In a recent meeting of state power
ministers, Union power minister
Sushilkumar Shinde* expressed
concerns over coal inadequacy. While
India has been importing coal to tide
over domestic shortages, the
dependence on imported coal is
proving unhealthy. Excessive reliance
on imported coal has a covenant in
that vagaries of international pricing
have to be borne by the end consumer.
In summary, Shinde said, "Therefore
the focus in the XII Plan has to be on
increasing domestic coal production."
India has not a great time with its
coal scenario in recent years.
Domestic production has not keep
pace and the power sector, the largest
consumer of coal, has been the biggest
casualty. In the XI Plan that concluded
on March 31, 2012, India added as
much as 67,298 mw of power
generation capacity as against a
meager 22,283 mw in the X Plan. Coalfired
plants accounted for over half of
the incremental power capacity in the
XI Plan. India will continue meeting
its base-load requirement from coalfired
plants in the foreseeable future.
Availability of coal will therefore be
critical to ensuring that India's power
generation capacity is gainfully
utilized.
Coal India, the nation's largest coal
miner with a share of 80 per cent in
total production, produced around
436 million tonnes in FY12, falling
considerably short of the targeted 452
million tonnes. Further, production in
FY12 was barely 1 per cent higher than
in FY11. An industry analyst observed
that with thermal power generation
growing year-on-year by at least 7 per
cent, such feeble growth in coal
production is unacceptable. There is
however some good news on CIL's
recent production statistics. The
Central PSU has managed to attain its
production target of 102.46 million
tonnes set for the first quarter (April
to June) of FY13. Production in this
period was 6.4 per cent higher year-onyear.
In view of this, CIL may even
consider scaling up its original target
of 464 million tonnes set for FY13.
Experts feel that this achievement by
itself does not significantly better the
overall coal scenario. The coal supply
stock available with most thermal
power plants would barely cover six
days of operation.
Stepping up domestic production of
coal, especially through new
exploration, has not seen much
success. Some years ago, the government allowed private sector to develop coal blocks
for specified end-uses like cement production or
electricity generation. There has not been much progress
on this front, largely due to sheer indolence on part of the
private developers or because of delays in getting
requisite environmental clearance.
In the XII Plan, India has targetd to add 88,425 mw of
new power generation capacity as against 54,964 mw in
the XI Plan period. This warrants growth in domestic
coal production. Planning Commission has estimated
that India would need to import 185 million tonnes of
coal by FY17 as against 137 million tonnes in FY12.
Untitled Document
COAL FACTS |
- India is the third
largest coal producer
in the world after China
and USA
- India's current coal
consumption is 500
million tonnes per year
out of which the power
sector accounts for
over 60 per cent
- Coal-based power
plants account for 55
per cent of India's total
power capacity but
account for 70 per cent
of total electricity
generation
- The targeted growth in
coal production during
the XII Plan period is
8.4 per cent
- India's coal imports
are expected to reach
185 million tonnes by
FY17 from 137 million
tonnes in FY12
|
Private power producers are also aggrieved by the fact
that Coal India Ltd has refrained from signing firm fuel
supply agreements. The agreement has not been more
concrete than a non-binding letter of assurance. The
absence of firm fuel supply contracts posed difficulties
for power producers in various ways-project financing
became difficult and so did entering into power purchase
agreements with power utilities. The government
subsequently directed CIL to enter into a firm FSA with
power producers. In June, CIL obliged and assured to
supply at least 65 per cent of the contract volume of coal,
or face penalty. The coal giant said that 65 per cent of the
volume would be assured for the first three years moving
up to 72 per cent in the fourth and 80 per cent from the
fifth year onwards. However, power producers were left
still unsatisfied.
The power ministry has also assured that CIL will enter
into FSA assuring at least 80 per cent supplies or face
penalty, from the first year itself. Supplies exceeding 90 per
cent will attract incentives. Coal India is expected to take a
final call on the issue next month.
Pool pricing: When it comes to imported coal, there is
much uncertainty about its pricing. This in turn can
adversely impact power tariffs. It may be recalled that
two coastal UMPPs-Mundra (Tata Power, Gujarat) and
Sasan (Reliance Power, Madhya Pradesh) were victims of
price-related issues. The developers had entered into
long-term coal supply agreements with Indonesian
suppliers. As the deals were long-term, developers could
get coal at very attractive prices that were below the
market price. This gave rise developers quoting very
competitive tariffs that helped them clinch the project.
In a subsequent policy decision, Indonesia decided not to
permit export of coal at prices lower than market prices.
This jeopardized the project dynamics and developers are
finding it difficult to honour the tariffs quoted.
The power ministry, responding to this adversity, has
planned to revise the standard bidding documents for
tariff-based bidding. The developer would be granted
leeway to raise power tariffs in case of any increase in
prices of imported coal.Keeping in mind the several
unpleasant issues that could crop up with imported coal,
the government is also considering a mechanism wherein
prices of domestic and imported coal will be pooled to
iron out disparities.
(Note: This story was filed whilst Sushilkumar Shinde was still Union power minister. The new Union power minister Veerapa Moily took charge on August 1, 2012.)