Business Standard

Cement sector may play cautiously at coal auction

Shortage of domestic coal linkages and future price volatility of imported coal may reflect on bid prices

Arijit Paladhi New Delhi
With the re-allocation of 46 coal blocks coming up, beginning February 14, the government is expecting aggressive bids for all coal blocks assigned to the end-use of power generation. However, when it comes to the blocks to be apportioned to the unregulated sector of steel, cement and captive power, the cement sector seems to have a calculatedly aggressive approach to the auctions. All the major players in the cement industry have to bid for most of the blocks in the unregulated sector.

Of the 46 blocks to be allocated in the first phase, 30 are assigned to the unregulated sector. Out of 30, only two blocks – at Sial Ghogri and Mandla North, in Madhya Pradesh – already have the infrastructure for end-use of cement. Prism Cement Limited and JP Associates Limited were the prior owners of the mentioned blocks. The remaining 28 blocks are open for the aforementioned unregulated sectors.
 

Market experts say in the past, the cement sector has received the short end of the stick when it comes to coal quality as compared to the power sector. Coal linkages with sub-standard coal grade were allocated to the cement sector previously. That necessitated a greater dependency on costly imported coal and coal procurement from the open market.

Cement companies together lost allocations to 12 coal blocks following a Supreme Court order that held all captive coal allocations as illegal.

“Cement companies over the years lost the cheaper linkage coal to power generating companies, and now extensively use imported and e-auction coal,” said Kameswara Rao, Energy, Utilities, and Mining Leader, PwC.

Imported coal prices have come down sharply in the past year, easing the economics of the cement manufacturing industry. If prices of imported coal turn volatile, however, cement companies with domestic coal linkages will have a cushion to fall back on. That line of thought may incentivise a less benign approach to bidding for the blocks though.

“We cannot depend solely on imported coal prices staying low and neither can the government assure good quality coal in the open market. We expect to see aggressive bidding for the blocks,” said H M Bangur, managing director of Shree Cement.

Sl. Number Coal block with end-use of cement State Name of previous owner Listed amongst 46 blocks for upcoming re-allocation
1. Sial Ghoghri Madhya Pradesh Prism Cement Limited Yes
2. Mandla North Madhya Pradesh Jaiprakash Associates Ltd Yes
3. Bikram Madhya Pradesh Birla Corporation Ltd No
4. Gondkhari Maharashtra Kesoram Industries Ltd No
5. Thesgora-B/ Rudrapuri Madhya Pradesh Revati Cement P. Ltd No
6. Bander Maharashtra Century Textiles & Industries Ltd. No
7. Bander Maharashtra J.K.Cement Ltd No
8. Khappa & Extn Maharashtra Dalmia Cement (Bharat) Ltd. No
9. Dahegaon/ Makardhokra IV Maharashtra Gujarat Ambuja Cement Ltd. No
10. Dahegaon/ Makardhokra IV Maharashtra Lafarge India Pvt. Ltd No
11. Andal East West Bengal Rashmi Cement Ltd No
12. Moira-Madhujore West Bengal ACC Ltd No
  However, for cement companies, logistics and brand play a bigger role in value proposition, according to Rao. So that could also reflect on the bid prices for the coal blocks from major players.

“Unlike power generators, they derive greater value from their brand, logistics to market, and manufacturing efficiency. It is unlikely that they will vitiate their overall business value to simply acquire a coal block,” said Rao.

As per the bid regulations by the coal ministry, there will be a forward bidding model for the steel and cement sectors. Forward bidding entails aggressive bidding for the coal blocks, since the price of these commodities is market-driven.

In a Supreme Court ruling in August last year, 204 coal block allocations made over the past two decades were cancelled. The National Democratic Alliance government has to reallocate 46 operational and producing coal blocks through auction by March 31.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Feb 04 2015 | 12:40 AM IST

Explore News