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New power capacity might hit logistics hump

The new 78,000-Mw capacity, to come on stream by March 2015, will require an additional 308 mt, taking the overall supply to 612 mt...

The Centre’s plan to resolve the current coal crisis by firming supply agreements for 78,000-Mw power projects seems to have missed diagnosing a crucial affliction — logistics. A Business Standard analysis reveals port and railway capacities might fall woefully short of the requirement arising out of a sudden rise in demand for shipping and transportation of coal to power plants.

State-owned Coal India Ltd (CIL) supplies 304 mt to power firms annually. The new 78,000-Mw capacity, to come on stream by March 2015, will require an additional 308 mt, taking the overall supply to 612 mt — and more than doubling CIL’s coal supply within just two years.

Forced by two Presidential directives, the miner has agreed to supply 85 per cent of the new demand, or 262 mt, under the new fuel supply pacts. At least 39 mt (15 per cent of this supply) will be met through imports. So, imported coal demand from the power sector will jump by 42 per cent from 92 mt to 131 mt within two years ending March 2015. However, the logistics capacity in ports and railways sectors is unlikely to witness commensurate capacity addition to cater to the unprecedented import demand within this short period.

Railways
Based on the current carrying capacity of India Railways, every rake transports an average of 3,800 tonnes coal a day. This means, transporting 39.3 mt of imported coal to power plants will require an additional 28 rakes per day – a 17 per cent jump in rake demand over current levels. This is in addition to the 160 rakes, which will be required for transporting 223 mt of domestic coal within two years through March 2015. For comparison, last month, railways could supply only 161 rakes a day for power utilities.

Another factor that will severely limit coal transport is a lack of evacuation corridors. The government had planned to construct three corridors connecting coalfields across three states – Jharkhand, Odisha and Chhattisgarh – to free up evacuation of 300 mt of coal annually. The three corridors, originally planned to be commissioned in the XI Plan, are yet to become a reality. According to sources, work on the three rail lines has come to a standstill because of land acquisition-related issues in the Naxal-affected states.

The evacuation capacity has also been hit due to the multi-year delay in the commissioning of eastern arm of the Dedicated Freight Corridor (DFC). The 1,839-km line, stretching from Ludhiana in Punjab to Dankuni in West Bengal, was to absorb a bulk of the coal traffic from four coalfields including Mand Raigarh in Chhattisgarh (100 million tonnes per annum or mtpa), Korba in Chhattisgarh (125 mtpa), IB Valley in Odisha (192 mpta) and Karanpura in Jharkhand. The contract for the first of the three phases on this corridor was awarded recently after a two years delay recently. DFCC has now set a deadline of 2016 for completion of the first phase. “A delay of two years is expected on the eastern arm,” said Abhaya Agarwal, partner at advisory firm EY.

A senior rail ministry official accepted five connectivity projects, which can enhance coal carrying capacity by 150-200 mt, are stuck in bureaucratic hurdles of forest clearances and land acquisition. “We have all the capability and are more than prepared to for capacity augmentation but most of our projects are stuck in various clearances.”

Around 90 per cent of India’s coal output of 557 mt is transported through rail. Coal transport contributes 40 per cent of the freight revenue of Rs 84,700 crore for Indian Railways.

Ports
India’s 12 major ports have a coal handling capacity of 66 mt. This is expected to go up to 177 mt by the end of 2016-17. However, the projected requirement is 265 mt. While the demand for coal has increased rapidly, the growth in corresponding capacity has not been matched. Most of the addition in coal handling capacity, for instance, has come in the east coast. “We are anyway working overcapacity. Ideally, we should be working on 70 per cent capacity utilisation. However, most of the projects awarded last year were for handling coal,” said a senior shipping ministry official.

The government awarded 26 projects in FY13 for a capacity augmentation of 114 mtpa at an investment of Rs 5,515 crore.

A major factor that will limit capacity utilisation is poor hinterland connectivity of ports. Only 36 mt of the projected 265 mt imports will be consumed in the vicinity of ports. The remaining 236 mt will be dependent on the railway system for reaching consumption points.

According to the shipping ministry’s Maritime Agenda 2020, poor connectivity might come in the way of increasing share of rail movement in total cargo movement.

Source: Business Standard