Private coal far away and costly
Excavation may take up to six years
Aditya Birla Sun Life Mutual Fund has decided to temporarily suspend acceptance of fresh subscriptions in two of its debt schemes from Friday. The schemes are—Aditya Birla Sun Life Medium Term Plan, which invests in instruments with a duration of 3-4 years; and Aditya Birla Sun Life Credit Risk Fund, which mainly invests in AA and below rated corporate bonds. It said no fresh registration under SIP will be accepted.
From the prompt announcement of the methodology of coal auction on Wednesday, it is apparent that the government wants to start the bidding process at the earliest. However, even if bidding happens in the current fiscal, excavations are unlikely to happen in the next six years and by then thermal power plant capacity addition will virtually stop in India. Moreover, the envisaged revenue sharing model will further increase the price of coal-generated power when renewable energy is available dirtcheap.
Due to the long gestation period for coal excavation, the opening of the coal sector is unlikely to reap any near- to medium-term benefits to the power sector, finds Emkay Global Financial Services. Land acquisition, environmental and forest clearances, rail/road connectivity, rehabilitation and resettlement generally take four-five years and then overhead excavation takes another one year before coal production starts at mines. Thus, even if bidding happens in FY21, the coal excavations is unlikely to happen before FY26FY27, said Anuj Upadhyay, research analyst at Emkay Global.
The Central Electricity Authority of India has clearly said that the sector is unlikely to see any new thermal capacity addition beyond FY27. The current under-construction and existing coal capacities would be sufficient to meet the future power demand in the country along with the renewable plants. Further, the government's focus on meeting Paris commitments on reducing emissions entails more capacity addition across the renewable space.
"When public money is in shortage, the government should have allocated it to sectors of the future like renewable energy rather than spending it on unviable coal sector," said Kanika Chawla, director, Centre for Energy Finance.
The government has announced Rs 50,000 crore investment in building coal evacuation infrastructure as part of the Aatmanirbhar Bharat Abhiyan.
Further, the revenue sharing model mooted by the government could lead high production cost of coal and in turn spike in the cost of thermal power, which is already higher than other sources of power. It would neither help the discoms, which are already reeling under huge financial losses and outstanding payments.
A coal ministry release on Wednesday said that the floor price shall be four per cent of the revenue share."
From a demand-supply perspective, too, evacuation of coal with such urgency does not make sense. While power demand is expected to remain subdued in FY21 due to underutilisation across commercial and industrial sectors, the combined coal stock of Coal India's power plants and pitheads are at a record 119.24 tonnes. Hence there won't be any coal shortage in the near future.