Coal may have to be imported to meet power demand

State miner Coal India Ltd (CIL) believes 50 per  cent of the demand for power-grade fuel by electricity producers may have to  be met with imports.

"CIL has made it clear that it will not be able to meet everybody's requirement. If this has to be done, 50 per cent of coal will have to be sourced from imports," CIL chairman S. Narsing Rao told IANS ahead of a company board meeting Monday to approve the model fuel supply agreements (FSA) that include penalty provisions of 1.5-40 percent.

CIL has been in focus for its production and offtake, especially in the wake of the worst blackout the country faced earlier this month. Forced virtually by the Prime Minister's Office, the company board at a meeting here last week agreed to a proposal of supplying imported coal using a "pooled price" mechanism that was mooted first in 2010.

It also agreed to include only 25 percent of the cost of imported coal for price pooling.

Rao said the company may have to import around 20 million tonnes of coal this fiscal and power producers will have to bear the costs.

"Landed price of one tonne of coal with calorific value of 6,000 kilo calories will cost around Rs.6,000 per tonne and total outgo as a result of this is expected to be Rs.3,000 crore. Power producers using this coal will have to pay Rs.4,500 per tonne for this coal.

"Rest of the money, Rs.1,500 per tonne, will be shared from the pool which will put the burden on all power producers irrespective of their consumption. This is expected to increase the cost of coal by about Rs.87 per tonne," said Rao.

But the proposal needs approval of the Central Electricity Authority and buyers as price pooling would raise the costs of coal for existing plants and the power tariffs by about seven paise per unit.

"If coal has to be imported, consumers have to take coal at that price. We are selling coal at a discount of 26 to 70 percent of the imported price in energy terms. It is not feasible to have 100 percent import parity in the coal price. The country is not in a position to absorb that high cost."

Rao said Coal India has agreed to revision of the penalty clause in the fuel supply agreement (FSA) to meet pending demand.

"We have agreed to this (revised penalty clause) in response to the pending demand of power companies."

The miner has so far signed FSAs with 29 power companies. These include Rosa Power, Bajaj Energy, Jhajjhar Power, Rajasthan Rajya Vidyut Nigam, CESC, Lanco and Mundra Power.

Public sector producers NTPC and Damodar Valley Corp are among the 48 power producers that are yet to sign the pact.

Asked about the company's unsatisfactory performance, Rao said: "There is potential in a lot of mines to produce more, but by doing this, we would cross the EC (enviromental clearance) limit, which is not allowed. In other cases, we cannot produce because of forest clearance and land acquisition constraints."

Asked about comments that CIL cannot avoid responsibility for the shortfalls in thermal power generation, Rao said: "CIL is not the repository of the entire country's coal resources. CIL is trying to produce the maximum it can. It should be the power sector's lookout if they are not able to meet generation targets."

"Whenever Letters of Assurance (LOAs) have been granted, we have always informed the government that CIL does not have enough coal."