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Indian coal-fired plants face worsening crisis

By Sunil Saraf

June 28, 2011 - The coal supply crisis facing Indian power generators is worsening. A group of ministers set up earlier this year to resolve the problems reached no decisions at its third meeting on June 9, underlining the gravity of current and future coal shortages, particularly for projects due to be commissioned in the five-year period to March 2017.

About 80,000 megawatts (MW) of capacity is currently under construction in India. Most of the capacity will be fueled by coal.

And more projects will have to start construction if the power ministry is to meet its tentative target of adding 100,000 MW of capacity in the next five years.

But domestic coal production is hamstrung because of the difficulty of getting environmental approvals, acquiring land and agreeing the relocation of people who will be displaced at potential mining sites.

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Each of these constraints can require years of work before the administrative approvals are put in place.

The ministerial group has the task of resolving the deadlock - now applying for more than two years - between the environmental and coal ministries about the former's demarcation of forests into areas where mining is and is not permitted.

This has prevented the development of 203 coal mines whose production could potentially fuel 130,000 MW of capacity.

Total coal production during the financial year ending March 31, 2011 was 534 million metric tons. About 77% of all domestic coal production is used for power generation.

Daily Coal Price Trends ($/mt): March 15 - June 15, 2011
Click image to view full size daily coal price trends chart

The main coal producer is the central government-owned Coal India Limited (CIL), which accounts for about 80% of national production.

At 431 million metric tons, its output during the year ending March 2011 showed almost no growth and fell short of target by about 7%.

The only other major producer allowed to mine coal for open sale is the Singareni Collieries Company Limited, which is a joint venture between the central government and Andhra Pradesh state. At 51.33 million mt, it reported growth of less than 2% for the last financial year.

Most of the remaining coal was produced by captive mines, whose output is used in associated power plants or other facilities.

Because of low production growth but burgeoning demand rising coal imports are seen as the only solution at present.

But power producers are reluctant to buy imported coal, which costs more than double domestic output, whose price is indirectly controlled by the government.

Most power plants sell their output under long-term contracts signed with the state-owned distribution licensees who still hold a virtual monopoly on supplying final consumers.

For many recent plants the power sales tariffs are set by competition between bidders for the projects, making it very difficult for the developers to use high-priced imported coal.

Blending local and imported coal is seen as one way of substantially expanding the pool of affordable supplies, but the design of most boilers supplied by domestic equipment manufacturers is a limiting factor.

The equipment can only use a blend including 15% of imported coal at most.

In May, the Central Electricity Authority (CEA) asked the developers of new power plants and equipment manufacturers to design boilers that can use up to 30% of imports, but this will take some time to implement.

There are also problems relating to the port capacity available to handle imported coal. Only three ports, including Mundra on the western coast and Gangavarm and Dhmara on the east coast, can handle capesize vessels.

The higher discharge and freight costs entailed by using smaller vessels thus exacerbate the higher on-board price of imports. (See related price chart: Coal 6300 kcal CFR EC India: March 15 - June 15, 2011).

Nevertheless power companies imported about 30 million mt of coal in the year to March 2011, about 29% more than in the previous financial year.

Further growth in imports is seen in coming years, subject to the port constraints.

The domestic supply shortages and increasing imports have led the authorities to consider pooling the price of domestic and imported fuel so that consumers of the latter are not disadvantaged.

A CEA committee is looking at the issue and is expected to submit its report to the power ministry by July.

But power generators are concerned about the likely complexity - and ultimate feasibility - of pooling arrangements, with concerns that they could cause delays in the shipment of imported coal.

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