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.

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.)

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