Coal availability has become a major issue for thermal power projects. Earlier, the delays in
projects would neutralise the delay in coal production. However, coal production in recent
times has been lagging behind capacity addition as execution delays are shrinking, especially
in the case of private sector projects.
While the Ministry of Power is desperately trying to reduce the demand-supply gap in
electricity, this is contingent on the availability of coal supply, given that two-thirds of
the power projects to be commissioned during the current Plan are coal-based.
Hence, JSW Energy in the December 2010 quarter saw its fuel expenses double year-on-year,
even as power generation and revenues only went up by 45 per cent and 39 per cent
respectively. This has been the case with most other utilities which did not have the
flexibility to pass on the rising fuel cost by way of regulated tariff. Sharp rise in fuel
cost was a function of international spot coal prices shooting up due to the Australian
floods stalling coal production.
WIDENING GAP
The coal demand this fiscal is estimated to grow by 43 per cent more than the 2006-07 demand
levels while the production may rise by only 32 per cent, widening the gap.
According to the Central Electricity Authority, another 20,000 MW of coal projects or (21 per
cent of the current capacity) are expected to be added over the next 14 months while the coal
production will only grow at historic rates of 6-7 per cent. This coupled with huge capacity
-addition targets for 12th Plan aggravate the problem of fuel availability over the next five
years.
In 12th Plan (FY13-FY17), around 74,000 MW of thermal power capacity is expected to be
commissioned, with a majority of it being coal-based. Lack of definitive fuel supply may also
hamper the financial closure of the projects in the 12th Plan, as financial institutions
insist on coal availability.
In 2011-12, according to the Annual Plan Document, the import of coal is estimated to be 137
million tonnes as against 83 million tonnes in the current fiscal. The eleventh plan
projections at 51 million tonne were revised higher due to slippages in production of Coal
India (CIL).
The import gap takes into account non-power sector demand also. Such high levels of imports
are exposing the coal-dependent sectors to volatile international prices, which have risen
significantly over the past few months.
In the medium term, power players with their own captive blocks, if developed, will be better
placed to tide over the widening demand-supply gap, followed by those with coal linkages.
This category is followed by the companies which own mines abroad. These high quality mines
are expensive compared with domestic mines, which would mean higher power tariffs to make the
same returns. The last category, which sources coal in the e-auction market of CIL or global
spot market, are most vulnerable to both fuel price and procurement risk. These projects
typically sell in the short-term merchant market to improve their profitability.
COAL BLOCKS AND LINKAGES
Of the 208 captive coal blocks, around 113 have been allocated to private companies. The
reserves of these projects are huge (49 billion tonnes of reserves), however, only 26 blocks
are operational. These coal blocks, in 2009-10, cornered a modest 6.5 per cent of the total
coal production. Of the 74,000 MW capacities to come up in 12th Plan, 44,000 MW capacity
would have access to captive blocks.
However, the Ministry of Power is concerned about the delays in developing these mines, on
account of environmental clearances, obtaining mining lease and land acquisition.
Most of the coal supply for the power sector is however through coal linkages. . More than 90
per cent of the non-coking coal mined by CIL is supplied to the power sector through this
route. The ones with coal linkages would be subject to procurement risk while price risk is
mitigated. But lack of adequate infrastructure for speedy movement of coal produced is a
concern due to remote location of the mines and coal wagon shortage.
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