COAL MARKET IN INDIA 2012

1. COAL MARKET IN INDIA 2012 “Demand - SupplyGap & Technical Challenges in Augmenting CoalProduction” T K Mukherjee General Manager (Corporate Planning) Coal India Limited 10th July, 2012

2. STRATEGIC IMPORTANCE OF COAL IN INDIA • Around 85% of coal consumed is met through indigenous source • CIL produces 81 % of India’s current coal production and meets 70 % of coal demand equivalent to 37 % of India’s commercial energy needs * Others - 9 % ** Others - 26 % SCCL - 10 % Steel - 2 % Power (U)-72% CIL - 81 % Coal Production : Company -wise Share Sector-wise Supply Share from CIL Sources * Others include captive producer ,TATA STEEL, Meghalaya & Other PSUs ** Others include cement, sponge iron, fertilizer. Bricks etc 2

3. INVENTORY OF INDIAN COAL RESOURCES (in Bt) As on 01.04.2012 TOTAL RESOURCES – 293.50 Bt.

4. INDIAN COAL RESOURCES (Bt) - As on 01.04.2012

5. ALL INDIA DEMAND / SUPPLY SCENARIO- Past Trend

6. ALL INDIA DEMAND / SUPPLY SCENARIO – Future Projection *Assessed by Planning Commission # Considering CIL’s supply of 556.4 Mt & 615 Mt as mentioned in Working Group Report XII Plan in ‘BAU’ & OPT Scenarios respectively

7. Year-wise/Sector-wise Coal Consumption/Demand - Mt

8. Drivers of future coal demand • Sufficient upside in demand available, Per capita annual electricity consumption in FY08 was approx 704 kwh compared to USA (13066 kWh), UK (6231 kWh), China (1379 kWh), Brazil (1934 kWh) • High Unmet Demand • During summer, the power supply deficit is about 11-12 % • Electricity for All - As per the National Minimum Common Program, the government intends to provide access to electricity to all households. Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), is designed to provide access to all households and actually electrify only BPL households • Coal being the most abundant fuel source in India, the coal based power generation will remain strong in India ~ Coal based capacity addition is growing at a faster pace than the general power industry and as such the demand for coal is expected to remain strong • Coal based Generation Capacity Addition Scenario • IX Plan (1997- 02) ~ 8000 MW • X Plan (2002- 07) ~ 8500 MW • XI Plan (2007-12) ~ 41660 MW • XII Plan (2012-17) Projection: Proposed Capacity Addition Programme around 70, 000 MW

9. Based on LOA’s granted by SLC(LT) & other commitments, the future coal balance for CIL is to a large extent (-) ve The envisaged production of CIL is less than the commitments already made The peak deficit of (447 Mt) 96 % is in FY 2013 This necessitates to augment the domestic coal production. Increase in domestic production is very much uncertain and as such requires enhance import facilities The responsibility of CIL will be huge given the New Coal Distribution Policy which envisage total demand of the country to be met by CIL including coal imports, if required.

10. Source-wise Production (Mt) – Past Trend & Programme for 12-13 & XII Plan (Mt) * Growth% over previous year # The production in Optimistic Scenario is available only if the requisite clearances are processed in fast-tracked route and delivered within the specified time schedule. The issues affecting land acquisition, R & R, law & order and evacuation infrastructure in particular will also have to be addressed in a time bound manner 10

11. Production vs Off-take vs Stock Scenario in CIL Coal inventory levels have grown as coal production has increased. It has not been possible to push coal to customers & off take has lagged behind coal production due to non-availability of scheduled no of rakes. Evacuation not kept pace with production leading to build-up of abnormal coal stock(74 Mt) (About 53 Mt increase in 8 years 450 80 Production Off-take 70 400 Stock position 60 50 350 40 Mt 300 30 Mt 20 250 10 200 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY 10 FY11 ** As on 31st May 2012, Coal stock position is 63.618 Mt

12. MAJOR REASONS FOR SLIPPAGE IN PRODUCTION DURING XI PLAN • Delay in Land Acquisition • Embargo imposed in view of CEPI • Delay in Forestry & Environmental Clearances • Mismatch between Production & Transport Capacities • Non-availability of adequate railway wagons mainly in IB, Talcher, Korba, North Karanpura & Jharia Coalfields • (CIL’s growth in coal production in XI Plan over X Plan is 75 Mt but coal stock has increased by about 30 Mt during the same period. So, actual coal available to consumers was only 45 Mt • Delay in construction of New Railway lines in expanding coalfields • Delay in implementation of projects • Law & Order problems in Jharkhand & Orissa

13. Challenges for Enhancing Domestic Coal Production • Land Acquisition is the biggest bottleneck in coal mining operations • CIL has faced prolonged delays in multiple of its projects leading to loss of production • Even after acquisition, possession of land presents another problem to the company

14. Forestry/ Environment Clearance Evacuation Infrastructure

15. INITIATIVES FROM CIL TO MEET GROWING DEMAND ~ CIL, in association with KPMG has formulated Vision 2020 document in view of the increasing requirements on the organization. ~ Based on the aspirations of the organization, Six Strategic Themes has been identified, namely, Scalability of Production, Operational Excellence, Employer of Choice, Sustainability, Customer Orientation and Diversification. ~ Multiple initiatives have been discussed under each strategic theme to bring about the transformational change in the organization. CIL Vision 2020 • CIL is taking initiatives to enhance annual drilling capacity to 0.582 mn meters by FY2013 from 0.498 mn meters achieved in FY2012 • The company has intends to achieve conversion of inferred and indicated to proved reserves 3 times the historical performance. • CIL is also undertaking systematic exploration to arrive at reliable estimate of coal reserves and application of information technology to create geo database. Exploration Activities Identification of Projects 57 coal projects of XI Plan spilled over to XII Plan and about 70 new projects tentatively identified for XII Plan period.

16. Initiatives continued… • CIL is actively working various control measures currently available for controlling underground mine fire (in Jharia and Raniganj) delineated in Master Plans. Implementation of Master Plan towards fire control, surface stabilization, rehabilitation with an estimated capital out lay to the tune of Rs.7112.11 crores, in turn CIL may able to recover locked coal to the tune of 1453 Mt to the possible extent. • At the time of Nationalisation, no of fires were 70. Affected surface area was 17.32 Km². After taking proper mitigation measures, the affected area reduced to 8.90 Km² Implementation of Master Plans • As on date, CIL is operating 17 washeries with cumulative throughput capacity of 39.04 Mty. • CIL is going to set up another 20 integrated coal washaries with total capacity of 111.10 Mty to supply washed metallurgical as well as thermal coal to consumers. • This will not only save transportation cost of high amount of ash contained in Indian coal but also able to supply coal with much higher calorific value vis-a-vis higher fixed carbon contained in steel and power sectors. Coal Beneficiation

17. TECHNICAL CHALLENGES • Current coal production of CIL • ~ About 397 Mt i.e. 91 % comes from opencast mines • ~ About 38 Mt i.e. 9 % from underground mines. • CIL operates 467 mines – 164 OC, 273 UG mines, and mixed 30. • Since inception focus was on large OC projects, for quick addition of substantial production capacity in view of abundant coal reserves in thick seams at shallow cover • Cost of production: • UG: Rs. 4632.39/te compared to Rs 691.36 /te of OC and overall Rs 1035.47 /te • Reduction in cost of production in UG mines & enhancement of UG production is a challenge for CIL

18. TECHNICAL CHALLENGES – OC MINES

19. TECHNICAL CHALLENGES – OC MINES

20. TECHNICAL CHALLENGES – OC MINES

21. TECHNICAL CHALLENGES – OC MINES

22. TECHNICAL CHALLENGES – UG MINES

23. TECHNICAL CHALLENGES – UG MINES

24. TECHNICAL CHALLENGES – UG MINES

25. Foreign Acquisitions - Strategy Framework TARGET PRODUCTS & DESTINATIONS: • Mozambique – Coking & thermal from own assets • Indonesia - Thermal coal [ > 4000 kcal/kg (ARB)] • South Africa - Thermal Coal [ > 5500 kcal/kg(ARB)] • USA - Thermal Coal [ > 6000 kcal/kg(ARB)] • Australia - Thermal Coal [ > 5500 kcal/kg(ARB)] BUSINESS MODEL: • Equity Model • Stake with off take contract in brown field assets • 100% or majority stake in green field assets • Off-take Model : • Long term contract essentially with coal miners • Short term contract 25

26. Initiatives taken so far – Equity Model Mozambique: • 2 coal blocks acquired in Mozambique • Area - 224 sq km • Location – Moatize district, Tete Province • Wholly owned subsidiary Coal India Africana Limitada registered in Mozambique • Office opened in Tete in March 2012 • Team of senior officers posted • Parties short-listed for drilling through global EOI • Drilling likely to commence in 2 months time 26

27. Initiatives taken so far – Equity Model South Africa: • MoU signed with Provincial Govt. of Limpopo in 2011 • Strategic alliance for exploration and development of coal assets in Limpopo Province • Exploratory visit by CIL • Potential zones for coal resources identified 27

28. Initiatives taken so far – Equity Model Other countries : • Govt. of India has issues guidelines for PSUs in Jan 2011 for acquisition of raw material assets abroad • Policy adopted by CIL Board • Investment Bankers sensitized to assist CIL in M&A • Opportunities are being explored through bi-lateral platforms particularly in African continent 28

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