Coal news and updates

Power firms seek fast auction of coal mines

The fuel-starved power industry has sought early auction of the 24 de-allocated coal blocks, which they feel can shrink the 120 million tonnes supply gap significantly.

At optimised production level, these mines can produce 70 to 80 million tonnes.

Industry officials say the government can largely address the existing shortage by prioritising auction of the de-allocated mines and allocating 54 new coal blocks.

This should be followed by development of rail and transport linkages to ease supply-side bottlenecks.

In 2012-13, the government de-allocated about 30 captive coal blocks that had been awarded to Jindal Steel and Power (JSPL), Tata Power, Arcelor Mittal, Sterlite Industries and others, as they failed to start production in five years. Six of them were later returned to the firms.

Ravi Uppal, managing director of JSPL, said the government should auction all the de-allocated mines where the owners have not gone for litigation. “We all have the right to participate in the auction of new and the de-allocated mines,” he said.

JSPL has gone to court after the government took back three captive coal blocks at Amarkonda, Urtan North and Ramchandi.

“It is not clear how many of the de-allocated coal mines can be auctioned at a short notice, as there is no data to tell how many companies have taken the legal route to sort out the issue. But if these mines are auctioned again, they can bridge the deficit by up to 70-80 million tonnes,” said Dipesh Dipu of the Hyderabad-based Jennissi Consultancy.

India’s peak coal shortage is expected to touch 200 million tonnes by 2016-17 rising from 120 million tonnes in 2013-14. The gap would have risen to 150 million tonnes last financial year, but for a drop in demand due to lack of fresh capacity addition.

Nearly 208 coal blocks have been allocated since 1993 with a reserve capacity of 50–60 billion tonnes. At an average annual production of 400-500 million tonnes, these mines can operate for more than 50 years.

JSPL’s Uppal said the government should look at speeding up the process of allocating fresh coal blocks.

Nagaprasad Kandimalla, former CEO for business development at Lanco Infrastructure and the current official spokesperson of the Telugu Desam Party, (TDP) said the government should make it a priority to bring domestic coal blocks — including the ones de-allocated last year — back into production.

“The land acquisition process also needs to be streamlined, as it can cause unnecessary delay in starting early operations. I believe the new government has the wherewithal to streamline the process,” Kandimalla said.

Lanco’s four coal-based projects have been suffering due to lack of coal linkages. The company is looking to sell two projects in Anpara and Udupi.

A Tata Power spokesperson declined to participate in this story. Repeated attempts to reach coal ministry officials proved futile.

A senior business development officer of Reliance Infrastructure said the government should urgently privatise the coal sector and bring in management efficiency at Coal India and its subsidiaries.

“The railway lines are not there and CIL is facing shortage of rakes. Railways should identify the relevant areas of coal transportation and set up rail networks,” he said.

Industry experts say fixing a rational power tariff structure is imperative for coal sector reforms to bring results.

“Power tariffs must be reflective of the cost of production. State electricity boards and power distribution companies should also benefit from the reforms. Higher tariffs will ensure higher incomes to the state boards, which will then have enough cash flow to borrow costly power from the generators. The government should have a comprehensive outlook on the sector,” said the Reliance Infrastructure official quoted above. He barred naming.

Brokerage Morgan Stanley in a report said awarding captive coal blocks, especially to private power companies, through the competitive bidding can reduce their dependence on Coal India, improve mining efficiencies and augment domestic supply.

The report suggested a policy on surplus coal banking from captive mines and introduction of the PPP concept for Coal India mines. “Cheaper domestic coal can replace expensive imported stuff and those sourced through e-auction. It will also boost profitability significantly,” the report said.

Source: Financial Chronicle