Outlook on India's Coal Sourcing Quagmire: Imports at Record Highs?

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Commodities, Imports

Indian power suppliers, for some time now, are finding it extremely difficult to meet their commitments due to a shortage of local coal. Most have started relying on “foreign” coal, leading to increase in imports, adding to an already straining import bill. Only a percentage of the high import bill can be passed on to existing electricity customers by power companies.

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Perhaps seeing no way out of the quagmire, as recently as Sept. 10, the Union Ministry of Power (MoP) directed all state electricity regulatory commissions (SERCs) to allow power companies to recover the cost of imported coal even if it exceeds the limits stipulated in Power Purchase Agreements (PPAs).

This is a rather sensitive issue, since it would mean passing on the financial burden proportionately to electricity customers.

A report in The Economic Times said almost all private power companies were seeking to hike their rates, and with this decision the tariff was bound to go up.

The Coal Mines (Nationalization) Act of 1973 governs the right of ownership and transfer of coal in the country. At present, no private agency can sell coal in the open market within India.

As per one report, India’s coal imports this fiscal year could touch 165 million tons, topping last year’s record coal import volume of 135 million tons. July import figures themselves showed a 33 percent higher intake against the same month in 2012.

The only silver lining in this was a development last week wherein the state-run monopoly Coal India Ltd. signed long-term agreements (pending for a while) to supply coal to 16 private power projects with a total generation capacity of over 14,000 megawatts.

Seven of these projects can be commissioned as early as the next quarter (between October and December), while the rest would start power generation between January and September 2014.

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