1. Ri s ks to Coal India and India’s Coal Strategy: No Plan B Tom Sanzillo, Director of Finance Institute for Energy Economics and Financial Analysis New York Society of Security Analysts November 13, 2013

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3. Overview India’s Coal Plan: Coal India Limited’s (CIL) Role Risks to CIL’s Stock Performance Risks to India’s Coal Plan A cumulative risk scenario

4. India’s coal plan

5. India’s Coal Plan 70% of generation currently from coal 56% capacity from coal Total coal generation estimated to be flat by 2017, drop to 58% by 2030 Rapidly rising GDP and electricity demand requires new coal capacity

6. Expand Coal capacity by 69,000 MW Assumes rising private sector activityAssumes rising private sector activity 79% of new capacity from coal79% of new capacity from coal State of India increase domestic coal production Increase from 540 million tons per annum (mtpa) to 795 mtpa by 201Increase from 540 million tons per annum (mtpa) to 795 mtpa by 201 In 11 th Year plan India originally estimated 731 by 2012; reduced target to 640 mtpaIn 11 th Year plan India originally estimated 731 by 2012; reduced target to 640 mtpa Increase Coal Imports from 130 mtpa 2013 to 185- 190 mtpa by 2017 Goldman estimates total imports in Pacific region up 45 mtpaGoldman estimates total imports in Pacific region up 45 mtpa India up 60 mtpa offsetting China’s decline by 60 mtpaIndia up 60 mtpa offsetting China’s decline by 60 mtpa Five Year Plan through 2017: Increased plans for coal sector

7. “With the best effort at increasing domestic production it will not be possible to meet the increased demand for coal from domestic production” (12 th Five Year Plan).

8. CIL from 435 Million Tons Per Annum to 615 Million Tons Per Annum by 2017 (8% growth estimate, 4.6% achieved during 11 th Year Plan)CIL from 435 Million Tons Per Annum to 615 Million Tons Per Annum by 2017 (8% growth estimate, 4.6% achieved during 11 th Year Plan) Aggressive foreign acquisitions.Aggressive foreign acquisitions. Coal India Limited (CIL)’s Role

9. Coal India: risks to stock price

10. Risk #1: Weak Stock Performance since 2010, continues $5.51 per share in 2010 to $4.54 per share in 2013 – or an approximate 18 drop$5.51 per share in 2010 to $4.54 per share in 2013 – or an approximate 18% drop Rose 40 on initial trading to $7.80 per shareRose 40% on initial trading to $7.80 per share Peaked at $9.00 per share in May 2011Peaked at $9.00 per share in May 2011 Down 21 - October 2013 YOYDown 21% - October 2013 YOY New sale of stock seeking $1.3 billion Strong start, weak prices 245INR (IPO) to 279INR per share (10/26)

11. Risk # 2: CIL Shrinking Margins

12. Risk # 3: Dysfunctional Pricing India Historic Domestic Price: $30 +/- per tonIndia Historic Domestic Price: $30 +/- per ton India energy adjusted: $26 per tonIndia energy adjusted: $26 per ton CIL - $19-$24 per ton (2011 –present)CIL - $19-$24 per ton (2011 –present) Historic Import Price: $70+/- per tonHistoric Import Price: $70+/- per ton China energy adjusted: $70 per tonChina energy adjusted: $70 per ton “Coal prices are theoretically decontrolled, but in fact they are adjusted only in consultation with the Ministry” (Twelfth Five Year Plan, Energy)

13. Risk #4: More Imports – Upward Pressure on Coal and Electricity Prices

14. The Children’s Investment Fund (TCI), shareholder, institutes suit CIL selling coal below fair market value prices Uneven economic distribution of subsidy CIF: A market price is $75-$80 per ton ($50 per ton higher than current CIL pricing) Governance concern CIF sold >25% of shares purchased in 2010 Risk #5: Shareholder Concerns

15. Risk # 6: State of India Concerns “Given the importance of expanding supply and the indifferent performance of Coal India in increasing production, there is need for inducting private sector investment in coal” (Twelfth Five Year Plan, Energy, p. 37)

16. Risk # 7: Is CIL ready for global prime time Criminal Indictments Coal Reserves Reporting Overstaffed CIL has 350,000 employees and produces 400+ mtpa – investor concern.

17. RiskS to India’s Coal Plan

18. Risk #1: Slower Economic Growth Slowing worldwide GDP growth, more cautious outlooks— 2013 and beyondSlowing worldwide GDP growth, more cautious outlooks— 2013 and beyond 11 th year plan assumed 9% GDP annual growth11 th year plan assumed 9% GDP annual growth Achieved: 8.2% GDP annual growth and electricity growth of 6.4%Achieved: 8.2% GDP annual growth and electricity growth of 6.4% 12 th year plan assumes GDP annual growth 9.0% minimum12 th year plan assumes GDP annual growth 9.0% minimum Electricity sector – 8.5% growthElectricity sector – 8.5% growth Current GDP growth for 2013 expected at 4-5%Current GDP growth for 2013 expected at 4-5% Several down grades during yearSeveral down grades during year Generation growth at 5.7% in 2013, coal generation up by 4% YOY (Through Sept. 2013)Generation growth at 5.7% in 2013, coal generation up by 4% YOY (Through Sept. 2013)

19. Risk # 2: Currency and Fiscal Short/Long Term Pressure on Energy Sector Risk # 2: Currency and Fiscal Short/Long Term Pressure on Energy Sector Fossil fuel subsidies, including coal, trigger deficit spending, diminish value of RupeeFossil fuel subsidies, including coal, trigger deficit spending, diminish value of Rupee Since 2010, IPO Rupee drops 40%Since 2010, IPO Rupee drops 40% Utilities/Government pay for coal in $US and pay for electricity system in RupeesUtilities/Government pay for coal in $US and pay for electricity system in Rupees RisksRisks Short term deficitsShort term deficits Medium term recovery - slowMedium term recovery - slow Long term – fossil fuel subsidies/economic growth, sustainableLong term – fossil fuel subsidies/economic growth, sustainable

20. Risk # 3: Upward Coal and Electricity Prices Needed: Unpopular/Dis-economic? “Electricity to the consumer is also underpriced.” “A transition to more rational energy pricing requires upward adjustment in all these prices.” “Electricity prices are set by State regulators but most regulators have shown a tendency to hold back tariff adjustments, typically under political pressure.” “Suppressing energy prices will not help.” (Twelfth Five Year Plan, Electricity Prices)

21. Risk # 4: Slowdown in Coal Plant Expansions Massive insolvency of state utilities weakens investment climate Annual losses growing at discoms. Current situation “unviable” Small Developers backing out of new plants Prices do not incentivize new power, coal shortages Large developers: full hands, empty pockets State of India BBB- ( Fitch/SP negative watch) World Bank and other IFI’s Policy to diminish support for coal fired generation Support for renewable investment The negative case of China Air pollution Can India afford debt of Chinese style coal build out?

22. Risk # 5: Supply Expansion International Acquisitions CIL’s Mozambique effortCIL’s Mozambique effort Owns coal blocksOwns coal blocks Fielding proposals from other African countriesFielding proposals from other African countries Private efforts to deliver new reserves from Australia and United States challenged.Private efforts to deliver new reserves from Australia and United States challenged. Australia – in discussion on proposalsAustralia – in discussion on proposals United States – CIL reviewing proposalsUnited States – CIL reviewing proposals

23. CUMULATIVE risks

24. Cumulative Risk: Will Coal India and coal strategy be a drag on India’s growth plans? Coal India Failure to raise share valueFailure to raise share value Supply problems – performance and reservesSupply problems – performance and reserves Shrinking Margins – political revenues and rising costs of miningShrinking Margins – political revenues and rising costs of mining Dysfunctional Coal Prices – too low, exports exacerbate economicsDysfunctional Coal Prices – too low, exports exacerbate economics Governance: shareholder concernsGovernance: shareholder concerns Low Confidence in Coal IndiaLow Confidence in Coal India

25. Cumulative Risk: Will Coal India and coal strategy be a drag on India’s growth plans? India Coal Strategy Slower Economic Growth Impacts on industrial and residential differently Supply Problems Currency and Fiscal Pressures Power Price Dilemma – do rising prices harm a slowing economy? Acquisition Risks Slowdown in Coal Plant Expansion – cash strapped utilities – pull back from coal