COAL PRO­DUC­TION SUR­PLUS MAKES IN­DIA LOOK AT COAL EX­PORT

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From be­ing a coal im­porter, In­dia has reached a point where the coun­try’s largest pro­ducer — state-run Coal In­dia Ltd — is look­ing at ex­port­ing the fuel, as growth in pro­duc­tion has out­paced con­sump­tion on the back of the com­pany’s turn­around scripted by the coal min­istry in the last two years.

An In­dian team re­cently vis­ited Bangladesh to study the mar­ket po­ten­tial. To be­gin with, the 1,320 MW power sta­tion be­ing built by In­dia’s flag­ship gen­er­a­tion util­ity NTPC in joint ven­ture with Bangladesh Power De­vel­op­ment Board could be a po­ten­tial cus­tomer.

Coal pro­duc­tion rose 8.5% to 536 mil­lion tonne in 2015-16, as a re­sult of a re­forms push by the min­istry un­der Piyush Goyal. Ever since he took over as coal, power and re­new­ables en­ergy min­is­ter, Goyal has been fo­cus­ing on ex­pe­dit­ing green clear­ances and get­ting states on board for land ac­qui­si­tion for new mines.

As an in­di­ca­tor of im­proved sup­ply from Coal In­dia, NTPC, its big­gest consumer and largest coal user in the coun­try, has said it would not im­port any coal this fis­cal – for the first time in a decade. There would still be some quan­tity of im­ports for steel and coastal power plants. In­dia’s to­tal coal im­ports had risen 27% to 212 mil­lion tonne in the year to March 2015.

“It’s a re­mark­able turn­around story. So far In­dia de­pended on im­ports (to bridge short­fall, as Coal In­dia’s pro­duc­tion lagged de­mand). But with record pro­duc­tion growth, Coal In­dia is able to look at ex­ports,” coal sec­re­tary Anil Swarup said.

While de­clin­ing to com­ment on the In­dian team’s visit to Bangladesh, Swarup said In­dian coal would work out 20-30% cheaper for Bangladesh than im­ports from In­done­sia. “In­dian min­ing costs are the cheap­est in the world. This makes In­dian coal com­pet­i­tive, though per­haps it can’t be ex­ported over long dis­tances due to high ash con­tent,” he said.

But the rapid in­crease in pro­duc­tion has brought its own prob­lem, by way of stock­piles at mines ris­ing to 56 mil­lion tonne at the end of 2015-16, as gen­er­a­tion util­i­ties lost ap­petite for the fuel be­cause fi­nan­cially weak state dis­coms pre­ferred to cur­tail sup­ply rather than buy more power. The stock­pile has now de­clined to 49 mil­lion tonne as off-take im­proved, pushed by a near 10% rise in power pro­duc­tion.

IN­DIA IN SWEET SPOT ON COAL PRO­DUC­TION, CEN­TRE EYES E-AUC­TION AD­VAN­TAGE

With a glut in coal pro­duc­tion cou­pled with slow off­take from the power gen­er­at­ing com­pa­nies, the govern­ment has asked power plants, that paid 40% premium for the fuel un­der a spe­cial dis­pe­na­sa­tion started in 2013, to switch to e-auc­tion route where the prices are now cheaper.

The mech­a­nism in­tro­duced in 2013 was in view of the crunch in coal sup­plies and now that enough quan­ti­ties of the fuel are be­ing pro­duced (with the govern­ment even try­ing to

APART FROM PROCURING THROUGH E-AUC­TIONS FROM CIL AND ITS SUB­SIDIARIES, SUCH PLANTS WOULD SOON HAVE THE OP­TION TO PAR­TIC­I­PATE IN COAL LINK­AGE AUC­TION. THE CABI­NET IS EX­PECTED TO CLEAR THE SAME THIS WEEK

ex­plore the op­tion of ex­port­ing coal), it has turned re­dun­dant, of­fi­cial sources said.

Nearly 8,000 MW of coal-based plants in the pri­vate sec­tor with ac­tive power pur­chase agree­ments have been procuring fuel un­der the so-called mem­o­ran­dum of un­der­stand­ing (MOU) scheme since 2013.

Adani Power’s ther­mal sta­tions in Tiroda and Kawai, Ba­jaj En­ergy’s Lal­it­pur plant and KSK’S unit in Ch­hat­tis­garh have pro­cured coal un­der the MOU route.

The govern­ment now ex­pects these plants to avail of coal via the e-auc­tion or for­ward auc­tion routes be­ing con­ducted by the state-run Coal In­dia (CIL). “We have been auc­tion­ing an av­er­age of 8 mil­lion tonnes ev­ery month and even that has not been fully utilised.

Be­sides, the plants procuring coal un­der MOU are pay­ing 40% premium on the fuel while the rates at e-auc­tion has only been marginally above the nom­i­nated (sub­sidised) price,” coal sec­re­tary Anil Swarup said.

Swarup added the MOU scheme was a relic of the past, de­vised at a time when coal pro­duc­tion lagged way be­hind ther­mal ca­pac­ity in­stal­la­tion rate. The scheme was ini­tially slated to ex­pire at the end of last fis­cal. How­ever, the coal min­istry ex­tended the ten­ure by three month to June 30.

Apart from procuring through e-auc­tions from CIL and its sub­sidiaries, such plants would soon have the op­tion to par­tic­i­pate in coal link­age auc­tion. The cabi­net is ex­pected to clear the same this week. Un­der these auc­tions, state govern­ment will be al­lot­ted link­ages from CIL, which will in-turn be auc­tioned to the plants quot­ing the low­est power tar­iff in a re­verse auc­tion.

Till now, these link­ages were be­ing al­lot­ted based on rec­om­men­da­tions from a govern­ment com­mit­tee, which vet­ted fuel sup­ply ap­pli­ca­tion from the in­dus­try, much in the same way as coal blocks be­fore auc­tion mech­a­nism was in­tro­duced in 2014.

The cur­rent sce­nario is in con­trast to the one in 2013 when CIL was find­ing it dif­fi­cult to sign FSAS, de­spite con­stant prod­ding by the govern­ment. It had strug­gled to ac­cept the FSA obli­ga­tions even in case of power plants with long-term PPA and slated to be com­mis­sioned be­fore March, 2015.

The govern­ment at that time iden­ti­fied two groups of plants with an ag­gre­gate ca­pac­ity of 14,600 MW and asked CIL to sup­ply fuel to them on a short-term MOU ba­sis as they lacked Loas from the com­pany.

At the same time, apart from iden­ti­fy­ing plants for short-term sup­ply con­tracts, CIL was also is­sued a pres­i­den­tial di­rec­tive to sign FSAS with cer­tain power plants hold­ing valid let­ter of as­sur­ances (Loas).

For this pur­pose, a list of power plants to­tal­ing around 78,000 MW ca­pac­ity was fi­nal­ized by the Cen­tral Elec­tric­ity Author­ity (CEA) and ap­proved by cabi­net com­mit­tee on eco­nomic af­fairs (CCEA).

How­ever, only about 58,000 MW of this ca­pac­ity has been com­mis­sioned till date, with around 54,000 MW hav­ing long-term PPAS and are there­fore el­i­gi­ble to draw coal from CIL un­der FSAS.

Although slug­ging de­mand in coal-based in­dus­tries in­clud­ing power gen­er­a­tion has meant that the coun­try has be­come suf­fi­cient in coal, lead­ing to dras­tic fall in im­ports, the govern­ment re­alises that a pick up in de­mand could eas­ily re­verse the sit­u­a­tion.

This has prompted the govern­ment to get out of bind­ing fuel sup­ply agree­ments and evolve a mar­ket-based mech­a­nism for coal sup­ply. For ex­am­ple, the es­ti­mated coal pro­duc­tion in FY17 from CIL and its sub­sidiaries is pegged at 598 mil­lion tonne. How­ever, a look at the re­quire­ment of power in­dus­try sug­gests that pre-2009 com­mis­sioned plants alone need 304 mil­lion tonnes if op­er­at­ing at 85% plant load fac­tor.

Sim­i­larly, an­other 440 mil­lion tonnes would be re­quired to sat­isfy the de­mand of post-2009 coal-based power plants with 107.5 GW ca­pac­ity. “Coal In­dia can­not com­mit to sup­ply to all power plants even at cur­rent level of coal pro­duc­tion.

As the PLF is low, coal off-take is low, there­fore the sit­u­a­tion is easy as of to­day,” an in­dus­try source said on the con­di­tion of anonymity.

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