Coal news and updates

Is the NDA government's plan to ease coal supplies to private power plants going to spark another gigantic misallocation of coal - leading to large losses to the coal producing sector?

 

According to a Times of India report, the power ministry's proposal to supply coal from Coal India's mines to nine private power projects could mean they could get the fuel at Rs 1,500 a tonne, instead of the open market price of Rs 4,000 per tonne.

 

According to the analysis, the government will be saving the nine private companies approximately Rs 6,083 crore a year and the total benefit to the companies over a 25-year period would amount to around 1.52 lakh crore, which is reportedly being done to ensure the private power companies don't shut down and pass on the consequent losses to the banking system.

 

The biggest gainer, according to the report, will be Gautam Adani's group which has  two power plants stranded due to fuel shortage and could save approximately Rs 38,000 crore over 25 years - if the proposal is approved. The other gainers are expected to be power plants owned by Bajaj, GMR, Jindal Power, Essar, Monnet Ispat, BC Jindal Group and GVK.

 

However, the calculation of gains to private power plants can change depending on how imported coal costs change over these years and also how power tariffs get fixed if, indeed, these plants get cheaper coal. Also, it is not clear if the power ministry's plans to ask Coal India to offer coal at notified prices instead of e-auction prices are a temporary measure intended to keep these plants running or intended to be a long-term solution to the problem. In any event, once the Supreme Court makes its final verdict clear in the coal blocks scam, blocks will be offered to bidders by auctions and these companies may be asked to bid for blocks.

 

The Times report points out that many of the power plants are currently stranded due to the coal block allocation scandal or because companies, like Adani, had planned their projects to be run on imported coal.

 

The proposal comes even as the government is expected to maintain a neutral stance in the apex court regarding the coal block allocations and will not ask the bench to spare even the 46 coal blocks that have already been allocated to private companies. The apex court had earlier declared all coal blocks allocated between 1993 and 2009 as illegal.

 

However, the government may have little choice but to find some ways of keeping the plants, which have a combined capacity of 10,580 mw, operational, failing which it would have to figure some way of meeting the shortfall.

 

The government's other dilemma is the politically-controlled state power distributors who tend to subsidise power for favoured constituencies like farmers. Allowing the private power companies to fend for themselves might only result in them either passing the fuel cost to highly indebted state power companies or shutting down.

 

The real loser in the government's move will be Coal India, which will now see profits fall due to a reduction in the e-auction offerings. Coal India accounts for more than 80 percent of the nation's total coal production.

 

Coal India has already warned that it will fall around 30 million tonnes short of its commitment to supply 408 million tonnes to power generators in the year to 31 March 2015 and as Power Minister Piyush Goyal admitted yesterday (7 September) that there's no real alternative presently.

 

The power minister said that the government was "open to all options" on fixing the coal supply situation but also said the government would not consider opening up coal production to private competition immediately.

 

Coal India has claimed that it is planning to initiate and develop infrastructure facilities like speeding up the process of laying railway tracks, especially in those areas where coal reserves can be tapped, but whether it will be able to do so in time to cater to this additional demand isn't clear.

 

The government may bail out the private power companies with this move, but may have only pushed a power crisis back by a bit given Coal India's current woes.

 

 

Source: http://firstbiz.firstpost.com/