nd

2 India Coal Summit

Coal: A reliable and competitive source of Energy

October 5, 2009

Organiser Knowledge Partner

\
 Contents

A1. Coal at a glance 2

A2. Status of captive coal mining in India 10
A3. Coal mining policies need an overhaul 13
A4. Assets abroad – key for meeting Indian coal demand 16
A5. Will the new Indonesian mining law allow Indonesia to
continue as India’s largest coal supplier? 19
A6. Logistics – major contributor to development of coal sector 24
A7. Minerals or forests? or both? 31
A8. Major challenges before coal industry 32
A9. Risks in coal mining 37
A10. Importance of branding for coal mining companies 44
 Foreword

This past year has been the worst global financial crisis we have ever witnessed, having a devastating
effect on the world financial markets, leading to a recession across most economies globally and
causing a reduction in the net worth of both companies and individuals. Many compared it to the
Great Depression of 1929. The global de-leveraging and de-risking process also led to sharply
declining commodity prices. However, in the past several months, China and India have continued to
show a strong appetite for commodities, in particular Coal.

The Coal sector of any country is vital for power generation and overall industrialization of any nation.
This is particularly the case for India, wherein Coal contributes to more than 53% of power generation.
While India continues to produce a majority of the Coal that it consumes, the imports of Coal are
raising at a fast pace, already contributing to over 10% of Coal consumption. It is therefore essential
for all the stakeholders in the industry to brainstorm on the improvements required to ensure sufficient
quantities of Coal availability at sustainable prices.

There are a number of historic practices in the Coal sector in India which need to be looked at afresh
in the light of developments both in India and overseas. For example, a large volume of Coal
continues to move from Eastern Region by coastal movement to Tamilnadu & Karnataka, whereas
these States may be better served through imports of Coal, thereby freeing up Port and Railway
capacity in the Eastern Region. There should also be some rationalization in allocation of Coal Blocks
to the upcoming Power Plants such that the logistics of Coal movement is streamlined, which will be
beneficial not just for the developer of the Power Plants but also in the interest of the nation.

The Ministry of Power, Government of India is setting up a target of almost 1,00,000 MW of capacity
th
addition for the 12 Five year plan, Steel ministry envisage India to produce 300 million tonnes of
steel by 2030. The kind impetus given to the entire infrastructure sector, it will invariably create huge
demand for coal.

Keeping in view the importance of this sector as a key driving force of the Indian economy, Indian
nd
Chamber of Commerce along with the Ministry of Coal, Government of India is organizing 2
st
India Coal Summit in New Delhi after the commendable success of 1 India Coal Summit held last
year.

The summit has been the ideal forum to raise policy issues and to interact directly with the decision
makers. The forum in past has seen the presence of most relevant industry players and government
authorities debating the issues of national interest. We are sure that this year once again we will raise
important issues which will be the key to enhance industry competitiveness.

Shri Vishambhar Saran

President – Indian Chamber of

Commerce

1
A1. Coal at a glance
lance

1.1 World coal scenario

cenario

Coal is the world's most abundant fossil fuel source. Coal is widely distributed.
Economically recoverabl
recoverablee reserves of coal are available in more than 70 countries
worldwide, and in each major world region1.

Amongst the major energy sources, coal is the most rapidly growing fuel by
consumption on a global basis. Coal has long been used as an energy resource
traditionally for heating and power generation. However the dynamics and opportunity
set for utilizing coal is changing. There is increasing convergence and competition
amongst different value--chains
chains which means coal may have a more diverse role to play
in the energy mix going forward.

World primary
rimary energy consumption by fuel – 2007

6%
29%
Coal
35%
Natural Gas
Nuclear

24% Oil
6%
Hydro

Source: BP statistical review of world energy 2008

The five major coal consumer countries which are China, USA, India, Japan and
Russia account for 72% of global coal use. A
Asia
sia is biggest market of coal contributing
more than half of global coal consumption. Coal plays important role in electricity
generation, steel and cement manufacturing worldwide. Currently 39 % of global
electricity is produced by coal
coal-fired power plants and about 70% of world steel
production depends on coal feedstock2.

1
IEA website: www.iea.org
2
World coal institute

2
 There has been an increasing trend in global trade due to higher consumption from the
developing economies. The trend is expected to continue in future. The global demand
- supply balance
e for coal has consistently been in shortfall recently.

Major steam coal exporting countries in 200

2008 are Australia, Indonesia, South America
(Colombia & Venezuela) and Southern Africa (South Africa, Mozambique, and
Botswana). The table below shows tthe export of coal by major coal exporting
countries:

2008 (Million
Coal exporting
xporting countries tonnes
estimated)
Indonesia 173
Australia 115
South Africa 61
Colombia 74

Source: World Coal institute

1.2 Coal scenario

cenario in India

Coal is the predominant source of energy in India and it has significant contribution in
the rapid industrialization of the country.
ountry. In India coal has been recognized as the most
important source of energy fo forr electricity generation and industries such as steel,
cement, fertilizers and chemicals are major coal consumers. Coal contributes to about
55% of commercial energy consumption of the country3. The primary energy mix of
India is shown below:

Primary energy mix of India

Coal Oil Natural gas Hydroelectric Nuclear energy

6% 1%

9%

31% 53%

Source: Planning Commission of India

3
Ministry of Coal, Government of India

3
 Demand of raw coal assessed by planning commission of India for 2007-08 was
492.50 million tonnes(including colliery consumption and export) and actual availability
including imported coal (of 50 million tonnes) for 2007-08 stands at 502.76 million
tonnes. It is more than the assessed demand by 10.16 million tonnes. It is important to
note that 28.5 million tonnes of non-coking has been imported which is 18 million
tonnes more than the assessed demand.

During 2008-09 coal dispatches to steel, power (utilities), power (captive) & cement
sector has achieved 88.8%, 102.3%, 67.7% and 111.1% of targeted demand
respectively4.

Coal consumption & domestic off take

600
502
466
435
381 409
363 421 452
MT

380 397
300 359
340

0
FY03 FY04 FY05 FY06 FY07 FY08
Domestic offtake Total

Source: Ministry of Coal

The trend represents that coal consumption has shown a 5 year CAGR of 7%, whereas
domestic supply has only managed a 6% CAGR over the same period. India is third
largest consumer of coal. Consumption is growing rapidly while production is not able
to meet the same resulting in growing deficit in coal supply. India has coal deficit
despite the fact that India has 4th largest coal reserve in the world. In the section ahead
we have discussed the demand scenario of coal in India from power, steel and cement
sector.

1.2.1 Power sector

India is the third largest producer of electricity in Asia. The power sector is the largest
consumer of coal in the country accounting for 74% of total consumption in FY08. In
India power generation capacity has grown manifolds from 1362 Mega Watt (MW) in
1947 to present 152,000 MW . The share of thermal power generation installed
capacity stands at of 97000 MW constituting 65% of total installed capacity, out of
which coal contributes 80000 MW

4
Ministry of Coal, Government of India

4
As on 30 June 2009 the installed power capacity by different sources is
i shown below:

Installed p
power capacity by different sources
ources in India

Source: Ministry of Power

For XI plan, thermal generation capacity target of 200 G

Giga Watt
att (GW) has been fixed,
which implies a huge increase in future coal demand from the industry. Presently
53.3% of the installed capacity of the country is coal based. Due to uncertainty in
availability of gas and its high price
price, coal based power plant are becoming more
popular in India.

Thermal power share is expected to increase to 145 GW in XI plan from present 86

GW and coal accounts for 57% in the installed thermal capacity. Total installed i
capacity for power generation including all the captive power plants is around 1,60,000
MW and it must increase to 8,00,000 MW by the end of 2031 2031-32 to meet the human
development goals.. Also, for sustaining the growth, India would require increase in coal
production capacity from present levels to over 2 billion tonnes per annum based on
domestic quality of coal. On account of increasing per capita energy consumption and
targets set for increasing rural area electrification, the demand for coal is expected to
spur further. In long term huge opportunities exist in the power sector, considering the
demand-supply gap.

5
1.2.2 Steel sector

Steel is essential building block for development of any country and coal is essential
input in the production of steel. India has very limited reserves of coking coal which is a
key raw material for the production of steel. The Indian steel industry has been facing
acute shortage of coal for the last several years. Coking coal accounts for only 17% of
the country’s overall proven coal reserves. The Jharia coalfield, located in the state of
Jharkhand, holds the majority of domestic coking coal reserves5.

The future demand of coal for steel sector as per Coal Vision 2025 is shown below:

Expected coal demand (in

2011-12 2016-17 2021-22 2024-25
million tonnes)

At 7% GDP 53 67 84 97

At 8% GDP 54 69 90 105

The scope for raising the total consumption of steel is huge, given that per capita steel
consumption is only 46 kg – compared to 180 kg across the world and 280 kg in China6.
Also steel consumption grew at high rate of 5.2 per cent during the first quarter of 2009-
10 as against 3.8% in the January-March quarter previous year7. The National Steel
Policy has projected steel production to reach 110 million tonnes by 2019-20 from 53
million tonnes at present. This demand for steel sector in turn will drive demand for coal.
Coking coal requirement in steel production is expected to touch over 85.34 million
metric tonnes in 2011-12.

1.2.3 Cement sector

India is second largest producer of cement in the world. Large amount of energy is
required during cement production and coal is used as an energy source. During
cement production in kiln, coal is usually burnt in the form of powder and consumes
around 450g of coal for about 900g of cement produced8.

The cement industry is the third largest consumer of coal in the country. Presently coal
is used as main fuel in cement industry in India because of high cost and inadequate
availability usage of gas and oil is not feasible. However, in last few years the specific
consumption of coal for production of cement has reduced significantly because of the
switch to the dry process, efficiency improvements in cement kilns and the increased
use of fly ash produced in power plants and granulated slag produced in blast furnaces
of steel plants in the production of cement9.

5
Ministry of Coal, Government of India
6
Ministry of Steel, Government of India
7
India Brand Equity Foundation
8
World Coal Institute
9
Coal Vision 2025

6
The Working Group on the cement industry for the XI Plan has fixed a production
target of 263 million tonnes and a capacity of 298 million tonnes in the terminal year
2011-12 of the plan. According to Coal Vision 2025 the cement production in the
country has increased from 18.6 million tonnes to 123.4 million tonnes in the last 25
years whereas coal requirement has only grown from around 5.0 million tonnes to 18.5
million tonnes.

The future demand of coal for cement sector as per Coal Vision 2025 is shown below:

Expected coal demand

2011-12 2016-17 2021-22 2024-25
(in million tonnes)
At 7% GDP 38 58 88 113
At 8% GDP 39 61 95 123

The cement industry is facing problem of inadequate coal supplies queued up after the
power and steel sector in the priority list for supply. The demand from real estate and
infrastructure sector is expected to drive up the demand for cement as well. Demand of
coal from steel, cement and other sectors must grow to meet the human development
goals.

Other industries using coal have only a marginal impact on the long term demand for
coal as they are relatively small players and can resort to alternative fuels.

Coal demand-supply deficit in India has been consistently increasing and is expected
to grow further. As can be seen from the table below the projected coal demand and
supply situation shows that the deficit is expected to increase in future.

(million tonnes)
2011-12 2016-17
Demand/Supply/Gap Sector
Projected
Coking Coal 68.50 105.00
Demand Non Coking Coal 662.60 1020.00
Total 731.10 1125.00
Coking Coal 27.65 35.00
Supply Non Coking Coal 652.35 1020.00
Total 680.00 1055.00
Coking Coal 40.85 70.00
Gap Non Coking Coal 10.25 --
Total 51.10 70.00

Source: Ministry of coal

7
 Shortage in coal stocks at power projects is likely to get worse if the coal
production and transportation planning are not effectively managed. The
capacity constraints in transportation, added with seasonal disruptions, have led
to critical levels of coal inventories at power projects.
New project implementations in coal mining have suffered substantial delays
and have led to demand and supply mismatch.

1.3 Coal import trend

To some extent India is resorting to imports to narrow down the demand and supply
gap. Indian consumers from both power and steel sectors import some amount of their
consumption on a consistent basis. The domestic coal supplies are inadequate to cater
to the local demand.

Coal imports in India (in million tonnes)

60

50

40

30

20

10

0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Source: Ministry of Coal

The trend shows that coal imports have also been increasing over the years and have
reached 50 million tonnes in FY08 (provisional statistics, MoC) registering a CAGR of
20% over past five years. Following are some of the factors which have been cited as
the reason for an increase in the imports of coal in India:

a) Indian coal is inferior in quality. Sometimes there’s a high ash content and low
energy content, so imported coal is used to blend with local coal as a way of
lowering the ash content and increasing the energy content.

b) Domestic rail transport in India can be a constraint on the movement of coal from
producing to consuming regions; so distance and reliability can make it more
cost-effective to actually import coal.

c) Over the last few years, demand for coal, particularly for thermal coal has
increased at a much faster rate than supply has increased.

8
A number of Indian companies are resorting to coal imports from Indonesia. Companies
like Tata Power Co. Ltd, Star Emmsons Resource and PTC India Ltd have struck deals
or are planning to do so for securing coal resources or supplies from Indonesia.

Securing coal supplies from abroad may require outright purchase of coal mine or
equity stake in the coal mining company and signing long-term contract with this
company. In the international coal markets, supply contracts rarely have tenures of
more than four-five years, but buying sizeable equity stakes can facilitate long-term
supply contracts being signed.

9
A2. Status of captive coal mining in India

2.1 Need for captive mining

The need for captive mining in India can be better comprehended by having a glance
at development of coal mining industry.

Pre-Nationalization - most of the mines were privately owned. There were concerns on
safety and occupational health in the light of which Government of India decided for
nationalisation of coal mines

Post-Nationalization - Under the Coal Mines (Nationalization) Act, 1973 coal mining
was mostly reserved for the public sector. National Coal Development Corporation
/Coal India Limited (CIL) became the central agency for mining coal.

In 1976 captive mining was opened up for private companies engaged in production of
iron and steel. Sub-lease of coal mines in isolated small pockets not requiring rail
transport was allowed.

In 1993 captive coal mining was opened for power generation companies and for
washing of coal obtained from a mine. The idea was to expedite coal production from
sources other than CIL to feed coal to the power plants as coal fired power contributed
majorly to the power generation in the country as it was difficult for CIL to match the
increasing demand of coal.

It was felt that private participation in coal mining may ease the increasing pressure of
the widening gap between demand and supply of coal in the country. Private sector
would also bring in much needed capital for investment in the sector.

2.2 Current status

Out of 122 coal blocks allocated between 1993 and 2006, less than 20 mines started
production. With the ambitious plan of the Government to add 78000 MW power
generation capacity by the end of XI five year plan, it was envisaged to produce 104
million tonnes per annum coal from coal blocks allocated for captive use, but the
production from the captive blocks has been dismal compared to the planned
production. Recently (in 2006), MoC has come up with the requirement of submission
of bank guarantee linked to milestones of coal mine development by allocatee
companies as a measure to bring in seriousness. The intent of the government seems
to be to penalize the non serious players who have got coal blocks allocated and are
not making any progress for development of the coal blocks. But the reasons for delay
in developing mines need a closer scrutiny.

10
2.3 Reasons for delay

Analysis of the pending milestones for coal blocks allocated till 2006 (whose target
year of starting production is in or before 2009) reveals that most of the delays are on
account of land acquisition and forest clearance. Of the recent ones grant of license for
prospecting has been delayed. The table below summarizes the status of the allocated
coal blocks with the milestones still pending in these cases:

Target year of No of blocks Major

Year of No of blocks
starting started milestones
allocation allocated
production production pending
Forest
clearance, land
acquisition and
1993 – 2003 40 1996-2007 20
environment
management
plan
Land acquisition
2004 5 2008 0 and forest
clearance
Forest
clearance, land
acquisition and
environment
2005 24 2008-09 to 2011 0
management
plan. In some
cases there is
no progress
PL not yet
granted in many
2006 53 2009-12 0 cases. Almost
all lagging on
timelines
Source: Ministry of Coal

Although there may be cases where delays are due to non-seriousness of the coal
block allocattees and the introduction of bank guarantee and risk of de-allocation are
welcome moves by the government, efforts are still required to enable the serious
players who intend to develop the mines in time to do so. The efforts are required to be
made in the following areas:

11
2.3.1 Streamlining grant of permits, licenses and clearances

Involvement of multiple entities in granting most of the permits, licenses and

clearances is proving to be one of the greatest hindrances in speedy execution. Often
these agencies involved have conflicting interest and priorities due to which the
chances of lingering the grant of licenses and clearances get enhanced. Feasibility of
having nodal agencies in place for these activities should be looked at to streamline the
process of approvals which can save precious time and help us gear up to meet the
challenge of growing coal demand by timely development of coal blocks.

2.3.2 Comprehensive and acceptable land acquisition and R&R policy

The sooner the consensus developed on a comprehensive land acquisition and R&R
policy the better it is for the coal industry or for that matter any other industry requiring
land acquisition. Clearly, this is one single issue which is contributing to most of the
delays in not only coal mine development but any major project involving land
acquisition.

Apart from these reforms, a more liberal view needs to be taken up to open up the coal
sector further for participation by private and foreign players. This will also bring in
much needed capital for investment in the sector. Entry of major mining companies will
bring in world class mining practices and better competition which will be beneficial for
the coal mining industry. But before we move to a higher stage, the decision of going
for captive mining needs to be proved worthy by bringing in the much needed policy
reforms and boost production from captive blocks.

12
A3. Coal mining policies need an overhaul10
Coal mining sector needs structural overhaul to attract investments that can help the
sector meet growing needs for raw material for power, steel, cement and other usages.
The sector has been traditionally dominated by the government-owned companies and
with limited participation from the private sector. In the current financial crisis this may
have been a boon as the government-owned companies have healthier cash positions
to keep their capital expenditure plans intact. But there is no denying that private sector
participation is a must for augmenting coal production. The Government has indeed
made strides in this direction by allowing captive mining for various approved end
usages. However, there is a need for streamlining the allocation process as also a
need to monitor the progress of project implementation more closely and facilitating the
process.

Government may provide roadmap for amendment to MMDR Act to ascribe

marketability to prospecting and mining licenses will help the sector reap risk capital
and will make exploration a sustainable business for private investment. Government
may also facilitate creation of alternate investment market that will provide much
needed funds to support prospecting and exploration activities. For this the capital
markets need to get prepared as well. Disinvestment through IPO routes and
enhancing public floats in listed coal mining companies may enhance the market depth
for mining sector investments. Traditionally, Indian mining sector has not been
attractive for private equity (PE) firms due to challenges unique to the industry. In India,
private sector companies that could potentially be targets for PE funds, have had
restricted participation. The miners have traditionally been price takers till recently and
have, even globally, underperformed the markets. There are talks of institutionalizing
regulatory mechanisms for pricing coal. All these developments put together, financing
coal mining projects may present unique challenges.

Political and social issues have become more prominent than ever, with cases of state
governments asserting their rights over mineral properties and societies around
mineral deposits resisting mining activities quite vociferously. A consequence of these
is also the reputation risk, where a Machiavellian wisdom may lead to impairment of
brand. Government may need to devise a policy for better settlement of land
acquisition issues as much as the industry needs to consider sustainable coal mining
with a clear view on social vale addition.

Incentives may be provided to encourage innovation and adoption of cutting edge

technologies, more so in coal mining sector where the cut-off depth is likely to require
capacity additions in underground mining. Underground mining can serve the purposes
of environmental risk mitigation and quality consistency. However, the economics of
underground mining are not so favorable when compared with the surface mining
methods. The constraints are also from the productivity perspective. In India the
productivity of underground mines traditionally has been fairly low. From the mineral
conservation perspective, bord & pillar method of underground mining has been quite

10
Dipesh Dipu, Principal Consultant, PricewaterhouseCoopers Pvt. Ltd., India; email: dipesh.dipu@in.pwc.com

13
inefficient with coal recoveries as low as 35-40%. Longwall mining method, although
more efficient and mechanized, has not been quite successful in India due to highly
faulted geological conditions in Indian coalfields. Strata control has been difficult too in
longwall mining. However, with environmental concerns being more and more
important, it may be worthwhile to consider underground methods with mass
production capacities. The underground mining methods are also expected to reduce
procedural delays due to lower environmental damage and lower land requirements for
waste dumping, and others. Also, government on its part may like to provide fiscal
incentives, including but not limited to reduction in duties on capital equipment.

Competitive bidding for mining license allocations has its pros and cons. The method
will enhance transparency and objectivity and may have inherent commercial
mechanism to hasten project implementation. The current methods of allocation on
point scale on a host of variables ranging from net-worth to extent of completion of the
end use projects, and with recommendations from several stakeholders, have inherent
subjectivities. This approach may not suffice the purposes of most efficient usages of
coal, their conservation and earnings for the government. The point scale basis
becomes ineffective when the number of applications is large. The 750 applications for
18 coal blocks identified for power sector in the last round of allocation is a case in the
point, where the parameters chosen for development of scale resemble qualifying
criteria and make it almost impossible to decide on allocation without a fair bit of
subjectivity. Competitive bidding is likely to result in objectivity. Depending upon how
these are structured (initial bullet payment, production sharing, revenue sharing or
profit sharing) there may be cost implications. But looking at the bigger picture and the
urgency to develop new mines, the pros certainly overweigh the cons. Government
also needs to then de-risk the mining projects from delays due to approvals and
clearances required to make the assets lucrative investment targets.

Proposed coal regulatory mechanism is unique to India which has its roots in the coal
market structure and energy affordability. Pricing of coal by the government owned
coal producing companies have thus far been opaque, even though prices have been
lower than the international prices on energy-equivalence basis. The absence of a
vibrant market with large number of buyers and sellers coupled with supply constraints
have made fair pricing a difficult proposition in the Indian context. The policies
framework should aim at a market driven pricing mechanism, however, till the time it is
established, coal regulator may be required.

There are other technologies that can complement traditional coal mining activities and
help India secure its energy needs. Underground coal gasification (UCG) is one of the
key technologies which can also help tapping coal resources that cannot be mined
economically with the existing mining technologies. It has been assessed that coal that
are deep seated, particularly so the tertiary reserves in Gujarat, are amenable to
underground gasification. This method of energy extraction from coal reserves will not
be competing with the coal available for other purposes and will only convert a
potential into exploitable resource. UCG also will provide energy with minimum surface
disturbance and no requirement of surface disposal of ash. There are, however, some
unique application prerequisites for UCG like the coal seam being under water aquifer
and impervious rock bed; and coal seams being relatively uniform and un-faulted. The

14
applicability of the technology, therefore, needs to be assessed in greater details in
light of the geological conditions in Indian coalfields.

Coal-to-liquids (CTL) and coal-to-gas (CTG) conversions are now included as

approved end-usages for captive coal mine allocation, and recently, two coal blocks
have been allocated for these purposes. The technologies have been commercially
proved globally and can help India reduce oil imports. According to some media
reports, coal conversion to petroleum products becomes economically viable if the
crude prices are above a certain threshold for a barrel. In light of the recent peak prices
and future expectations, the CTL technology appears viable. Production of petroleum
products from coal will reduce country’s import dependence particularly so from the
politically unstable locations. Production of intermediate syn-gas can be useful even for
fertilizer production and replace usage of naphtha.

The other prominent ways of extracting value from coal are coal bed methane (CBM),
coal mine methane (CMM) and abandoned mine methane (AMM). In India, CBM has
been more successful than the others. Recently, first CBM based CNG gas station has
been reported to be opened in West Bengal, which is likely to enhance investor
confidence. Coal India Limited has also initiated the process of developing CMM and
AMM resources through public-private-partnership. It, however, remains to be seen if
the initial interest exhibited by the bidders culminates into commercial exploitation of
methane, which also is good for carbon credits.

A comprehensive policy is required to be formulated for the purpose of effective and

efficient utilization of nation’s coal resources. The abundance of coal promises to
provide energy at affordable prices and can be substitute of expensive imports to
significant extent. However, the technological and economic viability have to be
established and the government-owned agencies as well as private and foreign
participants need to be provided incentives to invest in the sector. Provision of energy
is paramount to the continued growth of the economy and harnessing coal resources is
undoubtedly one of the most important ways to secure India’s energy needs.

15
A4. Assets abroad – key for meeting Indian coal
demand
Demand and supply scenario of coal clearly indicates gap between coal demand by
Indian consumers and coal supply from domestic sources. To narrow this gap, Indian
consumers have been importing coal from countries like Indonesia, Australia and
South Africa. In previous year, India imported about 50 million tonnes of coking and
non coking coal. Even the forecasts and projections made by government committees
and agencies has indicated that supply will be short of demand for coal and Indian
consumers has to rely on import of coal. Though more than 200 coal blocks have been
awarded to various public and private consumers for captive production and use but
developing these coal blocks and starting production will take time. Looking at long
term import requirement, many consumers have tied up with coal exporters to secure
supply as well as get deals at good price. But in many of these supply agreements,
prices have been linked to some or other benchmark index. In recent times, we have
seen wide fluctuations in the prices of coal. Thus even long term supply contracts have
not proven to be fully shielded from the market fluctuations. Such conditions have led
many consumers to have their own assets which will help them checking price of coal.
In recent times, many consumers with this opinion has moved to major coal countries
like Indonesia, Australia etc. to acquire assets which will provide secured supply
source as well as economic fuel source. Further, government is promoting imported
coal based Ultra Mega Power Projects (UMPP) which will require huge amount of coal.
Each UMPP is expected to import 14-17 million tonnes of coal annually. This has made
Indian consumers to hunt for coal assets in other countries.

4.1 Deal trends across globe

Factors discussed above have lead many players to look for coal assets abroad. It is
not only Indian companies which are looking assets abroad. This is a global
phenomenon; especially countries like India and China are looking for assets. If we see
the acquisition trends, last two years have seen huge deal values. In 2008, across the
globe, there were total of 1668 transaction in mining sphere amounting to USD 153.4
billion. Though later half of 2008 saw a dip in transaction still total deal values were
nearly same as in year 2007. Year 2007 witnessed huge transactions amounting to
USD 158.9 billion. Even in the global financial turmoil, Asia Pacific region recorded
growth in the transactions in 2008. The reasons behind this growth were Indian and
Chinese demand.

4.2 Indian players – hunting for coal assets

For Indian players, coal has remained major target. The main counties which remained
targets for Indian hunt were Indonesia and Australia while CIL and some other players
have also moved to Mozambique in the search of coal assets.

16
 Year 2007 registered 20 deals where Indian companies were buyers. Out of these
deals, 80% deals were cross boarder deals. Some of the key players involved in these
deals were Reliance Energy which acquired assets in Indonesia, Bhushan Steel Ltd.
acquired coal properties in Australia in joint venture. Gremac Infrastructure also
acquired 11 coal mining assets in Mozambique.

Tata Power also acquired key 30% stake in coal mining and marketing subsidiaries of
PT Bumi Resources Tbk which is largest coal producer in Indonesia. Tata Steel
acquired stake in Riversdale coal asset in Mozambique.

In 2008, GMR Energy also acquired an Indonesia Coal company with about 100 million
tonnes of coal resources. The list of deals involving Indian buyers is long and expected
to grow fast but there are key issues which need to be understood and taken care of
while targeting an asset abroad.

4.3 Concerns need to be addressed while going for acquisition

4.3.1 Strategic fit of asset

An asset is acquired with an aim that it should satisfy needs of acquirer and should fit
into company’s strategy to give it competitive edge. For example, Power Finance
Corporation invited bids for development of imported coal based Ultra Mega Power
Project (UMPP). The bidder who quoted lowest won the bid. An asset which can supply
cheaper coal at power plant will benefit more. Thus winning bidders are now looking to
own assets for importing coal. Thus an asset in nearby country and with good quality of
coal will help in achieving goal. Similarly different acquirers may have different needs
and strategies. Thus identifying strategic fit of asset if first and foremost condition for
any acquisition.

4.3.2 Technical due diligence of property

Once a property is identified for acquisition, very first stage is assessment of technical
parameters of properties like reserves, quality, stripping ratio, and other geo – technical
parameters. Unless reserves and quality of coal reserves identified with certainty it is
very risky to make any investment decision. In most of the cases acquirer reviews
geological report, drilling data and other reports available on the subject. Thus
interpretation also depends on quality of data available. In some cases, acquirers may
also go for drilling and trenching for collection of additional geological data for
ascertaining quality and reserves. Existing studies may not be comprehensive or may
be lacking in precision thus it is very important to ascertain the reserves by conducting
thorough study and review of all available information. Sometimes due to wrong
interpretation, more coal reserves are reported while sometimes some reserves are left
unreported. To avoid any future surprises ascertaining technical parameters are
critical.

17
4.3.3 Financial due diligence

Technical due diligence is only an indicative of quality and quantity of reserves to

indicate go ahead for any acquisition. Once it has been decided to proceed, it is
necessary to conduct a thorough financial due diligence of the target property.
Financial due diligence is necessary to ascertain any contingent liability which may
arise as a result of transaction as well as past performance and compliance with
financial reporting standards. Financial due diligence will also help in identifying all the
assets with target entity. There are several issues involved with financial due
diligence. In several cases, all the relevant documents may not be available. Also in
some cases, if law does not require, proper records may not be available to conduct
financial due diligence. Also it is necessary to assess financial projections to assess
the level of confidence of management. Projections and predictions may give
indications about future prospects of target business. Another major issue which needs
to be addressed and taken care of is off balance sheet items. Many companies resort
to off balance sheet financing and leases. These may impose liability on acquirer in
future.

4.3.4 Legal due diligence

Once the financial and technical due diligence is over and decision has been take for
acquisition, legal due diligence become extremely important. Legal due diligence is
necessary to understand legal aspects of all the agreement and commitments made by
target company. A thorough review of articles of association is necessary to identify
any share transfer restrictions, company constitution etc. Legal due diligence is also
required to ascertain the legal claims against target and litigation in which target
company is involved.

In cross boarder acquisition, through review of legal provision, law and judgments is
required to ascertain political risk involved in the transaction. Any change in law may
leave assets unsuitable and out of strategic fit of acquirer.

4.4 Indian targets – road ahead

In last few years, Indonesia has been major target for Indian acquirers looking for coal
assets for thermal coal. For coking coal Australia has been favorite destination of
Indian companies. Though in recent years, some Indian companies have been moving
to Mozambique and other African counties to acquire coal assets but Indonesia is still
prime target of Indian companies hunting for coal assets.

In 2008 Indonesia has passed new mining law. In the light of new mining law, it needs
to be assessed if Indonesia will retain its position as favorite destination.

18
A5. Will the new Indonesian mining law allow
Indonesia to continue as India’s largest coal
supplier?11
Indonesia has vast amount of coal resources. As on 2007 total coal resources in
Indonesia stand at 93.4 billion tonnes including Sumatera - 52.5 billion tonnes and
Kalimantan - 40.4 billion tonnes although total reserves stand at 11.8 billion tonnes
from which Sumatera has 4.7 billion tonnes and Kalimantan has 7.2 billion tonnes.
Quality wise Indonesian coal varies from low to high, approximately 25% of coal
resources are low rank whereas 60% are medium and only 15% have high quality.

Assuming constant production levels of year 2008, coal reserves will last for
approximately 50 years while resources will be available for over 400 years of
production. Also there are some regions like Papua having potential but are not
explored yet. Five 1st generation CCoWs(Coal Contract of Work) and PTBA account
for approx 50% and 23% of Indonesian coal reserve and resources respectively.

Percentage wise distribution of coal in various region of Indonesia is shown in

diagram below:

2%

7%
37%

34% 17%

Distribution of Coal Resources Potential

Source: Indonesian coal mining association

11
Ali Mardi, Partner, PricewaterhouseCoopers, Indonesia; email: ali.mardi@id.pwc.com

19
 Indonesia offers significant opportunities to investors in coal mining sector; mainly
driven by the size of its coal resources. Indonesia is the world’s largest exporter of
thermal coal and major importing countries for Indonesian coal are Japan (17%),
Taiwan (13%), India (17%) and Korea (10%) . Currently major coal exporters are first
generation CCoW holders.

5.1 The new mining law: Its scope and how it will impact coal operations

The new mining law no. 4/2009 was passed by the parliament in December 2008 and
became effective on 12 January 2009 by replacing the old mining law no. 11/1967.The
key features of new mining law which are relevant to coal mining are:

• Establishment of mining business zones

• Licensing: IUP/ IUPK, bidding process and no foreign investment restriction –

no more CCoW (means no lex specialis status) or KP

• Domestic Market Obligation (“DMO”) plus control over production volume –

although no details are given yet

• Coal IUP: maximum 50,000 ha for exploration (7 years) and 15,000 ha for
production (20 years + 2 x 10 years)

• In-country processing requirements, but this unlikely to be relevant for coal

• Priority for local mining service providers, no affiliate involvement is allowed

• Divestment requirements plus IUP transfer restriction

• Various implementing regulations to be issued by 11 January 2010

• There is no provision over coal pricing but the Government is separately looking
at this issue

There are some transitional provisions as well which include CCoW provisions to be
adjusted within one year, except for state revenue, CCoW companies must submit
action plan in all CCoW area up to the expiration of CCoW otherwise the CCoW area
will be adjusted and there is no provisions on KP transition but if CCoW is required to
conform, KP will likely be required as well.

The new mining law has impact on existing coal operations of CCoW holders as well
as of KP holders. For CCoW holders there is nothing new in DMO, this is already
present in first to third generation CCoWs. Some transitional provisions for CCoW
holders are questioned which are whether costs related to tax and royalty rates likely
remain the same, whether a mere action plan sufficient, whether an extension through
an IUP will be accounted for and what if a CCoW company cannot reasonably exploit
all the coal reserves until the end of CCoW term especially the first generation with

20
significant reserves and resources and CCoWs expire in 2020 to 2024.The mandatory
area of relinquishment is also questioned. It is still not clear if CCoWs expire then
would they be replaced by an IUP having any tender requirements, tax provisions etc.

The impact of new mining law on operations of KP holders is also not clear and is
questioned that whether there is automatic conversion into IUP and if yes then what
would be the process for that the conversion, whether KP terms are not consistent with
the new law and whether issue of foreign ownership is now resolved. New mining law
imposes clearer requirements of DMO to follow prevailing law. Subject to the KP
conversion rules and agreement with the KP holder existing foreign “investor” with
often complicated series of contractual arrangements with local KP holders may need
to unwind the arrangement as it can now own the IUP directly.

After this new law new investment depends on the implementing regulations, including
DMO, tender requirements, divestment, etc. The absence of a CCoW scheme may
deter new investment in big projects. The new law is likely to attract smaller-size
foreign investments which were historically done through “cooperation” with local KP
holders. The dispute settlement through court procedures and domestic arbitration is
unlikely for attraction of new investment given the Indonesian legal environment.

Future of Indonesian coal market

Current energy mix Energy mix 2025

1.32%

3.11%
15.34% 17%
30%

51.66%
28.57% 20%

33%

Crude Oil Natural Gas Coal

Geothermal Hydro Power Natural Gas Coal Crude Oil RE

RE stands for renewable energy and includes bio-fuel, geothermal, biomass, nuclear, hydro,
solar, wind and liquefied coal.

According to the current energy mix trend, domestic coal accounts for only about 15%
of total energy consumed which is expected to increase significantly by 2025. Share of
coal in energy mix is expected to grow from present level of 15% to 33% by 2025.This
will likely result in an reduced percentage of coal being exported compared to total

21
Indonesian coal production, which represents a significant hurdle for Indian coal
importers trying to increase their coal imports from Indonesia due to limited export
quota, competition from other Asian coal consu
consumer
mer countries like Japan, Korea and
Taiwan.

The Government of Indonesia is planning to convert diesel

diesel-fired
fired power plants
plant with a
st
total capacity of 7,753MW into coalcoal-fired
fired power plants. As per 1 electricity crash
program the Government has been constructi
constructing new coal-fired
fired power plants with a
total capacity of 10,000MW. In addition to that 2nd crash program in Q2 2009 was
expected to add another total capacity of 10,000 MW of which 28% of the capacity will
be from coal-fired
fired power plant
plants. It was expected that
at these new power plants
plant will
primarily use low-rank
rank coal as feedstock.

The forecast for future production, domestic sales and export of Indonesian coal is
represented with the help of graph below.

Forecast: production, domestic sales and export (in million

llion tonnes)

The trend shows that coal production and domestic sales have been increasing over
the years while export volume will plateau at some point around 2010 and there is not
significant increase in export expected up to 2025.The increase in futurefut coal
production will be achieved through ramp ramp-up
up of current mine production and
development of new coal mines. Future of Indonesian coal production and export will
also depend on resolution of issues surrounding 1st generation CCoWs, e.g.,
e transition
period,
eriod, extension to IUP, etc.

It is expected that new DMO regulation will be issued soon implementing regulation of
law no.o. 4/2009 to secure domestic coal supply. New regulation on minimum coal sale
price will also be introduced to encourage fair pricing between domestic and export
market. The price will follow various coal price indices, including the Indonesian Coal
Index.

22
The Government is planning to provide incentives to CCoW companies through lower
coal “royalty” for development and sale of low-rank coal and may also re-instate the
coal production sharing scheme for CCoW holder, where the Government will receive
coal “royalty” in-kind. In nutshell the Government will prioritise Indonesian coal
production for domestic market, through issue of various regulations in the future,
including DMO and coal pricing guidelines.

Now only time will tell whether the new mining law will be able to attract larger
investment projects, which in turn will increase Indonesian coal production/export.

23
A6. Logistics – major contributor to development of
coal sector

While the demand centers are distributed across the country, supply of coal is
concentrated in pockets. Most of the Indian coal resources have been concentrated in
the eastern and southern zone in the stats of Jharkhand, West Bengal, Chhattisgarh,
Orissa and Andhra Pradesh.

As coal remains major source of energy in India, demand for coal has been derived by
industrial energy demand. In India, western zone and southern zone remains major
demand drivers for coal while north has also contributed significantly in the demand of
coal by various industries. As discussed above, major coal consumers remained power
industry for thermal grade coal and steel industry for coking coal.

If consumption pattern of domestic coal is analyzed by consumer location and coal

sources, it can easily be interpreted that major consumers of domestic coal are having
consumer units set up at far distance from coal source. Thus bringing coal to the
consumption location has been critical issue to Indian coal industry. Further adding to
these woes is concentration of coal resources in few small regions. Thus evacuation of
coal from these coal bearing reasons is another major challenge. This emphasizes
need of having logistics structure which satisfies transportation needs of India industry.

The major mode of coal transportation within India has remained railways while small
quantity has been transported by road transport. Other modes used in India for coal
transportation are MGR, Belt conveyor, ropeways etc. The chart below shows
contribution of various modes in coal transportation.

Coal transportation by various modes

4% 2%

19%
49%

26%

Rail Road MGR Belt Rope

24
 It can be seen that about half of total coal transported in India is being transported
through rail route. Further, in next 5 to 10 years time, coal production is going to double
from current level of about 550 million tonnes which will require additional
transportation capacity. Thus railway infrastructure needs to be developed to meet
growing demand.

From past performance of India coal industry, it can be observed that domestic
production has not been able to meet demand of coal by India and this gap between
demand and supply has been continuously rising. In 2008, India imported about 50
million tonnes of coal to meet its demand. About 50% of coal imports were thermal coal
while balance being coking coal. The major demand driver for imported thermal coal
was power sector due to lower production of thermal coal compared to its demand.
Steel industry remained importer for coking coal.

Even in future, India is expected to import coal to meet its growing demand. Even if
India augments its production capacity, import of coking coal seems to be inevitable
even in long term as India has small reserves of coking coal and also production is not
sufficient to meet demand from steel sector. Adding to this worry is poor quality of
coking coal which requires it to be blended with imported high quality coking coal to
make it usable to steel industry. Thus all such factors lead India consumers to rely on
import of coal for which efficient and modernized port infrastructure is much needed.

6.1 Present status of coal transportation facilities in India - Railways

As discussed above, about half of total coal transported in India is being transported
through rail route. Further, in next 5 to 10 years, coal production is going to double
from current level of about 550 million tonnes which will require additional
transportation capacity. It has already been mentioned that our coal reserves are
concentrated in small region in only 9 states while consumers are in all the states
across India. Thus off take of coal from source need high traffic handling capacity.

At present, states like Orissa, Jharkhand, West Bengal and Madhya Pradesh which are
major coal producers need to supply coal to distant states of Punjab, Haryana, Delhi,
Maharashtra, Rajasthan, Southern India thus heavy congestion in rail network has
been observed many times in the coal producing states which lead to delays in
transportation. Majority of coal transported from Jharkhand, West Bengal and Orissa
needs to be evacuated from the railway network which do shared heavy load of
passenger traffic as well. Main transportation routes being Delhi-Howrah and Howrah-
Chennai which are also major routes for coal transportation results in congestion and
frequent delays. Delays result in penalties and demurrage which further adds to cost
and result in production loss of consumer units as well. Also further proposed capacity
addition is adding to worries. Orissa is one state where maximum capacity addition for
coal production is proposed. New mines of large capacity upto 50 Million Tonnes per
Annum (MTPA) are proposed to be developed in the region majority of which will be in
Angul region itself and it will require additional coal handling and transportation
capacity of about 300 million tonnes within next 5-7 years.

25
 To achieve this level of coal production, railway will need to augment capacity in short
term for handling of machineries, equipments and other developmental facilities as
well. Before discussing the steps need to be taken for future and proposed plans, first
we need to discuss the issues and challenges faced by coal industry and railways in
development of coal industry.

6.2 Challenges in coal transportation and capacity addition

6.2.1 High transportation cost

In India, subsidizing of passenger fares at cost of cargo freight has been a matter of
talks for long. When different cost components of landed cost of coal are compared, for
plants located at far distance from coal sources, the contribution due to high
transportation cost makes the coal cost almost double. High transportation cost result
in high cost of products of end use industry.

6.2.2 Delays in development of proposed railways capacity addition projects

Though many projects have already been proposed by railways for development of
new lines, doubling and tripling of existing lines, electrification etc. but projects have
been delayed due to several reasons. Delays in development of Indian Railways’
infrastructure thus discourage miners from developing their own infrastructure and
development of mines as well. Thus timely execution of infrastructure projects has to
be done.

6.2.3 Mismatch in capacity development

Development of scheme for new railway lines has been concentrating on track
development. Low focus has been on matching capacity of railway lines with rolling
stock capacity. Also plans for rolling stock have been done in totality. While developing
plan for capacity addition, major concentration has been on developing overall capacity
rather than adopting micro level approach and analysis of industry wise demand for
rolling capacity.

6.2.4 Technological and operation challenges

Lack of technology upgradation and poor coordination among different levels of

administration and users of railway facilities have also been issues. In heavy loading
zones, yard capacity needs to be increased. Also unloading equipments need to be
upgraded to enable faster loading and unloading of coal.

6.2.5 Challenges in development of rail network

Formation of coal resources is in the form of contiguous seams. Coal blocks exist in
continuation in spread in very small area. If it is desired to exploit these coal resources

26
 scientifically and efficiently than construction of any infrastructure over the land
overlying these coal reserves may not be possible. Especially if we discuss about
Orissa, many coal blocks have been allotted to public and private sector companies
which are planning to start production in short span of time. Since majority of these
blocks are adjacent to each other, laying a rail network may not be possible upto these
blocks because of unavailability of non coal bearing area. This is a major issue in
developing rail network in densely coal bearing areas. Even if coal miners plan to
develop private railway sidings till rail network of Indian railways, land availability will be
a challenge.

6.3 Future programme of Indian Railways

Indian Railways have been key to development of coal and coal related industries.
Indian Railways have been coordinating its efforts with Indian industries which are
major consumers of its freight services. For long, Indian industries have been
complaining of prioritized movement of passenger trains over freight carriers. Also
sharing of same tracks for cargo transport and passenger movement has been a
matter of discussion for service consumers. Indian Railways took a step to address
these issues. It has already been proposed to develop dedicated freight corridor (DFC).
The two routes on which project of DFC are going on are Howrah – Delhi and Delhi –
Mumbai. Proposed Howrah-Delhi corridor will be a great relief to coal sector as this
route is a major coal transport route. Further proposed tripling of railway line between
Bhubaneswar and Vishakhapatnam will boost coal transportation. Other projects which
are going to be great boost to Indian coal sector are double and triple lines between
Rajatgarh-Khurda and proposed rail link between Talcher and Paradip which will help
evacuation of coal mines from MCL command area.

In addition to this, Indian Railways have proposed to connect New Mangalore, Kandla,
Tuticonrin and Diamond Harbore to main line and nearby major cities which will further
boost transportation via rail-sea-rail mode as well as import of coal which may prove
cheaper as well.

6.4 Coal import and role of ports in India

As discussed above, India has imported about 50 MTPA of coal last year. This import
is expected to increase more in future. The import has been from various sources like
Australia, Indonesia and South Africa.

India has 12 major ports and about 180 minor ports. Twelve major ports in India
handled a total of 519.24 million tonnes of cargo in 2007–08, an increase of 11.94 per
cent over 463.78 million tonnes handled in 2006–07. The figure below shows the
distribution of commodities handled at India Ports.

Major ports in India handle more than 70% of the cargo volume and the share of cargo
handled by minor ports are continuously increasing over last twenty years.

27
 Commodities handled at ports in 2007-08

POI Minor Major

16% 93%
89%
32% Containers
72%
18% Coking Coal
Thermal Coal
2% 8% 18%
1% Fert. Raw 28%
5% Fin Raw 11%
7%
Iron Ore
Others 1985-86 1995-96 2007-08

Source: IPA publications

ublications Share of cargo handled by ports

Most of the coal handled at India

Indian ports is being handled by major
ajor ports only. Even in
future, major ports are expected to handl
handle major proportion of total coal handled.
This will require future capacity addition. But before going to future requirements of
port development, we should discuss vari
various
ous issues related to coal handling at Indian
India
ports.

6.5 Issues for coal handling at ports

6.5.1 Low level of mechanization

echanization

Indian ports are not having advanced and modern technology for coal and bulk cargo
handling. Low
ow unloading capacity and lack of dedicated berthing and handling
system for coal have been posing a challenge. Though amount of coal handled has
not been very high in India for individual ports but looking at future coal import,
dedicated facilities need to be developed at some key ports in India.

6.5.2 Inadequate port capacity

The cargo handling capacity of major Indian ports has been 529 million tonnes in
2008; the growth in cargo volumes at ports has been phenomen
phenomenal al over the past few
years. The ports are projected to handle more and more traffic in the view of
anticipated GDP growth of 8%. Therefore enhancement of port capacity is imperative
to meet the adequate traffic and decrease in traffic congestion thereby leading to
increased TRT and dwell time. Similar trend will continue for coal handling as
a well.

28
6.5.3 Inadequate navigational aids and facilities

Most of the ports are not equipped by vessel traffic management system (VTMS),
VTMS facilities are used for regular berthing of ships. Most of the Indian ports have
sufficient number of marine crafts like tugs and launches which may not be sufficient
to meet the increased vessel traffic in the coming years.

6.5.4 Bunching of vessels

The number of berths available for handling specialized cargoes/containers are

limited e.g., mechanized ore handling plants for iron ore and coal etc. Recently,
Paradip port is developing a dedicated berth for coal handling.

6.5.5 Low cargo handling capacity

Cargo handling capacity of ports is generally low; the productivity at berth is very low
at many ports on account of a combination of few factors.

6.5.6 Inadequate cargo handling equipments

The cargo handling equipments/machinery at the ports were commissioned years

ago and has outlived their designed life span. The productivity of these equipments
does not conform to the requirements of the modern vessels.

6.5.7 High down time of equipments

The equipments that’s available at the ports breakdown frequently due to poor
maintenance instead of preventive maintenance. The large response time, non-
availability of spares and dependence on proprietary parts result in large down time
of equipments.

6.5.8 Insufficient IT implementation

The resources at the disposal of the port are distributed and under utilised in the
absence of an ERP system. These are the factors which need to be addressed to
develop and promote coal handling.

29
6.6 Roadmap for coal logistics

As discussed earlier also, Indian Railways have proposed many projects for
development of cargo handling in India, some of which will help in developing coal
sector. The projects like connectivity of Paradip port and Kandla port will help in
developing port sector and coal handling facilities at these ports. Thus Indian
Railways, Port Authority of India and coal industry needs to work in close
collaboration to plan development of infrastructural facilities as per industry
requirements.

30
A7. Minerals or forests? or both?12

The debate in Indian mining industry has shifted towards whether the country needs
forests more than minerals. Like everything else in the world, there cannot be a straight
answer to this question. However, a win-win situation can arise from pragmatically
looking at our forest and mineral resources on one hand and weaving sustainability in
the mining projects on the other.

It has been mooted by the Ministry for Environment and Forest that mining would not
be allowed in reserved forest areas and could be permitted in the de-graded forests. As
of now, there does not exist any such classification of forest and hence, the proposal
lacks clarity. However, this has a potential to result in a win-win situation for mining and
forestry. From the mining perspective, this essentially means that several of the
projects in the de-graded forest will see the light of the day soon (assuming that the
clearance and approval requirements for such forests will be rationalized). On the
other hand, the reserved forests that need preservation will then be completely out of
bounds for mining. This may result in a slight downward revision of the national mineral
inventory. This however, should not be a concern since such mineral resources would
not have been exploited even otherwise (considering labyrinthine process for
clearances, stiff resistance from the environmental groups, and social risks) and hence,
better stand not accounted for as mineral resource.

On the second account, sustainability needs to be built in the industry processes and
performance evaluation criteria. The industry does a lot of work in corporate social
responsibility but a lot needs to done further to quell the public perception of falling
short on expectations. Work needs to done on two accounts. First, the industry needs
to assimilate sustainability – from environmental and social angles – into all processes,
from mining, beneficiation to mine waste management. The efforts need to extended
from meeting compliance requirements to genuinely mitigating these risks through
capital investments and operating expenses. The second account is with regard to
communicating about these sustainability efforts to all stakeholders. Some of the larger
miners in India have done well and made significant impacts on the environment and
communities in the vicinities of the mines they operate. However, they fail to
communicate effectively to their stakeholders and hence, continue to face public
antipathy, which sometimes may affect business continuity. Globally accepted
frameworks for sustainability reporting could be effective tools to manage sustainability
efforts and to communicate with the stakeholders.

It can only be hoped that country does not have to pick one of the two – forests or
minerals – but can have both ingredients for sustainable economic growth.

12
Dipesh Dipu, Principal Consultant, PricewaterhouseCoopers Pvt. Ltd., India; email: dipesh.dipu@in.pwc.com

31
A8. Major challenges before coal industry
8.1 Equipment supply constraints
Delivery lead time delays for plant and mobile equipment have a significant impact on
production volumes and operating costs. The following graphic provides the lead times
for key equipment faced by global mining players. Key strategies applied by global
players to overcome these difficulties are measures to improve the life of the
equipment, measures to improve the relationships with equipment suppliers and
others.

Other key concerns are related to supply of power and water for the regular operations
of mine. The mine developers are detested by the locals for heavy usage of water and
are accused of low water reserve levels. Global players have started to develop their
own captive generation for reliable and uninterrupted power supply.

Few companies have started backward integration and acquired suppliers to overcome
the above difficulties. Sandvik, an equipment manufacturer has acquired Wolfram
Bergbau-und Huetten-GmbH Nfg KG, a tungsten producer.

8.2 Recruiting and retaining talent

The availability of professionals and skilled labor is an extremely pressing issue. Mining
industry is perceived to be less attractive for many students when compared to other
available options. The following graphic provides key insights into the reasons for such
aversion. These results are derived from a survey conducted by us in April 2008. Most
of the reasons attributed can be addressed by improving the working conditions
leading to higher percentage joining the industry.

32
 12% 12%

14%
23%

18% 21%

Lack of entertainment Lack of Social Life

Remote Location Unattractive Working Conditions
Role and Responsibility Salary

Source: PwC Survey, 2008

Apart from attracting new talent, there are lifestyle issues for retaining the existing key
resources available with the companies. Mining companies may need to identify
innovative strategies to attract and retain the talent.

8.3 Improving efficiency

With the recent changes in prices, many mining companies have focused on reducing
capital and operating expenditure and managing production levels to ensure they
operate at lowest possible cost. Introduction of coal regulator might lead to tighter
scrutiny in pricing mechanism. This might put significant pressure on CIL to reduce
their costs.

It has become increasingly important for the companies to undertake cost reduction
initiatives, which include improving the efficiency levels by adopting newer
technologies. Many companies had to resort to drastic steps of reducing their
headcount and scale back or closing their operations. Key parameters that are used for
monitoring the efficiency are OMS (output for man shift), cost of production per ton,
system throughput.

8.4 Geotechnical issues and selection of technology

With the growing demand for coal, CIL will have to innovate or implement new
technologies for winning coal at greater depths and difficult geo-mining conditions.
Significant coal resources in India lie at a depth below 300 meters. Existing coal
production levels would be difficult to sustain with open cast technology due to
increasing break even stripping ratios. Therefore it becomes important for CIL to tap
the deep seated coal resources with improved mining technologies. Longwall mining
technology which was not successful in India due to reasons like difficult geomining
conditions, unavailability of spares, technology transfer issues should be studied in
greater details for its successful implementation in Indian coal seams.

33
 Thick seam mining is one of the key areas of concern in India. Existing recovery using
conventional thick seam mining technology including manual longwall technology with
multiple lifts and sand stowing is around 20-30% . Other methods of winning coal like
hydraulic mining and highwall coal mining should also be studied in detail for their
introduction in Indian mining conditions.

Surveying technologies also need improvement to avoid faults in plans and sections.
Wrong plans in past has lead to many accidents. Safer ways of coal evacuation
through new technologies should also be studied to improve system throughput and
output per man-shift.

8.5 Infrastructure bottlenecks

Infrastructure is one of the key cost components on the coal value chain. There is a
lack of proper rail, road and port infrastructure that is required to make customers find it
cost effective and convenient to procure coal domestically. As a result of the high
logistics and transportation costs in sourcing domestic coal, many coal-consuming
industries are resorting to coal imports from other cost efficient countries.

There are shortages in the capacity of washeries available in India. Need of coal
washery is also pressed upon due to regulatory restrictions viz coal with ash content
more than 34% cannot be carried for distances more than 1000 kms.

8.6 Productivity issues

Owing to the usage of inefficient technologies, manpower productivity in Indian coal

mines is low as compared to that of US and Australian mines. For example, long wall
mining which is considered to be an efficient method of production, has not been
popularly adopted in India due to absence of appropriate equipment, inadequate
infrastructure and lack of proper training facilities to develop the skills required for long
wall mining, (even though the geotechnical parameters may be suitable in certain
circumstances).

8.7 Risk mitigation

Mining industry is faced with many risks like the operational risk which threatens the
consistency and efficiency of its production. Given the risks involved in the operations it
becomes inevitable to put a risk management program in place to improve the ability to
prevent, detect and correct critical risk issues. Standardization of the risk management
principles and adoption of internal controls for cost and project management may help
in integrating the efforts to overcome the operational risks across the organization

Presently there are other risks as well which the industry is facing such as credit
crunch in the markets and poor economic forecast for the short to medium term. All
these factors make it harder for miners to start new projects, refinance their debt and

34
 complete existing projects. Resulting in reduced production, this situation may
adversely impact the industry’s growth.

8.8 Inconsistent quality of delivered coal

In India inconsistent quality of delivered coal is a key concern for the user-industries.
Of the total coal produced only 20% is washed and sold, the rest is sold on an ‘as
mined basis’, specifically the coal that is transported beyond 400 kms. Many states,
including Andhra Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Punjab and
Rajasthan, have brought this issue to the notice of the Ministry of Power, and
mentioned inconsistent quality of coal as the main reason for high coal consumption.

8.9 Regulatory compliance

The uncertainty and inconsistencies in the administration, interpretation and

enforcement of the rules and regulations are adding to the challenges of the coal
mining industry. This is hampering further investment in the sector which is witnessing
unprecedented growth in demand. Apart from financial compliances, mining companies
must comply with a number of other regulations applicable to the sector. These include
rules pertaining to tax rates, mining rights and land title; regulations related to
environmental compliance and corporate social responsibility; laws governing
occupational health and safety. In order to ensure compliance, mining companies must
also seek out industry-specific guidance to avoid violating the rules.

8.10 Environmental concerns

Growing environmental emissions are also a cause of concern for the global coal
industry. The industry is one of the biggest contributors to greenhouse gas emissions
with the release of methane gas as a by-product. Coal production generates fly ash,
which lead to air pollution, and even after being consumed by the cement and brick
industries, a significant portion remains as left over, leading to environmental and
health concerns. With rising public scrutiny for environment and social protection it is
likely to put a regulatory and societal burden on the industry.

The industry is addressing the issues by improving coal efficiency and by following
carbon storage and capture techniques. Coal companies world over are also adopting
ways to increase the thermal efficiency of coal in order to reduce carbon emissions per
unit of electricity generated. Coal washing and beneficiation has emerged as an
effective technique for improving coal efficiency. Another technology, gasification of
coal in integrated gas combined cycle (IGCC) systems, has also gained popularity and
has become commercially viable.

35
8.11 Resettlement and rehabilitation issues

Mines are mostly located in remote geographical areas which might fall under the
forest cover or tribal areas. Mine development mostly might lead to displacement of
existing habitants. Rehabilitation of households displaced due to mine development is
not only a sensitive issue but also a big challenge for many mining companies today.
This not only leads to longer delays in mine development but also puts an additional
cost burden on the mining companies. During the XI and XII plans, CIL plans to
develop 125 new mines for which it will have to acquire 67,000 acres by FY12. CIL
plans to invest INR40–50 billion in resettlement activities.

8.12 Sustainability issues

Sustainability development which is defined as “development that meets the needs of

the present without compromising the ability of future generations to meet their own
needs,” is being followed by most of the global mining companies. Sustainability
development is considered even more important for mining companies as they are
considered responsible for depleting the natural resources through mining.

Sustainability development should try to balance the social, environmental and

economic aspects of the business. It involves significant costs in terms of capital and
management time, but the benefits accrue to all the stakeholders.

Apart from the external requirement through regulatory mechanism, there are
significant benefits accrued through sustainable development they are, better return for
shareholders, improved management of risk, reduction in operating costs, more
business opportunities, attracting and retaining talented employees, maintaining or
improving the value and quality of products with less impact on the environment, better
development and employment opportunities for and relations with local communities,
local and regional economic development that over time reduces operating costs.

36
A9. Risks in coal mining
When a business preposition is considered, it is imperative to analyse the operating
environment with utmost caution. There is always some risk element inherent in every
business, especially in commodity such as coal, the risk looms even higher. The
concerns like energy security, availability of resources, political instability, could make
the government authorities to alter the policies and regulations which increases the
overall risks.

It is crucial to ascertain the broader factors like political environment, financial risks,
and geo-mining risk that persist in relation to coal mining. The applicability of such risks
has to be analysed using a proper risk framework. Risk is a combination of constraint
and uncertainty which always exists. The risk can be minimized either by eliminating
the constraints or by finding and reducing uncertainty. The general principle of risk
assessment involves following activities - risk Identification; risk assessment and risk
mitigation mechanism (risk management)

Risks related to coal mining can broadly be categorised broadly into following heads:

(a) Political & legal risks

(b) Financial risks
(c) Operational risks

These heads can further be divided to understand specific risk item that may affect the
coal mining business.

9.1 Political & legal risks

The political environment in any country poses one of the most ascertainable risks for
the businesses. It is observed that industries like coal mining get affected due to
change in government policies. The business operations may become infeasible if the
policies related to development of coal mining industry are not defined properly. The
political & legal risk further be divided into following sub-heads -

(a) Country environment risks

(b) Investment restrictions
(c) Taxation concerns
(d) Risk of restriction on resource transfer

37
9.1.1 Country environment risk

Transparency of licensing procedures: The non transparent licensing policies may

lead to a higher turnaround time for different approvals of licenses for mine operations.
Further this might lead to a higher incorporation or preliminary expenses.

The deregulation in the Indian economy has somewhat proved to be not unsuccessful
in removing barriers, creating more transparent trade and investment regimes, and has
alleviated but not eliminated, red tape. The areas of improvement include taking steps
toward a more transparent coal block allocation policy, grant of reconnaissance permit,
exploration licence and mining lease. Also, the companies mining should be
responsible for timely payments of correctly assessed statutory levies.

Expropriation by government: It is characterized by confiscation of the private

assets, and a pittance payment. This payment is sometimes a formality, and may not
represent an acceptable reparation, because the transaction is not one to which the
owners, as forced sellers, have freely consented. Moreover, adding to the complaints
of the owners, the competition of any other buyers is excluded. This could render the
entire business of the company as loss and can be a threat in long term.
Considering the present policies of government of India, the risk of appropriation is not
a matter of serious concern, as the appropriation by government is not allowed until the
matter is of national interest. Coal Mines Nationalization Act, 1973 provided the
government with power to nationalize the coal assets in the interest of nation and to
promote health and safety in coal mines. Most of the coal resources are being owned
by government owned companies. Moreover to promote the private participation in
development of coal mines in India and to bridge the widening gap between demand
and supply of coal government is promoting captive consumption of coal by defining
end uses of coal. The risks due to expropriation are almost negligible.

Terrorism: Terrorism may affect the investments in any country. The risks due to
terrorism on coal mining in India is non existent till now but local naxalism in coal
mining areas may affect the timely development of coal resources and which may in
turn affect the energy needs of the country.

9.1.2 Investment restrictions

Sectoral restrictions: There could be a possibility that the government of country may
impose any restriction, in future, on the expansion of company in other sectors. Such a
restriction could curtail the future expansion prospects.
In India, presently there is no sectoral restriction for mining companies. Investments
are allowed in coal exploration, coal mining, beneficiation and allowed end uses by
private players.

Requirements for disclosure of technology: The requirements as to disclosure of

technology do not pose a significant risk. The disclosure related to mining technology
has to be made to Directorate General of Mines Safety for its approval.

38
9.1.3 Taxation concerns

Tax structure: There are no significant risks due to corporate taxes and statutory
levies collected for mining activities.

Restriction on transfer pricing: The foreign entities investing in coal mining will have
to enter into Advanced Pricing Agreement (APA) from 2011 for fixing up prices at arms
length distance and agreement on pricing methodology for international transaction.

Withholding taxes and unitary taxation policy: Withholding taxes are applicable for
payments made to NRIs and foreign companies and are determined by the Finance
Act passed by the parliament. Theses taxes are in respect to those countries with
which India does not have a Double Taxation Avoidance Agreement (DTAA).

9.1.4 Risks of restriction on resource transfer

These are the risks of any change in government policies barring the transfer of
resources by the company, which can be in any of the following forms:

Tariffs, NTBs inhibit sourcing, selling: The restrictions imposed by government on

transfer of mine produce, in form of tariffs or non tariff barriers such as quantity quotas
may affect any business in long run. These restrictions can be in form of sourcing
capital equipments, or increasing the tariffs (levis, octroi, duty etc.), which may lead to
higher investments and have a negative on the project financials.

The present mining policies of Indian government there are no such trade barriers,
however, a prior approval may have to be obtained from Directorate General of Mines
Safety for employing new mining equipments and/or technologies in Indian mines.
There is also restriction on commercial sales of coal in open market by private parties.
As coal is in Open General Licence list there is no restriction on its imports.

Labour Issues: India has a fairly experienced talent pool for coal mining industry but
more recently the numbers of person joining the industry has reduced. The companies
investing in coal mining may face difficulty in selecting right persons. The employers
should also focus on training programs aimed at creating workforce for future industry
needs.

Foreign exchange controls, limits on repatriation: The risk due to government

controls on the repatriation of profits from the SPV or subsidiary in one country to
parent company in other country. The government can also limit the foreign exchange
controls, in wake of depreciating local currency. Any such restrictions can have a
negative affect on the returns on Investment.

39
 The present policies of Indian government are supportive for mining industry. All
foreign investments are freely repatriable. Dividends declared on foreign investments
can be remitted freely through an authorized dealer. Non-residents can sell shares
on stock exchange without prior approval of RBI and repatriate through a bank the
sale proceeds if they hold the shares on repatriation basis and if they have necessary
NOC/ tax clearance certificate issued by income tax authorities. For sale of shares
through private arrangements, regional offices of RBI grant permission for recognized
units of foreign equity in Indian company in terms of guidelines indicated in
regulations. Profits, dividends, etc. (which are remittances classified as current
account transactions) can be freely repatriated.

Capital controls: Any imposition of capital controls by the government could lead to
tying up of investments, turning in to huge opportunity losses. India embarked on
easing capital controls from early 1990s. Emphasis was put on the liberalization
towards equity flows, both FDI and portfolio flows. In recent years, a large number of
foreign companies have owned Indian equities. There may be capital controls policy
in future to shift the focus of monetary policy away from the exchange rate to
domestic inflation.

9.2 Financial risks

The financial risk can be further divided in to following sub heads:

(a) Price risk

(b) Liquidity & credit risks

These risks and their applicability has been explained in the further sections

9.2.1 Price risk

Interest rate risks: The inclusion of debt in the capital structure of the company
poses risk in the form of rising and fluctuating interest rates. The bottom-line & cash
flows can be severely impacted by the changes in interest rates. The risk is higher if
the debt portion is high.

In general the debt component of mining industry is more or less equal to the equity
component or even less and hence interest payments are less. Further the risk can
be mitigated through balancing the debt portfolio on a continuous basis. The
company can raise money from different sources, and could further manage through
financial derivative instruments like interest rate swaps. This would be needed if the
company’s exposure to debt is extremely high. To understand the impacts of
changing debt-equity structure sensitivity analysis may be exercised by a company.

40
 Foreign exchange risk: This risk may be substantial when a company import goods
and services for mining activities. The cost and investment to be incurred by the
company in terms of dollars, and as the repatriation of profits is also involved, any
significant change in the rupee-dollar exchange rates could affect the firm’s profit and
investment outlays.

The applicability of foreign exchange risk is high for a foreign companies bringing in
FDI; however the risk may be contained by actively seeking hedging through foreign
exchange derivatives like currency derivatives and swaps.

Commodity pricing risk: In India the coal prices are being determined by
government and the government owned companies. There is uncertainty about the
pricing mechanism of the coal from the coal companies which have been awarded
coal blocks under government dispensation route for commercial. Captively
consumed coal prices would mostly be unaffected by the fluctuations in prices of coal
sold commercially.

The commodity price risk can, however, be mitigated by pursuing long term
contractual sales and purchase agreements with most of its customers and suppliers.

9.2.2 Liquidity & credit risk

Cash flow risks: Companies may face the risk of assessing the cash flows and their
timings wrongly. The significant changes in cash flows on account of changes in
project economics could lead to losses to the company. Moreover the cash flows of
the company can also be affected due to some unwarranted events, which might
lead to a situation of cash crunch.

The project cash flows are required to be projected with utmost care and planning
capital expenses and debt repayments in the light of capital market events may help
mitigate the risks. The company should also analyse the sources where it can resort
in case of any short term or long term liquidity crunch.

Default risk: Companies may also face risks if it focuses on a narrow customer
base, which might result in inability to consummate transactions at reasonable prices
within a reasonable time frame.

Companies may need to be cautious while choosing its strategy to its exposure to the
number of customers. It needs to establish credit worthiness of its customers and
their economic & financial position.

9.3 Operational risks

The operating risks are the risk pertaining to the operations of mining business, these
can be further divided into following sub-heads:

41
 (a) Geo-mining risks
(b) Contract risks
(c) Market risks

9.3.1 Geo-mining risk

Geological reserves estimation & mining risks: The geotechnical information

obtained from regional exploration may not be accurate and hence there could be
risks of erroneous reserve estimation. The geological conditions may also vary over
short distances and it could impact the recovery percentage.

The risk of difference in the expected and actual coal reserves can be mitigated
through a detailed exploration programme prior to mining activities.

9.3.2 Contract risk

Contract risks: There may be risks of project delays or cost overruns if there is
slippage in mining project implementation by the contractor.

The contract risk may be contained through proper contract terms including
performance guarantees. In India contractors are generally hesitant to take R&R and
forest clearances for coal blocks. For timely development of coal blocks, owners of
coal block should carefully evaluate the options of self engagement on R&R
activities, only administrative support to contractor on R&R issues or a separate R&R
contract.

9.3.3 Market risks

Portfolio risk: Companies may face the portfolio risk, in form of change in the
proportion of coal sold through tolling arrangements, long term fuel supply and short
term spot trading. The diversification requirements as envisaged in planning, may not
match in the actual scenario.

Portfolio allocation may be done on the conservative estimates and allowing flexibility
in the margins. It may sooth the adverse effects of portfolio imbalance. Moreover the
effect of changes in the portfolio on profit margins should also be analyzed in
different scenarios.

Volume risks: The volumes envisaged through sales from trading activities may not
materialize due to spreads being matched by other traders/vendors in the market.
Also, there may be fluctuations in the spot trading volumes.

The portfolio of sales should be constructed with lower exposure to spot trading,
which would provide the required the immunization to risk of volume. The long term
contracts will help the company in mitigating the price fluctuations as well.

42
Logistics risks: The transportation costs form a fairly substantial part of landed cost
of coal. This may make the landed costs of coal uneconomical for end usages.

Companies should optimize transportation of coal and transportation/transmission of

end use products. The location for end use plant shall be carefully chosen.

Infrastructure risks: The availability of adequate infrastructure is the foremost

cause of concern for Indian economy at present. In order to support the free flow of
trade the development has to be accelerated. The volume of coal required to be
handled at Indian ports may give rise to risks of congestions, delay in coal supplies,
and hence, may have financial implication

Companies can actively involve and satisfy themselves with the availability of
infrastructure. They should also work in direction of creation of import and railway
facilities for long run.

Competitor risk: The booming coal mining business has caught attention of various
mining companies through out the world. Hence the rise in competition is a natural
outcome. In such a scenario future prospects and the present business companies
might get affected.

The risk of competition is always there to remain, however the earlier the company
moves toward coal mining industry better are the opportunities for it.

Technological innovation risk: The technology has been changing rapidly; there is
always a possibility of a technological breakthrough which might reduce the usage of
coal for electricity production which is the primary consumer of coal in India. In such
a scenario the entire business of the company may render as unviable.

It is very difficult to have such a technology development that might replace the coal
as a fuel for power generation, at least in the next few decades. The other fuels
already pose a threat to coal, but any technology innovation may take several years
to supersede the present one, hence the dependence on coal will not come to an end
so easily.

43
A10. Importance of branding for coal mining
companies
Branding strategy is important for mining companies, to satisfy the requirements of
various stakeholders.

Branding strategy will help in addressing key concerns of the above stakeholders. The
competition in both global and domestic business environment is increasing and
achieving a unique position and competitive advantage is becoming increasingly
important. Therefore, creating and implementing corporate branding strategies are
inevitable for companies to be profitable, successful, to be considered as
environmentally sensitive. A strong brand helps an organization to efficiently cope up
with its competition and brings value proposition to life.

A powerful brand can lift organization’s status from an unknown entity to the position of
supremacy. Branding is a promise to stakeholders, the most valuable component of
overall corporate strategy which drives the organization’s direction. Branding in a nut
shell is about creating unique identities and positions for company and services
provided thus distinguishing the offerings from those of competitors. Successful
branding also creates “brand equity” which is the amount of money that customers are
willing to pay for their perceived value attached to the brand. In addition to generating
revenues, brand equity also makes the organization more valuable over the long term.

In view of the complexity in planning and management of the branding programs there
is a need for the development of a comprehensive framework that provides a holistic
view of the various facets of branding. The framework should identify and integrate the
key branding aspects, activities, as well as the tangible aspects of the brand and
should be designed to support the definition, development and management of the
integrated branding programs.

10.1 Importance of corporate branding strategy

Developing a brand strategy is a vital step in creating the organisation identity. A strong
corporate branding strategy can enable the corporation and its management team to:

• Implement the long-term vision,

• Create unique position for the organization and its brands in the market place,
• Leverage on the leadership potential within the organization.
• Harness its tangible and intangible assets leading to branding excellence

The brand strategy is critical because it forms the foundation for all other branding
activities. It establishes a focused understanding and direction which is agreed upon at
all levels of the organization. It helps anticipate and prevent the “chaos” that may arise
from conflicting understanding about organizational goals and objectives. An effective
branding strategy provides vital inputs for aligning the management and creative
processes.

44
 The brand strategy outlines the overall branding architecture for the organization based
on a detailed assessment of the organization (its history, vision and mission), its
offerings (products and services), stakeholder segments (their demographics and
psychographics) and competitive marketplace. Through a distinctive promise branding
projects a differentiated position of the organization in the marketplace.

Brand strategy elements direct the brand identity to provide distinctive and explicit
expressions for the organization in terms of name and logo that are used repeatedly for
instant recognition in a competitive marketplace. The expressions gradually become
the identity for the organization’s values and what it stands for.

Thorough understanding of the following four components form the backbone of the
development of a unique branding strategy:

• Target audience (Stakeholders)

• Competitors
• Product/service mix
• Unique Selling Proposition (USP)

An effective branding strategy helps combat competition by way of creating a unique

differentiated identity of the organization for a long term sustainable existence. That is
the reason why a brand strategy is considered as the heart of the overall competitive
strategy of the organization.

10.2 Framework for the development of corporate branding strategy

The successful organizations combine a proactive and confident brand idea with an
organised and robust branding strategy. Based upon the branding strategy
organizations use carefully targeted marketing to help them get the most out of their
efforts. The gradual success of their brands means that with the passage of time, the
need for further formal marketing efforts reduces thus paving the way for increased
profits and organisational growth. Importantly marketing without a clear brand strategy
is a chaotic and costly exercise. The figure below depicts our approach towards the
development of an effective corporate branding strategy:

Segmenting Setting Segment Brand

Target brand Specific Packaging
groups objectives Strategy and
Delivery

45
10.2.1 Segmenting target groups

The value proposition of the organization must be relevant to its target market which
means that the target market must be clearly defined. If target market is not clearly
identified there has to be a refocus on the identification of the target market and
segmenting it to cater to their specific needs.

Components
of Branding

Engagement Stakeholder
Image Experience
Building Experience

• Initial impressions • Lasting impressions • Collective

• Outcome of brand- • Outcome of behavior impressions
Promise and actions during • Outcome of the
communications the interaction with usage of
• Measured in terms organization product/services
of awareness and • Project much more • Measured in terms
perceptions of stronger impact than of satisfaction and
customers image-building loyalty

The first step in the formulation of a branding strategy is the simple breakdown of the
target audience into segments where outcome objectives and corresponding short
term and long term strategies must differ to be successful. Segmenting of the target
audience should be done on keeping in mind how the three types of branding would
evolve.

• Internal stakeholders like employees

• External stakeholders like value chain partners (customers, suppliers), communities,
govt. agencies, regulators

Segmenting the targets into these groups will help in reinforcing some of the core
dimensions of the brand thus creating a brand impact for each segment.

46
 The communications portion of brand management will help in the assessment of the
product/services relative to that of the best practices. The engagement experience
and stakeholder experience will have greater impact on defining and solidifying the
image of the brand.

10.2.2 Setting the brand objectives

Setting clear objectives aligned to business outcomes is prerequisite to the effective

management of the branding initiatives. Integration of the specific target segments
and different forms of branding will enable the formulation of a framework to define
objectives and establish appropriate brand metrics. Outcome objectives can be either
behavior-based or can be awareness and perception based. This additional detail
and clarity in objectives will help in defining the appropriate awareness and
perception metrics. The chart below provides direction to formulate awareness and
perception based metrics.

The brand should project the organization image, core competencies and
characteristics. The way organization is perceived as well as the words which people
use to describe the organisation will form the basic framework of the brand. A
powerful brand builds credibility and has more influence on the market and motivates
stakeholders to give a preference for the product/service over that of competitor.

Brand objectives should help in knowing the answers to the following questions:

• What should brand do for the organization? (recognition, profits, leadership)

• What should others say about the products or services? (quality and cost vis-à-vis
competitors)

Listing and defining the objectives with specific timelines makes it easier to map out
how to achieve those objectives and accordingly developing a plan of action.

10.2.3 Segment specific strategies

The next step is to develop target specific strategies that help deliver the desired
outcome objectives. Brand metrics are defined at this level. It is crucial to understand
the set of perceptions and actions that drive the outcome objectives for each of the
three types of branding. The mindsets of the different sets of potential stakeholders
are much different from those of the existing ones and accordingly the modus
operandi to motivate prospects and customers also differs.

The effectiveness of the branding strategies can be greatly improved by defining

segment specific brand metrics keeping in view the expected outcome objectives.
Putting the right metrics in place will enable the organization to measure and manage
brand performance more effectively.

47
10.2.4 Brand packaging and delivery

Branding is the identity of an organization in the marketplace. The organisation

image to a great extent is formed by the appearance of the brand packaging.
Packaging is what the organisation image conveys tangibly to the marketplace.

Packaging either has a negative or positive influence on the stakeholder. A

packaging attracting negative impression can ruin the whole efforts of brand building
exercise while a positive reaction can influence a customer to buy. Packaging needs
special attention when a new brand is getting launched while for an already existing
brand it may not be that critical.

Package is an integral part of branding and helps in representing business as a

strong identity. Packaging can be represented by an array of common business tools:

• Business cards and company stationery

• Web sites
• Answering system
• Email system
• Vehicle carrying products etc

All these tools present an image of the organization. These tools speak volumes
about the image of the company and can either strengthen or weaken the brand
value. The image is all in the packaging and delivery to the stakeholders.
Stakeholders will make assessments of the organization based on these brand
packaging and appraisal conveys much about the attitude and priorities of the
business.

10.2.5 Formulation of action plans

Branding is the identity of an organization in the marketplace. The success of the

whole process will depend upon the formulation and execution of an effective action
plan. The outcomes of all the activities mentioned above would be integrated and
represented in an action plan. Action plan would act as a guide to help keep track of
the goals set in the strategy, make decisions and take steps towards achievement of
the goals.

48
Indian Chamber of Commerce
Indian Chamber of Commerce (ICC) has been working since 1925 towards creating a conducive and
sustainable industry growth oriented environment to enable the social, industrial and economic growth
of the country through policy advocacy and consultancy services to serve the nation. The membership
of Chamber comprises several of the largest Corporate Groups in the Country, with business
operations all over the country and abroad. Set up by a group of pioneering industrialists led by Mr. G
D Birla, the Indian Chamber was closely associated with the Indian Freedom Movement, as the first
organized voice of indigenous Indian Industry.

One of the most pro-active Chambers in the East, the ICC has been privileged to interact and host
several of the esteemed Indian Presidents and Prime Minister in the past.

With over 75 years of service to the nation, the ICC retains the character of being the premier
Chamber with senior Indian Industry leaders forming the core of its Executive Committee or the
Governing Board of the Chamber. Its enlightened leadership and membership has enabled the ICC to
move ahead and respond pro-actively to the dynamic changes that have taken place in the world
order and with a vision for the future.

PricewaterhouseCoopers Pvt. Ltd. – Mining Practice

Indian mining industry, one of the largest in world, faces unique challenges for meeting the growing
demand for raw materials. The sector is at the threshold of reforms in the legal and regulatory
environment and the industry players are set to transform into global companies as they hunt for asset
worldwide. The government has stated objectives of attracting private and foreign investments and
initiatives are being taken and contemplated to facilitate the same. In coal mining sector itself, private
sector participation is being encouraged and coal blocks have been allocated for mining, gasification
and liquefaction. As the Indian economy grows further, with resilience in light of global slowdown, it is
faced with energy security concerns, which hinges on increase in domestic production capacities and
acquisition of assets abroad. Private sector companies with coal blocks need to tread the maturity
curve and implement projects. It is expected that the mining sector will have to be prepared to rise to
the challenge fuelling growth engines.

PricewaterhouseCoopers in India is engaged in providing advisory services in mining sector across

the entire value chain of mining, including but not limited to

• Fuel and raw material sourcing strategy

• Nurturing new entrants and growth potentials
• Industry cross border transactions and consolidation
• Process improvement and operational transformation
• Retaining talent and human resource strategy
• Sustainability
• Reforms and restructuring
• Risk management and regulatory compliance
 Contacts

Organiser Knowledge Partner

Indian Chamber of Commerce PricewaterhouseCoopers Pvt. Ltd.

Kolkata Kameswara Rao

Indian Chamber of Commerce
ICC Towers Executive Director and Industry Leader
4, India Exchange Place for Energy Utilities & Mining
Kolkata - 700001 E-mail: kameswara.rao@in.pwc.com
T: 033 22303242 - 44 +91 40 6624 6600 (office)
F: 033 22313377/80 +91 98 480 41352 (mobile)
W: www.indianchamber.net +91 40 6624 6200 (facsimile)

#8-2-293/82/A/1131A
293/82/A/1131A – Road No. 36
Guwahati Jubilee Hills, Hyderabad – 500034
Andhra Pradesh
Indian Chamber of Commerce
House No. 209
AIDC
R G Barua Road Dipesh Dipu
Guwahati: 781024
Assam
T: + 91 0361 2461763 Principal Consultant – Mining
F: + 91 0361 2461763 E-mail: dipesh.dipu@in.pwc.com
+91 40 6624 6202 (office)
+91 99 896 00236 (mobile)
Delhi +91 40 6624 6200 (facsimile)
Indian Chamber of Commerce #8-2-293/82/A/1131A
293/82/A/1131A – Road No. 36
Jubilee Hills, Hyderabad – 500034
323, Ansal Chamber II, Andhra Pradesh
6, Bhikaji Cama Place,
New Delhi 110066
Tel : 011 4610 1431 -38
38 , 4610 1439
Fax: 011 4610 1440 /1441