Coal Crisis for New Power Plants; Cost Increase of Power Producers

Power Projects May Trip over Coal Supply

Tighter export norms in coal-rich nations could hinder development of new projects

At a time when Indian power producers are on tenterhooks with high fuel cost, regulatory reform drives in coal-rich nations from where the fossil fuel is sourced could hinder development of new projects, industry experts said.

After two major coal suppliers — Indonesia and Australia — recently tightened mining and export norms, the ruling party in South Africa is also looking to nationalise mines, a move that may put Indian power producers in a tight spot.

Indian power companies — Tata Power, Reliance Power, Adani Power, Lanco Infratech, JSW Energy and Essar Power, among others — who were considering South Africa as a potential source to fuel their new projects, may find it difficult to source the fuel. Most of these companies have acquired coal assets in Indonesia, Australia and South Africa and have been exploring options to secure fuel supply to ensure project funding and other regulatory clearances.

“While exiting projects may find it difficult to sustain margins, questions can be raised on the viability of new projects seeking supply from overseas coal,” according to a government official. Despite being the third largest producer of coal in the world, India’s dependence on imported coal is increasing.

Currently, India imports about 10% of its total demand. The country imported more than 70 million tonnes last fiscal and is likely to buy 100 million tonnes this financial year, said an official from Coal India. Power sector is one of the largest consumers of thermal coal as more than 50% installed capacities are fired by coal. India has set a target to add about 100,000 MW by 2017. It has a total installed power generation capacity of 159,000 MW.

Reliance Power’s 4,000-MW Krishnapatnam ultra mega power project (UMPP) and JSW Energy’s 2,000-MW planned expansion of the Ratanagiri project have been delayed due to high cost of international coal. Tata Power’s Mundra UMPP and Adani Power’s Mundra project, expected to start operation in the near future, are to mainly source their fuel from abroad. The Association of Power Producers, represented by more than a dozen private players, has sought government approval to pass on the escalation in raw material cost to customers after recent rule changes in Indonesia restricted exports and Australia imposed additional tax. “There should be a clear policy for passing fuel and transportation cost escalation,” said Prabal Banerji, cheif financial officer, Adani Power. However, it would be difficult to allow tariff hike for those companies who have already signed power purchase agreements with buyers. “Passing on escalated costs could only be allowed in accordance with the provisions of the PPA (power purchase agreement),” said a senior government official.

Passing on the increase in input cost may not be easy as state electricity boards are already running under huge financial loss and heavy debts.

Source:ET 05082011