Project Worth Sectoral and Macroeconomic Effects Financial Charges and Returns Distribution of Project Effects Project Risks and Sensitivity Analysis Project Justification

The main material is supplemented by a series of recommendations to ensure that the available economic benefits are achieved in practice in 6.16.

The section draws on, develops and summarises information presented previously in this report on demand, pricing, plant design, institutional and funding arrangements. From this it establishes the economic and financial costs and benefits of a representative sample of potential coal preparation projects. In the economic analysis, it compares a “with project” scenario of electricity generation from washed coal to a “without project” scenario of the same amount of electricity being despatched from power stations fuelled, as at present, with raw coal. In the financial analysis, it presents an appraisal of a typical installation of each of the two types of coal preparation plant considered in cash flow and accrual terms.

The analysis presented here is necessarily complex. The following flowchart may be of assistance to the reader:


- 9 1 -

Quantify environmental impacts in physical terms

Section 4

Structure of Economic and Financial Analysis

Specify economic system and identify distortions; identify incremental effects of project Sections 6.4, 6.5

I 1 Identify least cost 1 1 Identify project

Convert project incremental costs to economic prices Section 6.8

I

alternative technologies; I 1 objectives Calculate CapitaVoperating

Specify economically sound pricing system

costs on financial basis ~

Sections 3, 6.3

I

Convert project incremental benefits to economic prices

Summarise alternatives

Section 2.9

Identify sample of potential projects for economic analysis

Sections 3, 6.2

Section 6.7

Section 6.9

Assess economic Sectoral and viability (ENPV, EIRR). macroeconomic Test sensitivity to key effects factors and identify switching values. - Section 6.10 Section 6.1 1

For economically viable projects, financial analysis: cash flow, FNPV, FIRR, accrual statements Section 6.12

Distribution of project effects Section 6.13

I

I

I

Project justification

Section 6.15

Changes to secure economic benefits Section 6.16

-


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In the course of the analysis, the group of indicative projects considered is gradually refined. The initial group identified in 6.2 includes variant approaches to the choice of coal preparation technique for each type of coal/representative mine; economic analysis in 6.10 results in a choice of best technique for each; those satisfying economic criteria go on to financial analysis in 6.12.

The purpose of this report is provide a comprehensive and up-to-date analysis of the problem leading to firm proposals for action. This report is broader in scope than earlier studies in India in three ways which affect the economic analysis:

0 it considers the full range of important effects of coal washing: financial, economic and environmental

0 it differentiates between the viewpoints of the parties involved (coal producers, generators, future preparation plant operators, Government of India, ADB, private sources of finance) it follows recent decisions on liberalisation in the coal sector by examining a broader ranges of organisationaVpolicy alternatives, in particular the possible involvement of private operators.

The analysis presented here is based on international and Indian experience. The participation of India’s leading institute for these issues within the project team has ensured full use of best local knowledge. The analysis has also benefited from extensive discussion with officials of ADB.

6.2 Computer Model for Financial / Economic Analysis

The economic analysis presented here is based on a computer model of the coal production/preparation/transport/use system developed specifically for this project. The model has been mentioned already in subsection 2.9 to describe its use in evaluating the impact of alternative pricing systems. It is described in detail in Annexure 6.2.1.

The model has been used in the course of the project to analyse seven potential coal preparation projects for three mines, typical of more than 70% (section 3) of the coal types available in India; their technical designs are in two variants, following the flowsheets presented in section 3:


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Coal Preparation Plant

Run 1 Hesalong 2 Hesalong 3 Hesalong 4 Manuguru 5 Manuguru 6 Bharatpur 7 Bharatpur

Flowsheet Variant

1 2 2 1 2 1 2

FBC?

No No Yes No No No Yes

Results of the runs carried out are given in Annexures 6.1 0.1 - 6.1 0.7. All important results are presented in the tables of the later parts of this section in formats compatible with ADB economic and financial analysis.

6.3 Capital and Operating Cost of the Coal Preparation Plants

Section 3 sets out standard flowsheets to attain certain standards of coal cleaning. The technologies presented there were chosen from a limited set of possibilities on least-cost grounds to achieve the stated objective. Two distinct technological processes were identified, called variants I and II. The latter gives deeper cleaning (lower ash percentage in the product) at a higher cost; it also produces a greater quantity of discard, in terms both of tonnage and of energy lost. This section presents financial cost data associated with the two variants.

All the cost estimates made in this section are based on Indian conditions in line with CMPDIL / CIL norms and methodology. Based on the equipment flowsheets and plant layouts (annexures 3.2.4, 3.2.5, 3.2.10 and 3.2.1 1) the capital investments for the Variant I (partial washing) and Variant II (with deeper washing) have been worked out. Throughput capacity for both the variants have been considered as 2.50 million tonnes per annum (500 tph) for the basic analysis. These designs are capable of being scaled for specific installations.

In the capital estimates, the basis for the cost of land has been the prevailing average rate of acquiring land in the coalfield areas where the coal preparation plants are proposed to be set up.

The estimates for service buildings and most of other civil engineering works have been prepared on the basis of present cost index and CMPDIL norms for unit rates of items. Cost of certain other items such as water supply pipe line etc. have been estimated based prevailing schedule of rates.

Every year CMPDIL publishes the Standard Price List for mining equipment which is mostly based on manufacturer’s quotations of plant and machinery procured by the subsidiary companies of Coal India.


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This Standard Price List is used for preparing the cost estimates of mining projects (including washeries) for Coal India and other customers. Plant and machinery estimates for this ADB project have been made mainly on the basis of Standard Price List of June, 1997 published by CMPDIL. Cost of some imported equipment are based on the budgetary quotations from the manufacturers. The exchange rate for imported equipment is taken as $1 = 39 Rs (January 1998)

The estimates are based on financial value hence it is inclusive of all local taxes and duties for the indigenous equipment and import duty, ocean freight, port handling and inland transport charges for imported equipment.

6.3.1 Capital Investment

Table 6.1 and 6.2 show the total project cost for each variant as per 1 1 1 , 1.1 1 of ADB’s Guidelines for Preparation and Presentation of Financial Analysis.

Table 6.1 : Project Cost Table, Variant I (Amount in Rs. Million)

(*) Physical contingencies for imported equipments have not been considered as there are only 2 major items which are to be imported and prices for those are based on firm quotations from different parties.


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9 10

Table 6.2: Project Cost Table, Variant II ( Amount i n h . Million)

Rev. Exp. Capitalised 61.88 IDC 90.15

Total Project Cost and Financing Required 131 .a3 1,176.1 1

SI. Particulars Foreign Local No. Exchange Currency

Total lnvestmen

t

42.70

243.79 30.39

605.84 2.95 3.22

10.47 10.87 9.13

4.00 5.17

968.53 83.77 103.61

1,155.90 61.88 90.1 5

1,307.93

(*) Physical contingencies for imported equipments have not been considered as there are only 2 major items which are to be imported and prices for those are based on firm quotations from different parties.

Total project cost has been estimated as

Rs. 1056 million for Variant I

and

Rs. 1308 million for Variant II.

For the purpose of FIRR-calculations, price contingencies and IDC are excluded, thus arriving at

Rs. 898 million for Variant I

and

Rs. 11 14 million for Variant II.


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Major investment is on Plant and Machinery which has been estimated (without any contingencies) as Rs. 475.25 million for Variant I and Rs. 605.84 million for Variant II.

Annexures 6.3.1 and 6.3.2 give a breakdown of plant and machinery cost.

For funding purpose a debt - equity ratio has been considered as 60 : 40. However the cost of the townships is to be funded entirely from equity capital.

Continqencv provisions

Physical contingency of 10% has been considered for the indigenous plant and machinery and civil engineering works. Physical contingency for imported equipment has not been considered as there are only 2 major equipment which are to be imported and prices for these equipment are based on firm quotations from concerned manufacturers.

Price contingency of 7% has been considered for the indigenous equipment and works, based on the general inflation rate in the country. For imported equipment price contingency of 2.8% has been considered, based on the general international inflation rate.

Revenue Expenses Capitalised

These are start-up cost or pre-operative cost. These consist of salaries and wages of manpower to be deployed at the time of construction of the plant and other operating cost like stores, power, cost of raw coal to be processed during the trial run.

The construction period of the coal preparation plant (CPP) including trial run and commissioning has been estimated as 24 months. All revenue expenses incurred in this period have been capitalised.

Interest durinq Construction (IDC)

Total project cost includes interest during development period. For calculation of interest, it has been assumed that there will be simultaneous release of equity and loan capital.


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6.3.2 Operating Cost

The operating cost incorporated in the calculations relate to salaries and wages, stores, power, miscellaneous expenses, administration charges, interest on loan capital, interest on working capital and depreciation, but without any dividend on equity.

Salaries and Waqes The manpower required has been estimated at 160 and 21 6 for Variant I and Variant II respectively. Salaries and wages cost have been estimated considering the above manpower and the present wage structure.

Stores Cost The major cost under stores pertain to equipment repairs and maintenance cost; besides this petrol, oil, lubricant for vehicles! water charges and consumables have been considered.

Power Cost Power cost is based on estimated energy consumption and present power tariff.

Variant I 2,000 kW x 5,000 h/a x Rs 3.5/kWh

= Rs 35 million

Variant II 3,250 kW x 5,000 h/a x Rs 3.5/kWh

= Rs 56.875 million

Interest Interest @16% on long term loan and @19.5% on working capital has been considered as per prevailing rates.

Depreciation Depreciation has been calculated on straight line basis.

Miscellaneous expenses (repair and maintenance of buildings, roads, culverts and water supply, provision for taxes and insurance of vehicles and financial provision for deterioration in coal stocks) and Administration charqes (General office, sales and marketing overheads) are based on CMPDIL / CIL norms.

A breakdown of operating cost for the two variants is given in tables 6.3 and 6.4. Details of the different cost items are provided in annexures 6.3.3 - 6.3.6. These tables also present the calculation of cash operating cost, used in the subsequent cash flow analysis.


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SI. No. 1 2 3 4

Table 6.3: Calculation of Operating Cost, Variant I

Elements of Cost Salaries and wages 13,533,202 Stores 44,288,956 Power 35,000,000 Misc. exDenses 14.727.050

CostNear (RsT -

5 Subtotal:

6 7 8 9

Adm. expenses 19,239,655 Cash Operating Cost excl. Price of Fuel 126,788,863 Interest on W. capital @ 19.5% 8,241,276 Interest on loan capital @ 16% 50,792,424 Depreciation 50,474,038 Total cost per year 236,296,601

1 2

Salaries and wages 17,865,063 Stores 54.839.549

3 I Power I 56.875 .OOO 4 5

Misc. expenses 16,257,072 Adm. ext3enses 23.828.735

Subtotal:

6

Cash Operating Cost excl. Price of Fuel 169,665,419 Interest on W. capital @ 19.5% 11.028.252

6.4 Economic Context of the Project

7 8 9

6.4.1 Coal and Electricity

Interest on loan capital @ 16% 62,907,86 1 ~

Depreciation 62,162,751 Total cost Der vear 305.764.283

The Indian economy is expanding rapidly; GDP growth is currently 7% annually. Sustaining this level of growth will require an increase of the same order in energy consumption.

The most important feature for this project is the anticipated growth in final electricity demand. Generation capacity is at present over- stretched, as demonstrated by the frequent power cuts and brownouts in most regions; to meet the increased demand India plans to expand capacity from 49.5 GW to 116.4 GW over the next 10 years. The building programme will still leave coal as the major fuel in generation,


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reflecting India’s national resources and concerns over security of supply.

The use of coal in power generation will as a result increase from around 200 Mt in 1996/97 to 447 Mt in 2006/7 according to the 1 Oth Plan (subsection 1.1). Without remedial action this will greatly increase the environmental and economic problems presently associated with coal use in India.

Two economic problems are of particular relevance to this project:

the use of coal of high ash and inconsistent quality causes operational problems at power stations, reducing the efficiency of operations and raising the cost of generation the high ash level results in large quantities of waste in the coal being transported long distances from mine to power station, a questionable use of railway capacity

To put the latter point in context, about a quarter of power station coal is now transported more than a thousand kilometres. By 2010 the proportion is expected to increase to more than 40% on more than double the quantity of coal - increasing by four times the long-distance movement in tonnage terms.

The associated environmental problems are many, with land use, water use, atmospheric pollution and population displacement generally considered the most important. Some of these would be alleviated by coal washing, some would be worsened. These complex effects are described further in sections 6.4.2 and 6.13 based on the technical analysis of section 4.

The idea of coal washing for power generation yielding economic and environmental benefits is far from new; the current phase of consideration dates from the Ronghe Committee report of 1988. Most participants in the debate agree that benefits exist, but there is no consensus on quantification. The fact that no coal preparation for power generation has been commissioned since 1988 demonstrates that there are significant barriers to implementation.

6.4.2 Definition of Economic System

The economic system analysed here from the national perspective comprises the entire coal chain for electricity generation: mining; coal preparation; where necessary, fluidised bed combustion (FBC) for mine waste; rail transport; power generation; electricity consumer. This section of the report compares alternative strategies for making the same amount of electricity available to the consumer (equal dispatch). The “Without” strategy is continuation of the present supply of


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raw coal. The “With” strategy depends on the results of washing of the coal as established by its technical specifications. With good separation, the coal is washed and the discard tipped. This is the normal international practice. With coals of poor separability, the calorific value of the discard is so high that it cannot be safely tipped because of problems of self-ignition; in that case, the “with” strategy is coal preparation plus FBC. There is no overlap between the two “with” strategies - discard which can be safely tipped has too low a calorific value to use in an FBC. Both cases - FBC neededhot needed - can in theory arise with either variant I or variant II of the coal preparation plant design.

From the national perspective the additional internal costs of the “With” strategies are incremental mining (coal preparation without FBC results in the discard of material with considerable energy content which must be replaced; with FBC, the overall thermal efficiency of generation will be lowered resulting in a small need for extra coal); the coal preparation capital and operating costs and the costs of the FBC if needed. These can be accurately estimated.

The chief benefits presently internal to the energy chain are reduced transport costkapacity demand on the rail system and reduced operating cost at power stations - a mixture of public and private goods. Separable benefits accrue from the two effects of washing, reduced ash and improved consistency. The FBC would provide an additional direct benefit in electricity produced. Quantification of many of the gains at power stations presents problems and is likely to be the subject of debate during the implementation of our recommendations.

The environment would both gain and lose from coal preparation. Land use and population displacement would increase, both because of the plant operation and because of the additional mining necessary. Water use and emissions of dust and SO2 will reduce. CO2 will reduce without FBC, but may increase with this option. The analysis presented in this report assumes as a precondition proper operation of existing pollution control systems, in particular ESPs, in both the “with” and “without” cases so as not to overstate project benefits. It also assumes adequate dust control on tips; generation of fugitive dust from poorly managed tips can have more serious consequences on the local environment than smokestack particulate emissions. Other possible environmental effects - noise, visual impact, biodiversity change - are not considered significantly different in “with” and “without”. Environmental impacts are quantified in physical terms in section 4.

Three externalities other than environment have been considered:

enhanced security of electricity supply;


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0

the possibility that the value of freeing railway capacity may exceed the present tariff level and potential reduction in diesel consumption, which has balance of payment implications (India’s import bill for hydrocarbons is currently about $10 Bn per year).

Adjustment of costs to a basis of economic prices, by shadow pricing and the incorporation of externalities, is described in subsection 6.8. The corresponding adjustment of benefits is described in 6.9.

In this national economic consideration, of course, the price of coal cancels out - it is a transfer price between domestic industries. Nevertheless the recommendations on pricing in this report are of vital importance for implementation, since the present system does not function adequately to transfer economic signals from customer to processor and producer. As this section shows, burning washed coal can save the power stations money; the extent of the savings available is quantified later. In market operation, unless some part of the savings is passed on to coal suppliers (through the price mechanism) there will be no incentive to produce washed coal and the economic benefits will be lost - in particular no private investor would be attracted to coal washing. These matters are considered in more detail in subsection 6.16.1.

Going beyond the present accounting system, projects may remain which are beneficial at national level (adequate economic rate of return) and therefore suitable for public support, but which would not meet commercial investment criteria (inadequate financial rate of return). If it is desired to attract private investment to such projects it will also be necessary to internalise environmental effects and other relevant externalities, e.g. by increased environmental charges on power stations - the “polluter pays” principle. These matters are considered in subsections 6.1 6.2. 6.1 6.3.

6.5 Economic Rationale for the Project

Coal washing has theoretical potential to improve the economics and environmental effects of the use of coal in power generation. Since the Ronghe committee report, nearly ten years of debate has failed to produce action. The Ministry of Environment and Forest has recently decided that the benefits outweigh costs to such an extent that use of washed coal with an ash content not exceeding 34% should be compulsory from 2001 for coal which is transported more than 1,000 km. This project aims to establish the true economic worth to India and, if washing has net value, to identify the appropriate scale and necessary actions to eliminate marketlnon-market failures which are hampering implementation.


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6.6 Project Objectives

The terms of reference provide a very detailed scope of work which has been fully covered in this study, but in terms of economic analysis there are four main underlying goals:

(i) To identify least-cost coal washing systems

(ii) To appraise the financial and economic benefits of these systems

(iii) To recommend reforms to pricing to ensure that economic gains are translated to financial savings - in particular, to have full cost recovery and therefore sustainability

(iv) To identify and advise on elimination of other marketlnon-market failures which may hamper implementation

The definition of technical solutions to achieve objective (i) has been presented in section 3 of this report, based on least cost analysis in conformity with ADB guidelines to achieve stated levels of ash reduction. Goal (iii) relies on the pricing system presented in section 2.9. Goals (ii) and (iv) are dealt with in the present analysis.

6.7 Project Alternatives

In strict terms, there are no alternatives to this project within the present terms of reference, which are restricted to coal-based power generation. The benefits sought by the project - reduced ash and improved consistency, to yield financial and environmental improvements - cannot be fully achieved in any other way than by coal washing. The selection of least-cost alternatives has therefore been carried out in preparing the technical analysis of section 3 (within the very limited technological alternatives available, questions of economic pricing have no effect).

In this section we wish to draw the attention of the parties involved to some closely related issues in the production and use of coal which may provide complementary/supplementary benefits to the current project.

6.7.1 Other Means of Improving Use of Coal in Power Generation

Washing coal has two advantages - it lowers ash and improves consistency. Both factors give gains to the consumer and therefore would - with a proper pricing system - give a higher income to the producer.

These advantages can be sought in other ways which may involve lower cost or less time and which should be considered carefully by producers


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and consumers. Coal mines may be able to offer a lower ash content by selective mining practices. The present pricing system, however, encourages the production of high rather than low ash coal within a grade. Proposals to modify prices with a washing premium added to the existing base price do nothing to change this. It is vital to encourage cost-effective production of low ash coal in both raw and washed forms - this is the basic principle of our proposed pricing system.

Power stations may be able to improve the consistency of their feed by better management of coal stocks, in particular by layer blending of coals received. Many of the extreme problems of foreign materials reported in questionnaires could also be relatively simply dealt with, e.g. by the use of large scalping screens and installation of magnetic separators ahead of the pulverisers.

The economic problems of high ash coal have been greatly exacerbated by the construction of power stations at long distances from the coal source. Even cursory examination of coal transport and electricity transmission economics suggests that stations should be located near supply rather than load. The question of power station siting deserves due consideration by the Government.

Location is not the only problem of power station planning. The questionnaire returns show that many power stations seem to have been designed for fuels (with less than 30°% ash coal) which are now no longer available. It is a matter of overriding importance that future power stations should be designed for the qualities of coal which they can purchase. The Government should re-examine all construction plans from state-owned power companies to check design fuel quality, as well as critically examining any arguments for off-mine location.

Ash production is a high-profile impact of coal combustion. India has an enormous need of infrastructure development - construction, highways, rail track - which can make productive use of this material. Government should require both public and private works contractors to reuse waste material in such projects as the default option. Note, however, that power station waste is not suitable for all civil engineering applications: international experience in this matter is still developing rapidly and it would be important for the relevant Government department to be current with international experience. The ideal, despite this, is the Japanese policy of reuse of all power station waste.

The most radical alternative in the power sector is of course fuel switching. As already mentioned, India apparently wishes to reduce its dependence on coal for generation. The Government is hampered in this aim by limited supplies of indigenous energy, although the current plans seek to make greater use of local possibilities by expanding hydroelectric and nuclear generation. The Government is therefore


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6.7.2

6.7.3

6.8

seeking to expand its options further by examining its hydrocarbon resources more fully (including coal-associated methane) and also the renewable energy sources. Diversification beyond this must increase import dependency and therefore raises questions of security/sourcing of supply. For seaborne fuels there can be no doubt that trade is secure. India should encourage import of coal, oil and LNG where this will give economic and environmental gains. The question of “tied” fuels - single source, transmitted by wire or pipeline - is more difficult, and dependence on such a source may be undesirable. The minimum regret policy seems clearly to be developing indigenous resources in a sensible way and meeting the most immediate energy/environment problems by seaborne imports.

Improving the Use of Coal in other Applications

The terms of reference for this study are restricted to consideration of the use of coal in power generation. Proper analysis nevertheless requires outline consideration of issues which lie slightly outside the TOR. It is arguable that the most immediate impacts of coal use on health and quality of life in the “coal areas” do not derive from power generation. Instead, they come from what are somewhat ambiguously called “low level emissions”: i.e. the use of coal in small quantities, without environmental controls, in centres of population. It is strongly recommended to both the Government of India and ADB that this study should be accompanied by an investigation of priority actions in the non- power sector. Appropriate remedial actions there may also include washing.

Implications of the Above Discussion

The observations of 6.7.1 and 6.7.2 do not diminish the potential value of washing coal for power generation. Washing improves ash content and consistency, giving economic and environmental benefits, and its effects can be additional to most of the improvements described above.

Project Costs in Economic Prices

All economic analysis in this section is based on domestic prices. The present subsection considers the impact of economic prices on costs; subsection 6.9 considers the effect on benefits. The methodologies adopted for adjustment of financial prices to an economic basis have been discussed in detail with ADB. Where pre-existing ADB methodologies were available, these have been used.

From the national perspective, the additional costs of the “With” strategies internal to the energy sector are incremental mining, the coal preparation capital and operating costs and the costs of the FBC if it is


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required. These can be accurately estimated in financial terms. Additional external costs may arise - from increased land use, population displacement and (with FBC) possibly higher CO2 emission - if these are not fully captured in the present accounting system.

Three types of economic adjustment are provided in the model to adapt system cash inflows and outflows more appropriately to the economic circumstance of India.

0 removal of taxes, duties and similar internal transfers shadow pricing of six key input cost factors (labour, water, exchange rate, electricity price, land use diesel price) incorporation of environmental and other cost items which at present are wholly or partly externalities (S02, C02, dust, improved security of electricity supply, opportunity cost of rail freight capacity)

Their application to costs are described in the remainder of this subsection, together with the derivation of values used in the economic analysis

(a) Taxes etc.

For the economic analysis taxes, duties, import levies and royalties on coal are excluded. The adjustments are:

Coal royalties Grades D & E, 70 R/t; grades F & G, 50 R/t; All grades, a ,,stowing excise duty" (SED) of 3.5 R/t

Imported equipment 22% Indigenous equipment 17%

(b) Shadow pricing of cost items

Recommended adjustments (multiplicative) are:

Labour 0.9 Water 50 Exchange rate 1.2 Electricity price 1 Land use 10 Diesel 1

Derivations of these figures follow.

Labour: the adjustment for labour is based on employment of semi- skilled manual workers. The mining areas are generally considered to be characterised by overemployment in this category with little marginal


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contribution to GDP. Alternative employment in the coal washing projects provides greater contribution, resulting in a slight economic downscaling of labour cost - i.e. a shadow price slightly less than 1.

Water: India suffers from chronic shortages of water, both potable and of adequate quality for industrial use. The problem is growing with rising population and is recognised by the Government - for example, in the prominent water saving campaigns. Nevertheless, financial charges for water use and for degradation of water quality are extremely low. There appear to be no published studies adequately assessing the economic cost to India of water use/degradation which would allow accurate shadow price estimation, and so (in conformity with ADB guidelines) we adopt an indirect estimate. The value adopted here corresponds to 50 cents per cubic metre. It is a mitigation cost - it was derived in studies for the British Government of upgrading highly contaminated minewater in India to a suitable standard for industrial use. In the context of this study, it has been discussed with Indian specialists of CMPDI and accepted as a reasonable estimate. It must however be recognised that such estimates may under or overstate willingness to pay.

Exchange rate: since the introduction of internaVpartial external convertibility of the rupee until the recent problems of many Asian currencies the exchange rate has remained fairly stable at about $1 = 35 Rs. This has worsened by January 1998 to 39 Rs, the figure used for financial analysis in this report. The effects of full convertibility are still somewhat uncertain, but adjustments of 1.1 - 1.25 have been used in recent Indian analyses and in World Bank studies. 1.2 is adopted for the (small) convertible currency element of this project.

Electricity price: No adjustment is made to the industrial electricity price, which appears to offer adequate return to suppliers (Long Run Marginal Cost (LRMC) justification) and to meet consumers' willingness- to-pay. There are serious problems with India's electricity tariffs, but these relate to household use and - in particular - agriculture. It should be noted that because an equivalent despatch basis is adopted for the economic analysis, the value of electricity produced is the same ,,with" and ,,without" project whatever system of economic pricing is used; the only role played by this adjustment is in the input costs of power for coal preparation and extra mining, which is a very small component of project operating cost.

Land use: similar considerations apply as for water (see above), but the disparity between financial and economic prices is considered to be less. An adjustment factor of 10 x is applied to land purchase price; this is based on the temporary amenity loss, assumed at an annual rate of 50% of land price, over a twenty year period of sequestration, use for tipping, land rehabilitation and return to use. The same factor is applied


- 107-

Stressor

to restoration costs. The present Indian cost estimates cover return to afforested conditions rather than full restitution of land utility. This involves a great loss of land value in metropolitan and urban areas, and a significant loss in crop growing areas. A ratio of 1O:l for restoration costs to housing/light industrial standards as opposed to forestry is in common use in Europe and the US, and is adopted here.

Potential Impact Comment

Diesel price: The economic price of this commodity is taken as border parity price of standard quality diesel excluding taxes. This is in close approximation to current price, for the range of diesel fuels involved in the study.

Gases Carbon Monoxide (CO)

Sulphur Dioxide (SO2)

Nitrogen Oxides (NOx)

Greenhouse Gases (C02)

Particulates (TSP) (> PMlo)

Particulates (PMlo) from - TSP - SO2 emission

(Secondary PMlo)

Noise

(c ) Cost externalities The next table provides the screening analysis for the environmental stressors which are influenced by a change from raw coal to washed coal. It has been abstracted from section 4 where a full derivation is given.

Potential Emission to Air

Human health: incr. Incremental impacts will probably be small

Human health: incr. Incremental impacts will probably be very morbidity small due to low sulphur content in raw

coal (S2) Human health: incr. Incremental impacts will probably be very morbidity small (S2) Global climate change Impacts are uncertain, but can be

estimated (S4) Human welfare: aesthetics Impacts will be mitigated by installation of

an ESP (Sl) Human health: incr. Health impacts can be quantified (S4). As morbidity, mortality no data are available for PMlo, the whole

amount of TSP (dust) is considered as Human welfare: aesthetics, PMlo; SO2 is considered as Secondary

Welfare impacts can be quantified (S4) (Reduction in visibility) Impacts are mitigated (Sl)

morbidity (S2)

material changes PMlO

Human welfare Potential Emission to Water

Table 6.5: Screening Analysis

Water Withdrawal Human welfare: resource use Environmental resources: freshwater ecosystems

Impacts are too uncertain (S3)


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High Estimate

19.73

Screeninq criteria: s 1 . Impacts are mitigated s2 Impacts are relatively small s3 s 4 ImDacts can be auantified

Impacts are too uncertain or sensitive for quantification

Unit

1992 US$ per tonne’

Of the environmental externalities to be considered quantitatively (dust, SO2, C02), only additional C02 appears as an extra cost in certain circumstances where an FBC can increase the total emission by reducing average system generation efficiency. The recommended adjustment (additive) is:

22.54

The economic cost range suggested is derived by the methodology presented in the analysis of the Pagbilao Power Station in ADB’s “Economic Evaluation of Environmental Impacts - A Workbook”, March 1996. It is derived as follows:

carbon 1997 US$ per tonne

Table 6.6: Derivation of Economic Cost for COP

Low Estimate

8.77

10.02

350.68

17.62

4.81

carbon - not adjusted for G D P/caDita 1997 Rs per tonne

39.64 I carbon - adiusted for

Derivation

carbon basis, from Workbook (Table H1) inflation conversion;

Using 35 Rs/$ + 14.5%

GDP/capita adjustment is 0.05: UNDP, 1995 ratio

Conversion from C to CO2 basis (x 44/12)

* Average for the period 2001 - 2020. Note that the exchange rate used here is different from that in financial analysis - it comes from the timeframe of the GDP value, and subsequent time effects are captured by the inflation adjustment.

Note that the climate change model underlying this is highly uncertain, and that the cost figures are only indicative since they are based on an extrapolation of damage estimates for the United States. No confidence limits can reasonably be given.


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6.9 Project Benefits in Economic Prices

The chief benefits internal to the energy chain are reduced transport costkapacity demand on the rail system and reduced operating cost at power stations - a mixture of public and private goods. Separable benefits accrue from the two effects of washing, reduced ash and improved consistency. The FBC, where included, provides an additional direct benefit by reducing build requirement elsewhere in the system as demand grows. Quantification of many of the gains at power stations presents problems and is likely to be the subject of strong debate during the implementation of our recommendations..

There are environmental gains from coal preparation. Water use and emissions of dust, SO2 and C02 will reduce (although recall that C02 may increase overall with FBC due to the reduction in thermal efficiency).

External benefits considered are enhanced security of electricity supply; the possibility that the value of freeing railway capacity may exceed the present tariff levels; and potential reduction in diesel consumption.

As with costs, three types of economic adjustment are provided in the model to adapt system cashflows more appropriately to the economic circumstance of India.

incorporation of environmental and other cost items which at

removal of taxes, duties and similar internal transfers shadow pricing of six key input cost factors

present are wholly or partly externalities

These are described in the remainder of this subsection, together with the derivation of values used in the economic analysis. Factors which occur in both costs and benefits are adjusted consistently.

(a) Taxes

See 6.8 (a) for the methodology of adjustment

(b) Shadow pricing of benefits

Recommended adjustments (multiplicative) are:

Labour 0.9 Water 50 Exchange rate 1.2 Electricity price 1

1 Land use 10 Diesel 1


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Unit

1992 US$ per tonne

The derivation of these factors is presented in 6.8 (b)

Derivation

SO2 basis, from Workbook

(c) Benefit externalities

The recommended adjustments (additive) are:

1997 US$ per tonne

1500 - 2600 Rs/t 6000 - 10000 Rs/t

Security of supply 1000 Rs/MWh Rail freiaht Rs/t-km

(Table G1) inflation conversion;

Derivation of these figures follows.

1997 Rs per tonne - not adjusted for GDP/capita 1997 Rs per tonne - adjusted for G D P/capita

S02reduction: The economic cost range suggested is derived by the methodology presented in the analysis of the Pagbilao Power Station in ADB’s “Economic Evaluation of Environmental Impacts - A Workbook”, March 1996. It is derived as follows:

+ 14.5% Using 35 Rs/$


Table 6.7: Derivation of Economic Cost for SO2

Note that the cost figures are only indicative since they are based on the meteorology, topography and demography of New York State and could over or under-state actual values for India. Only $/tonne figures (rather than the more precise approach using $/tonne/capita) can be used in this study since the power station site is not determined. The exchange rate used here is different from that in financial analysis - it comes from the timeframe of the GDP value, and subsequent time effects are captured by the inflation adjustment.

Dust: is most important for the health damage caused by the respirable portion; this is estimated using the Workbook methodology for Pagbilao. (As no data are available for PMI0 the whole amount of dust (TSP) is considered as PMlo.)


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Low Estimate 3ooo

Table 6.8: Derivation of Economic Cost for Dust

' 3427

1 19959

6027

High lUnit

not adjusted for GDP/caDita

adjusted for

Derivation


Note that the cost figures are only indicative since they are based on the meteorology, topography and demography of New York State and could over or under-state actual values for India. Only $/tonne figures (rather than the more precise approach using $/tonne/capita) can be used in this study since the power station site is not determined. The exchange rate used here is different from that in financial analysis - it comes from the timeframe of GDP value, and subsequent time effects are captured by the inflation adjustment.

cop: see 6.8 (c)

Security of supply: Indian industry is severely hampered by supply interruptions and quality of life is damaged. Improved consistency of coal feed through washing will improve the reliability of generation. The adjustment reflects the cost of a backup diesel generator, in common use by businesses and affluent households, and considered an excellent indicator of willingness to pay.

Rail freight: No additional value above the freight tariff is assigned to freeing rail capacity. An examination of the railway system accounts suggests that freight tariffs on coal fully cover cost with provision for capacity maintenance - indeed, the tariff may subsidise other uses. Any economic adjustment for rail use would therefore be downwards from the tariff rate rather than upwards. It is obviously necessary to rationalise the whole railway tariff system. Until this is done, no estimate of demand elasticities and opportunity cost is possible, and neutral economic costing is therefore adopted.

Finally, the terms of reference require consideration of a further potential benefit - export of washed coal. There is no scoDe for this. Washing Indian coal produces a high-ash product of no interest to the general world market, in which power stations are generally designed for bituminous coal with about 10 - 15% ash. There is a niche market in


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6.1 0

6.1 0.1

the Black Sea for high ash coals; most Ukrainian stations and two in Bulgaria are designed for a 40 - 50% ash anthracitekemi-anthracite feed. However, transport costs preclude Indian competition.

Project Worth

Summary Results for Representative Mines

Out of the mineskoalfields which should be considered for coal washing as discussed in section 3, three mines (Hesalong, Manuguru and Bharatpur) were selected for the economic evaluation. These mines were chosen because they have raw coal qualities representative of more than 70% of the power generation coal used in India and therefore provide a suitable sample for this project.

Manuguru is similar to Bina and Dipka, whereas Hesalong and Bharatpur represent the typical power station coals being supplied. To show the effect of using an FBC to burn the rejects, the Hesalong and Bharatpur mines were selected.

Table 6.9 comprises the technical data of these selected mines.

Table 6.9: Technical Data of Selected Mines

I Run Mine/CPP CPP FBC? Raw Yield Product Discard Raw Raw variant ash o/o o/o ash o/o ash o/o sulphur Yo volatile o/o

1 Hesalong 1 No 42.9 75 34 70 0.5 25 2 Hesalong* 2 No 42.9 61 30 63 0.5 25 3 Hesalong 2 Yes 42.9 61 30 63 0.5 25 4 Manuguru 1 No 37.4 80 30 67 0.3 30 5 Manuguru 2 No 37.4 73 25 71 0.3 30 6 Bharatpur 1 No 40.8 82 34 71 0.8 25 7 Bharatpur 2 Yes 40.8 70 30 65 0.8 25

(*) not a feasible plan, as the heat content of the discard requires an FBC

This run is included to illustrate the impact of FBC construction only. It is

A CPP to power station distance of 1000 km is used in all runs.

It is also assumed that the mines selected for CPP construction are in rural areas (low land costs) and the power stations selected as priority recipients of washed coal are in metropolitan areas (high land costs).

Revenue comes only from sale of coal to the power stations. Washed and raw coal are priced on the recommended system. In some parts of the presentation, the existing pricing system (with the addition of a washing premium) is also used for comparison.


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Run 1. Hesalong 2. Hesalong" 3. Hesalong 4. Manuguru 5. Manuguru 6. Bharatpur 7. Bharatpur

The following tables list economic IRR and .NPV for the six cases considered. Where ranges have been derived for economic prices in the preceding sections, central (average) values are initially used. The effect of the price ranges on the project results is considered below in 6.1 0.2.

CPP 1 2 2 1 2 1 2

The IRR and NPV shown are for the marginal effect of introducing coal preparation to the Indian energy system to provide power from washed coal equivalent to the despatch presently obtained from 2.5 Mt of raw coal. The ,,without project" case - i.e. unchanged operation of this present system - is made better or worse in economic terms according to whether the NPV is positive or negative.


The summary sheets for the respective cases are placed at the end of this section for convenient reference. Full model results are attached as

72% 63 % 1 8% 59% 74% 59% 14%

Run

1. Hesalong 2. Hesalong" 3. Hesalong 4. Manuguru 5. Manuguru 6. Bharatpur 7. Bharatpur

CPP

1 2 2 1 2 1 2

FBC 1 Economic IRR

I Economic NPV (M Rs)


at discount rate of 12%

3333 1880 2180 3684 2144 435

(*) illustration only - discard heat value too high

This economic analysis shows

0 there are definite benefits available from washing in all circumstances examined. The four washing-only cases have EIRRS of 59 - 74%


- 1 1 4 -

the best process depends on the washability of the coal: for coal from Manuguru, deeper cleaning (variant II) is to be preferred; but for the coal from Hesalong and Bharatpur, which is harder to separate in this process (variant 11) and therefore requires an FBC to burn the discard, the simpler variant I offers a better return.

Note that the two FBC/washer runs do have EIRR’s acceptable to the ADB: 14 - 18%, compared to the standard test rate of 12% specified in “Guidelines for the Economic Analysis of Projects”, May 1996, section IX (E). A small number of mines exist where any washing would require the use of an FBC; at these, the installation of an FBC/washer system might be acceptable as a public-funded beneficial project.

6.10.2 Composition of Economic Costs and Benefits

To assist understanding of how these projects gain their returns, we present the derivation of economic cash flows for run 1, Hesalong.

Annual incremental cash flows during typical year of operation (year 3 on)

Cash in, financial prices M Rs

Non-fuel savings at power station 269 Saving on railway 338

Cash out, financial prices M Rs

Coal preparation Mining

146 36

Net Cash Flow, financial prices + 426 M Rs

Conversion to economic prices

Environmental elements Land Water so2 Dust co2

+ 102 + 73 + 3 + 94 + 1

Total adjustment for environment + 273 M Rs

Other adjustments + 5 M R s

Net Cash Flow, Economic Prices + 675 M Rs


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2844 I 2964

The crucial elements in the difference between economic and financial price-based results are the environmental impact reductions on metropolitan land use, water requirement and dust emission.

7 0 '/o

72 yo

Of these three key elements, only dust had a range rather than a fixed value assigned in the derivation of economic prices presented earlier. The appraisal of derivation so far has used the central point of the range; we look at the effect of instead using the end points.

I 10,000 3085 74%

6,000 18,000

Run ENPV (M Rs) with without

1. Hesalong, CPP 1

The effect of the range is negligible and so central points will be used in the remainder of this report for clarity of presentation.

environmental gains 2964 1566

To illustrate the importance of the environmental benefits available, the next table lists ENPV with and without the adjustments made for environmental gains.

2. Hesalong*, CPP2 3. Hesalong, CPP 2 + FBC 4. Manuguru, CPP 1 5. Manuguru, CPP 2 6. Bharatpur, CPP 1 7. BharatDur. CPP 2 + FBC

3333 1690 1880 665 21 80 1086 3684 21 34 2144 1006 435 -65 1

6.10.3 Key Factors in the Viable Projects

Further attention can now be focused on three cases: CPP variant 1 for Hesalong and similar coals (run 1); CPP variant 2 for Manuguru and similar coals (run 5); and Hesalong with CPP variant 2 and FBC (run 3), to see whether any likely combination of circumstances could reverse our observations on the central case.

Sensitivity analysis and switching factor derivation for the crucial factors in remaining candidate CPP applications will be carried out in subsection 6.14. For the present, we will examine effects on ElRR of extremely large changes in the two most important factors affecting project benefits, which are much less certain quantitatively than project costs:


- 1 1 6 -

1. Hesalong variant 1

3. Hesalong variant 2 5. Manuguru

0

0

distance to power station; and contentious elements of operational saving at the power station (i.e. all except land and water use)

ElRR versus Distance 500 km 1000(base) 2000 km

5 4 '/o 72% 105% 5 5 O/o 74% 108% 8 '/o 1 8% 34%

to develop a broad understanding of the true economics of the potential CPP applications.

1. Hesalong variant 1

(i) Distance to power station

ElRR -1 00% Base saving +loo%

4 6 '/o 7 2 '/o 96% 5. Manuguru 3. Hesalong variant 2

Switching value of distance in km (i.e. distance at which ElRR = 12%)

1. Hesalong variant 1 Any distance 5. Manuguru Any distance 3. Hesalong variant 2 700 km

42% 74 Yo 105% 1 2% 1 8% 23%

(ii) Operational saving at power station

(land and water use for ash disposal are kept fixed; all other operational saving factors are changed in the same proportion)

This analysis strongly reinforces the observations on the base case. For suitable coals, both CPP processes can yield economic gains. There are no likely circumstances in which deeper cleaning combined with FBC would increase contribution, and this will not be considered further; where the discard from deep cleaninq would contain too much coal to be tipped safelv, onlv washinq variant 1 should be considered.

6.1 0.4 Conclusions

The sample of potential projects was chosen to be representative of the majority of Indian raw coals used in power generation. A high proportion of the present 215 Muyear of power station coal has washing characteristics similar to Hesalong/Manuguru to justify serious consideration of washing. The short transport distance needed for a reasonable economic return means that many coal flows deserve


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consideration: in 1996 more than 30% of power station coal travelled more than 500 km to be burnt and this proportion is rising.

Environmental gains quantified in economic terms - water savings, SO2 reduction, diverting waste disposal to rural rather than metropolitan areas - can justify coal washing even for very short transport distances (less than 100 km).

6.1 1 Sectoral and Macroeconomic Effects

The introduction of coal washing on a significant scale would have far- reaching effects on the energy sector and an impact on certain macroeconomic factors. A summary table of the key effect follows.

I 1 Key Effects: with coal preparation versus without

Power sector 7

Environment I

Reduced power station build requirement Enhanced security of electricity supply Reduced total freight on the railway system The project reduces the total energy efficiency of the coal supply chain, and therefore requires extra coal mining for equal electricity dispatch Environmental impacts are mixed: atmosphere generally benefits, water use is reduced, but land use is increased. Environment is improved in vicinity of power station and transboundary emissions reduced, but some environmental factors deteriorate in the minina area. A (fairly small) number of jobs are created There is a small but positive effect on balance of payments - initial foreign currency spend on equipment is outweighed by savings on imported diesel Taxation implications are complex. Tax income is lost on diesel and, perhaps, on railway profits; there are gains from profit taxation at the new coal preparation plants, but encouraging investment may require generous treatment of this element The introduction of market-based pricing in such an important economic activity as the production and use of coal for power generation will be an important landmark in India’s progress towards commercialisation of s t a te-secto r oDe rat ions.


- 1 1 8 -

washing premium Financial Financial

6.1 2 Financial Charges and Returns

Financial Financial

6.12.1 Financial Internal Rate of Return (FIRR)

I RR NPV 16.9% 228 M Rs N/A -425 M RS

Only runs 1 and 5 which use dominant CPP variants and pass the economic criteria will be further considered.

I RR NPV 21.7% 475 M Rs 27.1 yo 953 M Rs

In accordance with ADB standards, FlRR is calculated on profits after income tax. It appears that the Indian Government has not taken a decision on the taxation regime for the future steam coal preparation plants (of course, no precedents exist). A range of tax rates are used in different industrial sectors in India, up to a normal maximum rate of 35% on profits after cash costs and depreciation. This section therefore examines FlRR with profit tax rates of 0% and 35%. The results of analysis of these variants should assist the Government in deciding the most appropriate tax rate to introduce.

Annual, M Rs Cash in

The following table presents the results of financial cash flow analysis in real terms using a 12% discount rate for NPV. FlRR and FNPV are calculated using a 0% rate of profit (income) tax, in line with our recommendation (section 2) that the Government should if necessary be prepared to consider favourable tax treatment - it is not, at this stage, recommended that this is the appropriate level of taxation.

Hesalong Manuguru 1215 1716

Table 6.12: FlRR and FNPV before Tax

Cash operating cost Depreciation Profit tax liabilitv

1 FlRR - 0% profit tax

982 1358 51 63 64 103

7 5. Manuauru. CPP 2

With 0% tax

I Existing price system plus I Proposed price system 1

FNPV FlRR FNPV FlRR 475 M Rs 21.7% 953 M Rs 27.1 Yo I With 35% tax I 119MRs I 14.7% 380 M Rs 1 18.5%

The impact of a higher tax rate, 35%, on financial cash flows and FlRR would be as follows:

Table 6.13: FlRR and FNPV with Tax


- 1 1 9 -

1. Hesalong, CPP 1 5. Manuguru, CPP 2

Under the proposed pricing system, FlRR with 35% profit tax is 7 - 9 percentage points lower than with 0% tax.

washing premium Financial Financial Financial Financial IRR NPV IRR NPV 10.7% -55 M RS 14.7% 119 M Rs N/A -521 M RS 18.5% 380 M Rs

The results with a 35% profit tax under both pricing systems are:

Table6.14: FlRR and FNPV with Tax under Existing and Proposed Pricing System

I FlRR - 35% profit tax I Existing price system plus I Proposed price system

Even in the most favourable circumstances (run 1) the addition of a washing premium to the existing pricing system to reflect the gains from consistency in washed coal can provide an FlRR of only 10.7% after imposition of a 35% tax.

The proposed pricing system allocates benefits more equitably between suppliers and customers, and would better encourage development of both types of washing system where they are economically justified. The existing price system thus acts as a barrier to outside investment and prevents India from gaining the economic benefits available from washed coal. If India allows prices which better reflect her economic gains - the proposed pricing system - then potential investors can consider the returns described in the right-hand part of the table; if these are considered adequate - a question to be discussed in 6.12.3 - investors will enter and the Government will benefit from tax income.

6.12.2 Weighted Average Cost of Capital (WACC)

Five sources of borrowing and/or equity participation may theoretically be considered for the project: Asian Development Bank, international banks, Indian banks, Government of India, private investors. The former two would provide loan capital in convertible currency; Indian banks would provide rupee loans; the Government could lend or take an equity stake, in rupees; private investors would have equity involvement, bringing either rupees for domestic investors or convertible currency for foreign partners. Because all of the project income and nearly all of the project cost is in rupees, domestic borrowing has the advantage of reducing foreign exchange rate premia; however, Indian lending rates have been volatile and occasional difficulties in securing large loans have been reported to the consultants during the study. Effects of the recent problems in Asian currencies on bank lending behaviour are as yet uncertain.


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The structure of equity sourcing, loan syndication and gearing for the potential projects will determine the resultant average rate of interest. ADB's preference in projects of this nature is understood to be for the involvement of private sector participants rather than the state, with the private sector participant demonstrably funding its stake from own resources rather than immediate borrowings.

The following sections consider the possible loan rates and equity dividend expectations appropriate to these projects. Alternative structures are then examined to determine weighted average cost of capital for each.

Loans

Possible compositions of final interest rate for loans to the project from different sources are as follows; the table considers both real (inflation free) and nominal rates. Ultimate loan rates calculated are on a rupee basis, because all of the project income and nearly all of the project cost is in rupees. Inflation figures assumed are 2.8% for foreign exchange, 6.5% for the rupee.

Table 6.15: Possible Composition of Final Interest Rates

Loan Interest Rates

Interest Rate Components: Base lending rate Cost of guarantee Commitment charges

Country risk Fee to fund intermediary

Foreign exchange risk management Convertible currency inflation RuDee inflation Total, nominal (rupee basis) Total, real terms

lnternatil AD6

4% 1.2% 0.5%

- 2 O h

8 O/o

2.8%

18.5% 12.0%

nal sources International

Bank

10% -

0.5%

3% 2%

9 O/O

2.8%

27.3% 20.8%

Domestic s Domestic

Bank

2%

6.5% 23.0% 16.5%

lurces Government

of India

10% -

0.5%

- 2 O/O

6.5% 19.0% 12.5%


- 121 -

The first column is based on discussions with ADB, who provided the individual figures and intimated that an inclusive interest rate of 18 - 19% nominal would be possible. The next two columns are much more speculative. There has been no commercial lending to projects of this nature; indeed, it is absolutely impossible that any would take place without suitable pricing of washed coal. Banks are unwilling to speculate on loan rates to projects with such ill-defined risk, although ADB involvement might be a persuading factor.

The last column envisages the potential for Government involvement at a rate of interest substantially below Indian bank lending rate. The justification for this is the environmental externalities; the project has substantial benefits to India beyond the cash flows it generates internally. Many countries have preferential government loan systems in such cases, particularly for energy efficiency promotion. Such an involvement is recommended for consideration by the Government of India, in a “pump-priming” role, if there are difficulties in attracting private sector participation.

Equity

The expectations of potential equity participants, Indian or foreign, are difficult to gauge, but the required dividend is likely to reflect the perceived risks of the project. The following rates may be considered, in nominal terms:

Private investor 30% Government of 20% (if Government equity participation is India considered necessary - this is an alternative

to the possible loan scheme mentioned above)

Capital Structures and WACC

Two possible capital structures are considered: ADB/ private sector and ADB/ private sector/ Government of India.

u) ADB/ private sector model

A possible composition of capital involving lending from ADB only and private sector equity ownership would be:


- 122 -

ADWPrivate Sector Structure

Loans

Equity

Table 6.16: ADB/Private Sector Capital Composition

Participant Share of Project Interest rate/ Capital dividend

(Nominal terms) ADB 6 5 O/o 18.5%

Private 3 5 O/o 3 0 '/o Investor

Share of Project Capital

The weighted average cost of capital in this structure depends on the income tax applied, since loan interest is tax deductible. The illustrative case of 0% tax gives:

Cost Rate % Cost Rate net WACC of 0% Tax

Table 6.17: WACC (0% Tax)

6 5 '/o (loan)

(equity ) 35%

lParticipant

18.5% 18.5% 12.03%

30% 30% 10.50% r- Private

Participant

ADB

Private Investor

Investor t---

Share of Project Cost Rate Yo Capital

65% 18.5% (loan)

(equity) 3 5 '/o 30%

Cost Rate net of 35% Tax

12.03%

19.50%

WACC

7.82%

6.83%

WACC in nominal terms Minus inflation 6.5% WACC in real terms 16.03%

2 2.53%

The illustrative rate of 35% income tax gives:

Table 6.1 8: WACC with 35% Income Tax

WACC in nominal terms 14.65% Minus inflation 6.5% WACC in real terms 8.15%


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Cost Rate YO

lii) ADB/ private sector/ Government of India model

Cost Rate WACC net of 0%

If investors cannot easily be attracted to such innovative ventures, some “pump priming” Government equity involvement - directly or via Coal India Ltd. - may be considered. A possible structure, with 0% income tax, would be:

18.5%

Table 6.1 9: ADB/Private Sector/Government of India Capital Composition

Tax 18.5% 12.03%

Participant

3 0 O/o

20%

ADB

Private Investor Govern men t of India

30% 4.50%

2004 4.00%

Share of Project Capital

Participant Share of Project Capital

6 5 ‘/o

(loan) 1 5% (equity 1 2 0 O/O

(equity)

Cost Rate % Cost Rate net of 35%

Tax ADB- 65%

(loan) Private 15%

Government 20% Investor (equity 1 of India (equity )

18.5% 12.03%

30% 19.50%

20% 13.00%

WACC in nominal terms 2 0.5 3% Minus inflation 6.5% WACC in real terms 14.03%

The effect, compared to the ADB/ private sector model, is to reduce WACC by about 1.5 percentage points with income tax at 0%. A similar reduction could be obtained from a Government loan scheme, as described earlier, but the company gearing might be considered less suitable.

The corresponding results in the case of a 35% income tax are:

Table 6.20: WACC with 35% Income Tax

WACC

7.82%

2.93%

2.60%

WACC in nominal terms 13.35% Minus inflation 6.5% WACC in real terms 6.85%


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Hesalong, CPP 1 FIRR, 0% FIRR, 35%

Summarv of WACC estimates

Manuguru, CPP 2 FIRR, 0% FIRR, 35%

The value of WACC varies with the precise details of capital composition and with the income tax regime. The following results where obtained for the ADB/ private sector model:

Existing price system plus washing premium Proposed price svstem

Income tax 0% WACC 16.03% Income tax 35% WACC 8.15%

profit tax profit tax profit tax profit tax 16.9% 10.7% N/A N/A

21.7% 14.7% 27.1 Yo 18.5%

Government participation as described could reduce the WACC to 14.0% in the case of 0% income tax, 6.9% in the case of 35% tax.

It must be stressed that the two company structures described here were designed by the consultants to illustrate the analysis. ADB has not given approval to either as an acceptable capital structure for lending.

6.1 2.3 Financial Appraisal: FIRR versus WACC

The ADB/private sector model is considered first.

The figures in the table below should be compared to the weighted average cost of capital (WACC, real terms) of 16.03% (0% income tax) and 8.15% (35% income tax) in real terms derived in the last section for the ADB/private sector model.

Table 6.21: Comparison of FIRR to WACC

With the recommended pricing system, both projects offer an attractive return at the higher rate of income tax (35%) considered, as well of course as at lower rates.

Under the existing pricing system, with the addition of a washing premium, the Hesalong project is marginally acceptable; Manuguru is not. Addition of a washing premium may in a very few cases result in financial viability. However, this report has fully demonstrated that the existing pricing system does not serve India well and this result should not be taken as a reason for its continuation.


- 125 -

With the proposed pricing system, it is envisaged that returns may be adequate to attract investors to the best projects without direct Government involvement or a particularly favourable income tax regime. Less attractive projects may require further incentives of the type outlined here.

ADB and the Government of India should consider these results in deciding their further strategy.

Accounting Statements

Statements

This section presents standard accounting statements, in nominal terms, in formats consistent with ADB’s “Guidelines for Preparation and Presentation of Financial Analysis”. It should be recognised that, at this very early stage of project preparations, these tables can give only a very broad indication of future financial results; in particular, - the company capital structure is not decided (the tables assume the

ADB/private model with 65% ADB funding) - the principles and timing of price reform are not agreed - contracts for sale and purchase of coal, which affect current assets

and liabilities, are not formulated - arrangements for recovery of royalty are not in place - the tax regime is not defined - specific plants will differ in detail from the generic forms analysed - investors are not identified - timing of start of construction is not known.

All tables are derived from the detailed computer modelling in the Annexures. Investment and operating costs are consistent with the analysis of section 6.3. On ADB advice, a steady annual escalation of 7% has been used to 2000 and 6.5% thereafter. Tables cover the two- year construction period and four years of operation. Although the statements are in nominal terms assets are not revalued in the period, in line with ADB instructions. To provide for replacement and avoid overstating profit, however, depreciation provision is increased in line with inflation. A zero profit tax is assumed for this period. Hesalong, run 1, and Manuguru, run 5, are considered (as in the previous sections); these are typical of many potential projects in India.


- 126 -

Income Unit Volume (Mt) Price (Rs/t)

Table 6.22: Income Statement, Hesalong

1999 2000 2001 2002 2003 2004

1.875 1.875 1.875 1.875 753 802 854 909

Ope rating Revenue Operating Costs

Sales of coal Recovery of royalty

1575 1677 1786 1902

1412 1503 1601 1705 163 174 185 197

Operating income Interest on long-term debt (non-capitalised) Pre tax income Taxes on income Dividend

228 235 244 253 119 108 96 81

109 127 148 171 0 0 0 0

109 127 148 171

Product ion/ maintenance Administration and general De p reciat ion

1220 1300 1384 1474

43 46 49 52

84 96 109 123

Years end 31/12; Millions of Current Rupees


- I27 -

0

Table 6.23: Sources and Application of Funds, Hesalong

48 103 164 23 1

84 96 109 123

I1999

0

/Sources I

228 235 244 253 48 55 61 67

ADB Loan Louitv

Change in cash 0 position

Total 360 Applications

Cash Total Assets

Project expenditure 344 Increase in working capital

48 360 1188 1152

I DC 16 Total capital 360

Currentabilities Long term debt Equity capital I Caoital reserve

Debt service

Dividend Total applications of cash

222 759 723 138 429 429

0

Cash at beginning of

total liabilities and 360 1188 1152 equity

- I

bash at end of year 1 0 Add internal sources: Depreciation Net income after taxes

2000 2001 2002 2003 2004

544

I I I I

0 1 0 1 48 I 103 I 164


Table 6.24: Balance Sheet, Hesalong

I 1999 I 2000 I 2001 Current Assets Fixed Assets Plant in service Accumulated depreciation

2002

1188 180

103 1111

682 429 0

1111

2003

1188 289

164 1063

634 429 0

1063

2004

1188 41 2

231 1007

579 429 0

1007



- 128 -

Pre tax income Taxes on income

Table 6.25: Income Statement, Manuguru

244 276 309 349 0 0 0 0

Income Unit Volume (Mt) Price (Rdt)

Dividend

Sales of coal Recovery of royalty Operating Revenue

244 276 309 349

Operating Costs Production/ maintenance Administration and general Depreciation

Operating Income

Interest on long-term debt (non-capitalised)

1999 2000 2001 2002 2003 2004

1.825 1.825 1.825 1.825 1131 1205 1283 1367

2064 2199 2341 2495 159 169 180 192

2223 2368 2521 2687

1672 1781 1897 2020

55 59 62 66

104 118 134 152

392 410 428 449

148 134 119 100



- 129 -

Depreciation 104 118 134 152 Net income after taxes 392 410 428 449 Change in cash 0 0 60 67 75 82 position

Table 6.26: Sources and Application of Funds, Manuguru

Capital reserve Total liabilities and eauitv

0 433 1470 1426


Table 6.27: Balance Sheet, Manuguru

.1999 2000 2001 Current Assets Fixed Assets Plant in service Accumulated depreciation Cash 60 Total Assets 433 1470 1426 Current liabilities Long term debt Equity capital

275 955 911 I 158 I 515 I 515 860 51 5 I :::

2004

1470 508

284 1246

73 1 51 5 0

1246



- 130-

Return (pre-tax) on capital employed

1. Hesalong, CPP 1 5. Manuguru, CPP 2

8% - 15% 15% - 22%

(b) Accountinq Ratios

Profit (pre dividend and tax) as % of turnover 6 Yo -1 2% 10% - 14%

The most important accounting ratios for the two technologies, calculated using the recommended pricing system, are:

Years

1 t o 5 6to10 l l o n

Return on Capital 8 Yo 5 '/o 10% Profit as Yo of 6 Yo 4 O/o 8 Yo Turnover

Table 6.28: Accounting Ratios without Tax

15 year average (und iscounted)

7 '/o 6 '/o

Two figures are given in each box. The first refers to the first ten years of operation while the loans are being repaid. The second, higher figure is for subsequent years. The ratios are not high but they demonstrate that, with economically sound pricing, it should be possible to attract commercial funding into the project. They correspond to a zero profit tax regime; higher rates of tax, for example the 35% figure discussed earlier, would give a pro-rata reduction. To illustrate this, if the Hesalong plant were given a 5 year tax holiday before going to 35% taxation its ratios would be:

Table 6:29: Accounting Ratios with Tax


- 131 -

Sector Mining

6.13 Distribution of Project Effects

Effect Extra coal required. Low ash coal increases in price, high ash

Table 6:30: Distribution of Project Effects

CPP operator/FBC coal (>41 O/.) reduces. Overall price effect neutral. Operate commercially, likely profit 100 - 200 M Rs/ CPP plant

s/plant. Actual loss lower, because other

mine/CPP area nd use, water use and (if

On an annualised basis, the total of environmental benefits to India is approximately 150 M Rs per plant.

6.14 Project Risks and Sensitivity Analysis

We distinguish between “threats” - failure to implement policies needed to translate available economic benefits into financial benefits attractive to investors - and the natural uncertainty which affects many project parameters and has an effect on the economic and financial returns.

Threats

Two policy initiatives by Government are essential. Without these, the project will not happen. Government must:

0

0

actively encourage private investors to enter, with a campaign to recruit support and promotional benefits such as tax exemptions; change the pricing of power station coal to our proposed system, to permit financial savings at power stations to be transferred to potential coal preparation operators in an economically sound manner.

As the analysis in this section has shown, these changes will permit the establishment of financially justified coal preparation operations. Additional economic benefits to India will accrue, as shown by the


- 132-

Factor

Marginal cost of mining CPP capital cost

Yield (+/- 5%) Transport distance Station non-fuel saving

CPP operating cost

analysis of shadow pricing and externalities. It may be advantageous to further encourage the burning of washed coal by internalising the uncovered costs of pollution at power stations, using a properly enforced system of fees and fines reflecting the economic costs of pollution.

-10% Base value +lo% Switching value (ElRR = 72%) for ElRR = 12%

72% 183 Rs/t 71 '/o - 7 6 '/o 898 M Rs 69% - 74% 95 Rs/t feed 70% - 66% 75% 78% - 67% 1000 km 78% - 6 9 '/o 269 M Rs 74% -

Uncertainties and Sensitivitv Analvsis

~

Factor

CPP capital cost

Yield (+/- 5%) CPP operating cost

station no n -f u e I savi n g(2)

For the candidate CPPs, run 1 (Hesalong) and run 5 (Manuguru) we now examine the sensitivity of ElRR and FlRR to changes in key factors and determine the switching value of each factor potentially having a critical effect for a target IRR of 12%.

-10% Base value +lo% Switching value for FlRR = 12% - (FIRR -

24% 898 M Rs 20% - 23% 95 Rs/t feed 21% -

21.7%)

18% 75% 25% - 8% 20 YO 269 M Rs 24% -

Table 6.31 : Sensitive Analysis for Hesalong, CPP Variant I

ElRR

(1) The effect of imposing a 35% profit tax is to reduce all figures in this table by approximately seven percentage points.

(2) product price is reduced or increased to match the change in saving

None of these sensitivities for Hesalong give any cause for concern. As long as the plant is properly operated to produce the designed yield, the financial and economic justification is clear.


- 133-

Marginal cost of mining

Table 6.32: Sensitive Analysis for Manuguru, CPP Variant II

EIRR

(EIRR = 74%) for EIRR Z 12% 7 5 '/o 183 Rs/t 73% -

Factor I -10% Base value +lo% I Switchina value 1

CPP capital cost CPP operating cost Yield (+/- 5%) Transport distance Station non-fuel saving

76% 1114MRs 72% - 7 6 '/o 122 Rs/t feed 73% - 68% 73% 80% - 6 9 O/o 1000 km 79% - 72% 371 M Rs 76% -

Factor

CPP capital cost CPP operating cost Yield (+/- 5%) Station non-fuel saving

-10% Base value +lo% (FIRR - - 27.1 %)

3 0 '/o 1114MRs 26% 2 9 '/o 122 Rs/t feed 27% 22% 73% 34% 26% 371 M Rs 3 0 '/o

Switching value for FIRR = 12%

- 16%

(1) The effect of imposing a 35% profit tax is to reduce all figures in this table by approximately nine percentage points.

(2) product price is reduced or increased to match the change in saving

None of these sensitivities for Manuguru give cause for concern.

6.15 Project Justification

This subsection summarises the results of the economic analysis.

Washing coal for power generation is economicallv justified in the great majority of cases considered The best process depends on the washability of the coal: for coal of the type from Manuguru, deeper cleaning (variant 11) is to be preferred; but for coal of the Hesalong type, which is harder to separate in this process, the simpler variant 1 offers a better return.


- 134-

The high cost and added environmental impacts of FBC waste combustion make deeper washing, which would necessitate its use, relatively unattractive when simpler washing systems can be used. The quantity of coal for which washing is justified is large and will increase in the future with rising coal demand and transport distances. Sensitivity analysis gives no particular cause for concern. As long as the plants are properly operated to produce the designed yield, the economic justification is clear. Significant market (pricing system) and non-market distortions (environment) exist which mask the economic benefits and will hamper the involvement of private capital. Three policy initiatives by Government are important: - change the pricing of power station coal to our proposed

system; - internalise environmental costs by a properly enforced

system of fees and fines reflecting the economic costs of pollution;

- actively encourage private investors to enter, with a campaign to recruit support and promotional benefits such as tax exemptions.

0

0

These last points are the subject of section 6.16 which recommends practical steps for the Government to promote economically justified coal washing.

6.1 6 Practical Measures to Achieve the Economic Benefits

6.16.1 Achieving Price Reform

Implementation of an economically sound pricing system is a necessary precondition for attracting commercial investment in coal washing. The analysis presented shows clearly that the existing pricing system - even with a premium for consistency from washing - will not achieve the economic benefits available.

It will be necessary to persuade customers and producers that they both benefit from the change. This is a matter of training and negotiation. On the producers’ side, there will be losers from the proposed pricing system: most mines selling coal to power generators at more than 41% ash will receive lower prices than at present. This will be a strong incentive for them to produce cleaner coal by, e.g., selective mining.

The price reform will need to be backed by a suitable system of long- term contracts to attract CPP operators. This will replace the current system of Government-defined linkages.


- 135 -

6.1 6.2 lnternalising Environmental Effects

The economic costs of environmental impacts must be translated into financial effects if it is wished to maximise private sector involvement in coal washing. We believe that the most appropriate method for India in its present state of development is a simple,. but properly monitored and enforced, system of fees and fines. More sophisticated instruments such as tradable emission credits could in theory be established.

Implementation of coal washing projects need not wait for the possibly slow process of legislative change on the environment to be completed. Both the Hesalong and Manuguru cases are financially viable (with the new pricing system and possibly tax exemptions) without additional environmental charges. The eventual introduction of appropriate environmental charges will however greatly increase the number of financially attractive projects.

6.1 6.3 Other Externalities

Two other externalities considered in the study - security of electricity supply and value of railway capacity - require consideration in a much broader context than coal washing. They are presently unquantifiable in precise terms because of masking by cross-subsidy in the tariff systems. It is important for India’s further economic development to implement reform of electricity and rail tariffs to properly capture the economic realities.

Summary

Existing system plus wash premium

Mt A% M% V% GCV Rs/M.Cal Rs/t Raw Coal 2,5 42,9% 5,0% 25.0% 3791 62,5 237 Product 1,aa 34,0% 53% 2 8 , ~ 4556 io6,3 484 Discard 0,63 69,6% 3,0% 14,3% 1570 0,o 0

Implementation of Clean Coal Technology Through Coal Beneficiation, India

Proposed system

Rs/M.Cal Rs/t 76,o 288

1 2 6 , ~ 577 -30,8 -48

Run: Draft Final Report Mine: Average Location: Rural CPP Hesalong Location: Rural Power Station: At 1000 krn Location: Metropolitan CPP variant: 1 Use FBC? No

Existing price system plus washing premium

Profit before dividend 77,9 M Rs Profit after dividend 10,3 M Rs NPV 228.4 M RS

(15 years, 12%) FIRR 16,9%

ROCE 9,4% Profit as % of turnover 8,6%

Proposed price system

123,3 M Rs 557 M Rs

475,2 M Rs

21,7%

14,9% 1 1,4%

3. Railways and Power Station

Despatch equivalence for Transport distance 1000 km Freight saving 482,4 Mt-km = 338,4 M Rs Power station non-fuel saving Power station total saving

1 I

4. FBCResults

NPV NIA FIRR N/A

2,50 Mt raw coal is 2,02 Mt washed coal

269,2 M Rs 212,8 M Rs with existing price system plus wash premium 154,l M Rs with proposed price system

5. Environment

1603 t 11753 t

161 kt Land use -1,74 Ha

6. Economic Benefits

72%

Without environmental adjustments 1566 M Rs

Page 1

Summary

Raw Coal Product Discard


Existing system Proposed system plus wash premium

Mt A% M% V% GCV Rs/M.Cal Rslt Rs/M.Cal Rslt 2,5 42,9% 5,0% 25,0% 3791 62,5 237 76.0 288

1,53 30,0% 6,0% 31,1% 4859 100,6 489 142.6 693 0,98 63,1% 3,0% 15,5% 2184 0,o 0 4 7 -10

Run: Draft Final Report Mine: Average Location: Rural CPP Hesalong Location: Rural Power Station: At 1000 km Location: Metropolitan CPP variant: 2 Use FBC? No

Profit before dividend Profit after dividend NPV (15 years, 12%) FlRR Profit as % of turnover ROCE


-153,7 M RS -237,4 M RS

-1077,2 M RS

NIA -20.6% -1 5,0%

2. CPP Finance



29,6 M Rs -54,l M RS -81.8 M RS

10,5% 2.8% 2.9%

Despatch equivalence for Transport distance 1000 km Freight saving 648,O Mt-km = 454,6 M Rs Power station non-fuel saving Power station total saving

2,50 Mt raw coal is 1.85 Mt washed coal

359.5 M Rs 472,5 M Rs with existing price system plus wash premium 222,4 M Rs with proposed price system

I I

4. FBC Results

N PV NIA FlRR NIA

5. Environment

Reduction in:

Land use 4 0 2 Ha I 5635 M litres Water use

2152 t 12781 t

286 kt


N PV 3333 M Rs (15 years, 12% discount rate) ElRR 63%

Without environmental adjustments N PV 1690 M Rs ElRR 41 yo

Page 1

Summary




Mt A% M% V% GCV RslM.Cal Rslt RslM.Cal Rslt 2.5 42,9% 5,0% 25,0% 3791 62,5 237 76,O 288

1,53 30,0% 6,0% 31,1% 4859 100,6 489 142.6 693 0,98 63,1% 3,0% 15,5?'0 2184 0,o 0 4 7 -10

Run: Draft Final Report Mine: Average Location: Rural CPP Hesalong Location: Rural Power Station: At 1000 km Location: Metropolitan CPP variant: 2 Use FBC? Yes


Profit before dividend -153,7 M RS Profit after dividend -237,4 M RS N PV -1077,2 M RS (1 5 years, 12%) FlRR NIA Profit as YO of turnover -20,6% ROCE -15,0%


29,6 M Rs -54,l M RS -81,8 M RS

10,5% 23% 2,9%



Value of electricity sales lost to FBC

4. FBC Results


310,3 M Rs 404,5 M Rs with existing price system plus wash premium 196,O M Rs with proposed price system

2099 M Rs -

NPV 3327 M Rs FlRR 18,8%

5. Environment

1416 t 17251 t

-11 kt Land use -2,86 Ha


18%

Without environmental adjustments 665 M Rs

ElRR 14%

Page 1

Summary

Mt A% M% V% GCV 2,5 37,4% 5,0% 30,0% 4309

2,OO 30,0% 5,5% 33,3% 4932 0,50 67,0% 3,0% 16,7% 1815


Existing system Proposed system plus wash premium Rs1M.Cal Rslt RslM.Cal Rslt

77,l 332 98,O 422 99,3 490 142,6 703 0,o 0 -20,4 -37

Run: Draft Final Report Mine: Average Location: Rural CPP Manuguru Location: Rural Power Station: At 1000 km Location: Metropolitan CPP variant: 1 Use FBC? No

Profit before dividend Profit after dividend N PV (1 5 years, 12%) FIRR

ROCE Profit as O h of turnover

1. Tonnage, Qualities and Prices



-86,9 M RS -154,5 M RS -666,4 M RS

114.1 M Rs 46,5 M Rs

425.2 M Rs

NIA 20,8%

-10,5% 13,8% -8,9% 8,1%

Raw Coal Product

2. CPP Finance




250,O M Rs 2813 M Rs with existing price system plus wash premium

51,5 M Rs with proposed price system

4. FBCResults

NPV NIA FIRR NIA

5. Environment

Reduction in:

9912 t 130 kt

Land use -132 Ha Water use 3235 M litres


N PV 2180 M Rs (15 years, 12% discount rate) ElRR 59%

Without environmental adjustments N PV 1086 M Rs ElRR 38%

Page I

Summary




Mt A% M% V% GCV Rs/M.Cal Rslt RslM.Cal Rslt 2,5 37,4% 5,0% 30,0% 4309 77,l 332 98,O 422

i ,a3 x,o% 6,O% 347% 5330 113.3 604 162,6 867 0,68 70,9% 3,0% 17,3% 1445 0,o 0 -36,l -52

Run: Draft Final Report Mine: Average Location: Rural CPP Manuguru Location: Rural Power Station: At 1000 km Location: Metropolitan CPP variant: 2 Use FBC? No

Profit before dividend Profit after dividend N PV (1 5 years, 12%) FlRR Profit as % of turnover ROCE



-33,5 M RS -117,2 M RS -424,5 M RS

220,3 M Rs 136,6 M Rs 953,4 M Rs

NIA 27,1% -3,0% 13,9% -3,3% 21,5%

Despatch equivalence for Transport distance 1000 km Freight saving 575,9 Mt-km = 404,O M Rs Power station non-fuel saving Power station total saving

230 Mt raw coal is 1,92 Mt washed coal

3712 M Rs 435.8 M Rs with existing price system plus wash premium 156,O M Rs with proposed price system

I 4. FBC Results

N PV NIA FlRR NIA

5. Environment

1268 t 11169 t

150 kt Land use -1,46 Ha


[NPV 3684 M Rs (15 years, 12% discount rate) I lEIRR 74%

Without environmental adjustments 1NPV 2134 M Rs ElRR 51% I

Page 1

Summary

Existing system Propased system ' plus wash premium

Mt A% M% V% GCV RslM.Cal Rslt Rs1M.Cal Rslt Raw Coal 2,5 40,8% 5.0% 250% 3989 83,2 332 84,4 337 Product 2,04 34,0% 5 3 % 27,5% 4556 106,3 484 126,6 577 Discard 0,46 70,8% 3,0% 13,8% 1461 0,o 0 -35,4 -52



Profit before dividend Profit after dividend N PV (1 5 years, 12%) FlRR NIA Profit as % of turnover -8,l% ROCE -9,7%

-79,8 M Rs -147,4 M RS -627,7 M RS

Run: Draft Final Report Mine: Average Location: Rural CPP Bharatpur Location: Rural Power Station: At 1000 km Location: Metropolitan CPP variant: 1 Use FBC? No


96,9 M Rs 29,3 M Rs 331.6 M Rs

19,0% 8,2% 11,7%


ElRR 37% I

Page 1

Summary




Mt A% M% V% GCV Rs1M.Cal Rslt Rs1M.Cal Rslt 2,5 40,8% 5,0% 25,OYo 3989 83,2 332 84,4 337

1,75 30,0% 6,0% 29,4% 4859 100,6 489 142,6 693 0,75 66,0% 3.0% 14,7% 1909 0,o 0 -16,4 -31

Run: Draft Final Report Mine: Average Location: Rural CPP Bharatpur Location: Rural Power Station: At 1000 krn Location: Metropolitan CPP variant: 2 Use FBC? Yes

Profit before dividend

N PV (15 years, 12%) FlRR

ROCE

Profit after dividend

Profit as % of turnover




-280,4 M RS

-1765,l M RS

65.0 M Rs

110.5 M Rs -364,l M RS -18.7 M RS

NIA 14,074

-27.4% 63% -32,8% 5,4%

L

NPV 435 M Rs (15 years, 12% discount rate) ElRR 14%

2. CPP Finance


Despatch equivalence for Transport distance 1000 km Freight saving 769,8 Mt-krn = 540.0 M Rs Power station non-fuel saving Power station total saving

Value of electricity sales lost to FBC

2,50 Mt raw coal is 1.73 Mt washed coal

298,4 M Rs 492,8 M Rs with existing price system plus wash premium 150.0 M Rs with proposed price system

1556 M Rs

4. FBCResults

N PV 905 M Rs FlRR 14,0% I 5. Environment

1660 t 15450 t

-1,62 Ha -1336 M litres


Without environmental adjustments N PV -651 M R s ElRR 10%

Page 1


- 143-

7.0

7.1

Need for Consultancy

As the implementation of this project aims at investors out of the private sector it can be expected that only very few- of them have any experience in coal washing, i.e. in the selection of the appropriate process and the selection of the equipment. Knowledge of project management techniques how to implement such a project in a given timeframe may also be limited. Therefore it is recommended to implement the washery projects as turn-key projects by experienced constructors. The investor should be assisted by an experienced consultant who acts as owner’s engineer during the whole implementation phase.

The scope of consultancy should comprise three main phases of the project:

- project preparation phase - planning phase and - implementation phase.

Project Preparation Phase

In this phase three elements of the coal supply route are covered:

- - washery and -

mining and delivery of raw coal to the washery stock

delivery of washed coal to the customer

Mininq and deliverv of raw coal

Under the existing and future system of linkage (s. chapter 2.2.4) it is important for the investor to be sure about the future availability of coal and possible raw coal quality variations throughout the life of the project.

Therefore, a review of existing data on the coal producer’s side is required comprising

- - a review of the operational mining plan with respect to likely

-

a coal quality review to ensure the adequacy of available data,

variations of raw coal quality and an investigation of the mine development plan.

This task will be carried out in a few weeks only as the relevant data should be available with the coal producer.


- 144-

Washew

Based on the results of the coal quality review a short feasibility study will be undertaken comprising

- layout of the process - calculation of solids, water and pulp in the main streams of the

process - layout and brief specification of the main equipment for the washery - site selection and area infrastructure requirements/availability

regarding power, water, drainage, access etc. - calculation of capital expenditures and operating costs - initial environmental examination

This short study establishes a solid basis for the required project finance.

Delivew of washed coal to the customer

In this report, rail (or truck) delivery between the washery and the power station will be assessed.

The reports and studies during the project preparation phase shall ensure the investor that all the requirements for a viable investment are met.

7.2 Planning Phase

After financing of the project is settled the detailed planning phase begins which will be finished with the preparation of tender documents for the complex. The tender documents comprise detailed specifications and inquiry drawings for the

- construction works - mechanical equipment - electrical equipment and - process automation

Preparation of tender documents takes around three months; for tender issue and evaluation of proposals another three months are required.

7.3 Implementation Phase

This period comprises the following items:

- procurement services


- 145-

- preparation of contracts - -

technical assistance to the investor during contract negotiations award of contract on behalf of the investor

The procurement services are the logical continuation of the planning phase which ended with the technical and commercial tender evaluation and lead directly to the

- construction management and supervision

Here the consultant will assist the investor a.0. in

preparing a master schedule integrating all phases of the project 0 obtaining necessary approvals and permits

establishing a construction safety programme including provisions for fire protection and first aid services obtaining and review of contractor’s time schedules and drawings

0 monitoring contractor’s production progress 0 inspecting contractor’s work for quality in accordance with

international and Indian standards and compliance with contractor’s plans and specifications preparing - together with the contractor - a detailed plan for commissioning the washery and for the final acceptance tests

During the last months of the construction period the training programme for the washery management and the operational staff will begin (for details please see chapter 8.0). This programme should be prepared under the consultant’s supervision and responsibility by the contractor of the washery and will be finished with the final acceptance test.

Apart from the technical consultancy services described above the consultant shall also take care of cost control and follow cost development during the construction period. Especially after construction work begins a periodically forecast of total project cost will be submitted to control cost effects of any proposed changes or modifications in the washery complex design.

It should be highlighted again that during the whole project phase the investor is advised by an experienced consultant to assure that the washety project will be finalised in the given time frame and will be financially viable to the investor. The consultant should also advise the investor when selecting the appropriate management and supervisory staff.


- 146 -

8.0 Manpower Development and Training Programme

8.1 Introduction

It can be assumed that among the manpower required to operate a washery there is only limited experience regarding the management or the operating of washeries, as thermal power coal was not washed in India up to now and only a few washeries are operating for coking coal.

With the implementation of new washeries it is of special importance to train the respective staff as the private investors can only achieve a reasonable profit if the washeries are operated according to their design specification.

The training programme should be worked out jointly between the consultant who works as owner’s engineer for the investor and the contractor of the washery. In this set-up the consultant can provide managerial skills for the washery management whereas the contractor can train the operating staff.

Special attention should be given to the quality control of the washery products. Therefore the respective washery staff should also be trained in a laboratory to learn the basic test procedures for determining ash contents, calorific value, moisture contents etc.

As experienced and well trained management and operating staff are basic prerequisites for a successful operation of the washery, a training programme should be compulsory when granting any funds.

8.2 Training Programme

As mentioned before, training will be subdivided into two sectors, with training for the washery plant management and plant engineers on the one hand, and training of the operational staff on the other hand. The training objectives will be to impart theoretical and practical knowledge to permit optimum operation of the new plants and will cover all aspects of the plant, equipment and systems, operation and maintenance.

The training programme will comprise essentially:

- theoretical instruction - on the beneficiation process - on the nature and characteristic of the main and subsidiary

- on the nature and function of the control and instrumentation

-

equipment

systems and equipment on the starting-up and shutting-down of the plant


- 147-

- - on the type of potential malfunctions and their rectification /

on handling the process control system

elimination

This theoretical training should be compulsory for the washery management, the plant engineers and selected foremen.

For the staff working in the quality control sector additional basic knowledge about the procedure of coal sampling and testing will be imparted.

Additionally, washery management and plant engineers will be taught in

- plant administration - - basic management skill functions - communication skills - maintenance procedures - preventive maintenance and - financial management

occupational health and safety systems / procedures

If applicable, selected members of the management should visit modern washeries abroad to get an impression of foreign management practice.

- practical instruction

Practical instruction will be divided into

- -

practical training before commissioning the washery and practical instructions during the commissioning period.

Before commissioning of the washery the instruction will be in the form of step-by-step visits to individual plant sections to explain on the spot the process engineering principles. Since this part of the training will take place shortly before commissioning, the ,,cold" starting (i.e. without material) of individual equipment will be possible and permit better practical instruction and understanding.

This part of the practical instruction phase can be accompanied by equipment tests to prove the functionality of components like motors, pumps, compressors, automatic valves etc.

During the commissioning phase the supervisory staff shall assist the contractor's specialists in commissioning the washery. During this time the staff will be trained to the behaviour in case of malfunctions occurring and to starting-up and shutting-down of non-interlocked plant sections.


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After the commissioning phase and after initial practical training, a certain range of time (normally 60 days) will follow during which the plant will be operated by the investors staff, but under the supervision of the contractor’s or consultant’s specialists.

During this time, the final acceptance tests as far as product qualities are concerned will be carried out. Laboratory tests will be done by the quality control staff under supervision of the contractor’s experts.

At the end of the 60 day period, the investor’s management, operating and quality control staff will have sufficient knowledge to their respective spheres of responsibility to permit them to operate the plant independently from the contractor’s or consultant’s specialists.


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9.0 Conclusions and Recommendations

The Government of India has decided to expand the production of coal during the next years to cover the existing and the future increasing demand for energy. This growth brings with it environmental problems on the mining sites and causes environmental effects on the power plant side. Preliminary evaluations indicate that environmental, financial and economic benefit will result from improving coal quality especially where coal is transported over longer distances.

Over the past few years there has been an intensive discussion between the relevant ministries and authorities about the advantages and disadvantages in using beneficiated coal for power generation. It is agreed upon that coal beneficiation is necessary in the future in some circumstances. However, there is no consensus up to now about which institutional framework is most appropriate for encouraging the implementation of coal washing plants, even more important, the extent to which the ash level in the coal should be reduced.

Therefore,

-

-

-

-

capital and operating cost studies based on coal sampling and testing, an analysis of the environmental effects and benefits using coal with reduced ash content after beneficiation, an assessment of the financial benefits to power plants in terms of freight savings and other savings and an analysis and evaluation of the financial and economic viability of the whole system mine / washing plant / transport / power station

were carried out.

To find out the demand for beneficiated coal, a market survey was undertaken and the existing pricing system was reviewed.

In evaluation of the policy and institutional aspects we had discussions with a range of parties who will be affected by a shift to coal washing.

The outcome of the study is brought out in the following paragraphs:

9.1 Technical Aspects 9.2 Financial / Economic Aspects 9.3 Policy / Institutional Framework


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9.1 Technical Aspects

To design optimised flowsheets for the washing plants, samples were taken from 12 mines out of 10 major Indian coalfields. These samples were transported to CMPDl's Laboratory in Ranchi for washability investigations.

Based on the washability data, two different flowsheets were designed: a rather simple flowsheet for partial washing (Variant I) or deshaling, and a more sophisticated solution for "deeper" washing, i.e. where the whole grain range from 0.5 to 100 mm is washed (Variant 11). As a result it turned out that in nearly all cases the required ash levels of 34% and 30% in the clean coal could be reached, though in some cases yield and ash contents of the rejects were rather bad. Ash levels of 28% or even 25% or 20% could be obtained in very few cases.

Based on Indian conditions, capital and operating cost were calculated. Initial capital investment has been estimated as Rs 1,056 million for Variant I and Rs 1,308 million for Variant II. Based on a computer model especially developed for this study the washing cost per tonne of clean coal were calculated.

1. The first general recommendation out of this project is that thermal power coal should generally be washed up to 32 k 2%. But for obvious reasons of varying raw coal ash and washability characteristics of coal this can not be a blanket approach for all coalfields.

2. The second technical recommendation of this project is that coal should generally be washed yielding in a sufficient clean coal product and ash contents in the rejects above 65% allowing a safe disposal without the danger of self-combustion. However a flexibility of washing to yield rejects up to about 60% ash is desirable due to difficult and varying washability characteristics of coal and relation of the washing process.

3. Using Fluidised Bed Combustion Boilers to burn middlings or rejects was examined. In cases where rejects have 60% ash or less and GCV is more than 1,800 kcal/kg there is possibility of utilising these rejects in FBC plant at washery end. Only constraint for FBC is higher capital investment requirement per MW. Approach of a "Clean Coal Fund I' with low interest rate will make it further financially attractive.


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4. In a next step, the effects at the power plant site in using washed coal were examined. Besides savings in transport cost, operational savings will result at the power station:

- reduced generating cost (from improved thermal efficiency and availability)

- reduced cost for ash disposal - reduced operation and maintenance requirements - less support fuel

5. Further, environmental benefits like reduced Con, dust and SO;! emissions, reduced water and land requirement for ash disposal were identified and quantified.

9.2 FinanciaVEconomic Aspects

For the financial and economic appraisal, a special computer model was developed. This model consists of ten different modules each designed for one specific element of the system coal miningkoal washing/transport/coal use in power plants/middlings or rejects use in FBC. Apart from the financial cash flow and the FIRR, economic adjustments like externalities and shadow prices were used to calculate the economic cash flow and the corresponding EIRR.

1. As a first result, it turned out that the existing Indian pricing system for thermal coal is unsuitable for the future because:

- -

it is based on artificial concept of the Useful Heat Value (UHV) coal is categorised into different grades. As the consumers pay same price for a particular grade, and as there is a wide range of UHV in a particular grade resulting in payment of quite varying amount per unit of UHV depending upon whether the coal received is near the top of its grade in quality or near the bottom, it gives no credit for washing as it significantly under estimates the value to the customers of low ash coal.

2. Implementation of an economically sound pricing system is a necessary pre-condition for attracting commercial investment in coal washing

3. The proposed pricing system gives a premium for washing and introduces a steeper gradient to the linear formula expressing the gains resulting from lowered ash content.

4. Washing of suitable coal, without FBC option for utilising rejects, is a viable economic proposition even at very short distances (between mine and power house).


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5. Sensitivity analysis gives no particular cause for concern. As long as the coal preparation plants are properly operated to produce the designed yield of clean coal, the Financial and Economic justification is clear.

6. Three policy initiatives by Government of India are essential. Without this, the project will not materialise. Government must:

-

-

change the pricing of power station coal to the proposed system in the report. actively encourage private investors to enter into the business of coal washing. It will be necessary to persuade the customers and producer that they both benefit from the change internalise environmental costs by a properly enforced system of fees and fines reflecting the economic costs of pollution

-

9.3 Policyhstitutional Framework

The national economic energy policy in India is moving from regime of over control towards a liberalised market. In this respect policy for coal and energy is following the general economic policy of the country, although deregulation in coal and energy lags some other sectors. Following rather cautious developments over the past three years, recent policy announcements could significantly accelerate liberalisation in coal supply. The danger now appears to be that price liberalisation will get ahead of moves to create competition in coal supply. Rather than slow down liberalisation, and accepting limitations on the pace of establishing competitive supply, it is preferable to introduce long-term supply contracts quickly to protect producers and consumers and maintain order in coal distribution. The increased influence of environmental concerns in energy projects is to be welcomed. However, having regard to India's many environmental problems and limited resources, it is vitally important that any new environmental standards should be prioritised with regard to cost-effectiveness. It is also important that capability to police environment standards should be developed constantly.

Latest policy guideline on use of coal in thermal power plants was issued by Ministry of Environmental and Forest requiring that the ash content of all coals that are transported for more than 1,000 km should not exceed 34%.

This will be extended to cover all coal flows. The policy appears to have both economic and environmental roots and is encouraged by the fact that general international practice is to use washed coal. There is also a demand by customers for better quality coal. But, a blanket policy to use washed coal, applied to every case, is likely to be very expensive and is


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unlikely to provide good environmental value for the money spent. Flexible mechanisms which have regard to cost and environmental protection needs in specific cases are to be preferred. Mechanisms which use financial incentives should be designed to arrive at economic and environmental optimisation. Policy should focus upon the environmental standards to be achieved and allow suppliers and consumers to find the most economic means to achieve those standards.

What stands out from our institutional analysis is that none of the major organisations or ministries involved has the clear leading responsibility to formulate policy or to ensure that coal washing is implemented. We believe there is a need to give some single agency the clear responsibility to co-ordinate and implement policy regarding coal washing. This would most naturally be the Ministry of Coal which is closely involved with all public and private sector investment in coal supply.

The most usual organisation for coal washing throughout the world is that the plant is owned and operated by the coal producer. As private sector projects take off in India we have no doubt that these will be built as part of the main mining activity. However, Coal India does not have the funding to take this route. There is a need, therefore, for alternative models involving the private sector.

The BOO model is the one that has been most thoroughly investigated in India to implement coal washing. It has not been used elsewhere and we judge it will be very difficult to implement. The problems arise from contractual complexity and striking a fair balance of risk and reward between the contracting parties. We do not exclude the possibility that a solution will be found satisfactory to Indian companies using Indian capitals. We doubt, however, that BOO will be attractive to international investors.

The BOOT model, involving coal trading, will become permitted when recently announced policy changes like a modified system of linkage are implemented. This is not a usual model but we believe that it offers a more satisfactory profile of risk and reward that will be attractive to some investors. A BOOT operation would also wish to be underpinned by raw coal supply and coal sales contracts for most of its production.

There is a need to alternative institutional models if coal washing is to be widely implemented. These should be based on partnership between Coal India and private capital. Coal India's ownership of physical assets and permits could be used to buy the equity in a joint venture activity.

To the extent that policy to implement coal washing is driven by environmental objectives, it would be appropriate to consider the


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creation of a Clean Coal Fund. This could draw on capital from international development banks and domestic funds to provide loans for beneficiation plant at relatively favourable terms. Moneys from environmental fees and permits could be used to feed the fund.

The full potential benefits of coal washing are not well understood by the power sector due to lack of experience, and some benefits are only seen over the longer-term. Therefore widespread implementation will not occur spontaneously. A regulatory requirement to use washed coal is one approach being adopted by Government. A more positive approach would be for Government to inform producers and consumers about benefits in using washed coal.

9.4 Scope for Installation of Coal Washery Modules For Existing and New Thermal Power Plants

Coal off-take for the thermal power plants in India during 1996-97 was about 200 million tonnes. This off-take is likely to increase ultimately by about 70 million tonnes for the thermal power plants to be commissioned in IX Five Year Plan (1 997-98 to 2001 -02).

Table 9.1 shows the distance wise requirement of thermal coal for this period:

Table 9.1 : Distance wise Requirement of Thermal Coal

Coal consumption by thermal power stations located beyond 1,000 km from the mines is expected to be around 76MTY by 2001/2.

As per the recent policy guidelines of Ministry of Environment and Forest, all thermal power plants located at a distance beyond 1,000 km from the coal source shall use coal with an ash content not exceeding 34% from 1 st June, 2001.

Keeping in view this guideline there is a demand of at least 24 CPP modules of 2.5 MTY each only to wash the existing coal flows which are transported beyond a distance of 1,000 km. In the future, the amount of coal washery modules will increase even further.


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Considering the above points, there will be a potential for establishing at least 30 CPP modules for producing the washed coal for supply to the existing as well as new thermal power plants to come up in the IX Five Year Plan.

9.5 Capital Requirement - ADB Loan

The funds requirement to establish these 30 CPP modules will be about Rs.35,460 million based on an average cost of Rs.1,182 million per CPP which is an average of capital cost for Variant-l and Variant-ll. This works out to US $ 909 million (based on an exchange rate of Rs. 39/$). This huge funding cannot be raised by private entrepreneurs on their own. Therefore initial funding from international agencies like the Asian Development Bank (ADB) is required to encourage private entrepreneurs to enter the business of coal washing.

It is informed by ADB, that this amount of around US$ 900 million is beyond the Bank's possibility for this project. In view of this it is suggested that the required 30 CPPs may be established in two phases. In the first phase it is proposed that 5 out of the 24 CPP modules for the existing power stations and 4 CPPs for IX Plan power plants may be considered for funding where maximum benefits accrue because of their distance and locational considerations. These 9 CPPs will be requiring about US$ 273 million. For procurement of plant and machinery and developmental activities an amount of about US$ 160 million is required. It is proposed that this may be funded by ADB.

9.6 Justification for ADB Loan

Environmental policy guidelines of Ministry of Environment and Forests (MOEF), Government Of India (GOI) stipulate use of coal not exceeding 34% ash for power plants at a distance of 1,000 km and above from 1 st June, 2001. For new power house the environmental clearance is likely to be subject to this fact in general unless there is exemption for specific reason.

For distant thermal power stations due to freight rate and economics of power generation, it will be economical and financially gainful to use washed coal. Obvious financial and economic advantages to the power house in using washed coal in most of the cases of distant location are due to savings on freight, improvement of efficiency of power station, reduction in auxiliary power consumption, reduction in breakdowns and outages etc.


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Most of the Independent Power Plants (IPPs) being set up are with investment from outside India. Principal equipment is also likely to be from outside India. The foreign investors and designers have experience of burning low ash coal only and therefore will demand washed coal.

The lPPs of the private investors putting up power stations will mostly be selling power to State Electricity Boards or Power Grid Corporation at tariff to be fixed based on a return of 16% on investment at a Plant Load Factor (PLF) of 68% which is the average PLF in India with high ash, unwashed raw coal. Coal cost will also be a basis for this tariff. For higher PLF power plant operators will get bonus and their return on investment will also increase. It is understood that this power tariff negotiation base is going to be raised to 85% PLF. With lower ash washed coal and consistency it will be easy to have a PLF of 85% and more, higher electricity generation and better return. This in turn will call for lower ash and consistent quality coal supply leading to a demand for washed coal.

Even now this realisation has come. NTPC has recently had an agreement with Central Coalfields Limited / Coal India for supply of washed coal from a new 6.5 mty Piparwar Coal Preparation Plant (CPP) at negotiated price (i.e. ,,cost plus" basis: cost of raw coal to produce washed coal plus cost of washing plus return on equity etc.). 4.5 mty Bina CPP is going to be commissioned soon in Northern Coalfields Limited for supply of washed coal to power stations.

A private company, Bombay Suburban Electricity Supply (BSES) Company is setting up its own washery near Dipka mine in central India for producing washed coal for their use in power plant.

Hinduja National Power Corporation Limited (HNPCL) wants only washed coal for use in 1000 MW thermal power station to be set up by them at Visakhapatnam in Andhra Pradesh state and are prepared to pay negotiated price for it. Mahanadi Coalfields Limited (MCL) and Roberts & Schaeffer (India) -a build, own & operate company- have recently jointly initialled an agreement to set up 8.0 mty Kalinga Coal Preparation Plant to supply washed coal to HNPCL.

The State Electricity Boards of Punjab, Madhya Pradesh & Andhra Pradesh are proposing to set up their own washeries at mine end.


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The above scenario of demand of washed coal is based on the old policies of GO1 permitting washeries by coal company or consumer for their own captive use. But now with the more open policy where anybody can set up washeries in the future even for trade, this scenario will become more conducive to set up washeries by private entrepreneurs not only for their own use but even for others and .for trading of coal which as per new policy will be totally free.

9.7 Implementation Plan

A Working Party with representatives from relevant Government Ministries, the coal and power sector and the Asian Development Bank should be established immediately to carry out the following tasks:

- -

Change the basis for pricing system from UHV to GCV Prioritisation of potential projects taking into account - coal washability - transport difference (mine-power station) - - location of power station Establishment of clean coal or coal washing fund

appropriateness of power station design for washed coal

- - Search for investors - Tender issue

This Working Party should be supported by experienced consultants as per section 7 and should also have the management responsibility for the Clean Coal Fund (section 2.7).

It should be stressed again that this working party is also responsible for the realisation of the training programme (section 8); any funds should only be granted if an appropriate training programme is presented by the potential investor.

Table 9.2 shows the implementation plan for the 9 washeries under phase I.

!SI.No.! Event I Activity I ! ;- -f-- . . .. - ... .- .... -. ... .-

! . . . . .- .- .... - . . . . . . .- .- . . - . -.

. . . ........ . . . . . .- . .I.- - 1.99s j 1999

I IGroup 1(5 CPPs for Exlsting Thermal Power Statlons) I I I

i 1 Istart Point-Approval of Project Report by I 'ADB B GOI ! 2 llmplementation of proposed price system i ' 3

; 1 4

I 5 1 8

i 7 1 8 1 9 I 10

'Prioritisation of potential projects !Creation of Clean Coal Fund and commitment iof ADB to finance !Search of potential investors I

preparation of tenders for the shortlisted ! !Projects

I ilssue of Tenders 8 Evaluation Contract Agreement 'Engg., Procurement 8 Construction (EPC) /Trial Run B Commissioning i

I

I

!

L A . . - -

* , ~-.- ....... -__. ....-... 1 . 1 .... ;. ..... .:

. . . . . . . . p'..,' . ' . . . .

I ._.;_I .I ............. :.< L:. ;L ,'A *

; . . . . . . ; . . . .m:

;:"';":.,:.;. :,;,,; _..-

. . . . . . . .- ... .- ... .... .... .. - ... I

. . . . , .. ... - . -. .. - .. - - - -. .- - ,

2001 I _Ye_ar.. - 2000 . . . ..I ... - ..... ... .- ..... - .. 2%!2 . .- __

I I

!

I I i I

Even1 1 to take place by December 1998 Event 4 to take place by June 1999

__. - __ - -- . -- -_ _- . - - . .-

I ... . . . . 2001 2002 i.-- 2. 1999 -- :- -.2000-. - -. : -. ___ _- .. .. ..

Year L ___.___ ___ j

I ....

jS1.No.l Activity

! I I

I IGroup II (4 CPPs for New Thermal Power Stations)

1 I

1 3 !Issue of Tenders 8 Evaluation I 4 IContract Agreement

5 1 8 I

lsearch of potential investors of tenders for the shortlisted

Engg., Procurement 8 Construction (EPC) !Trial Run & Commissioning

. .. . .. ___ .- ___ ___. - .__..___ ___. I

I 2002 Disbursement Plan for ADB-Loan - ___-

I 27 '998 ___ 1999 - 2000 2001

iGroup I (US$ Million) 9 53 iYear

I 43 I 28 I---- 9 96

LGroup II (US$ Million) iTotal (US$ Million) ___ -------- L .L --.-..----.L. i

___ _ _ _ . ! I

Table 9.2: Implementation Bar Chart and Disbursement Plan for Washeries under Phase I

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