NTPC floats $1.5 bn tender for coal imports

India's largest power generation utility NTPC Ltd has floated an international tender for the direct procurement of 14.5 million tonnes of coal for the first time. Valued at around $1.5 billion (around Rs6,990 crore), the tender is the fallout of a controversy over state- owned trading firm MMTC Ltd's execution of an order to import 12.5 mt coal for NTPC.

Direct coal imports will exclude state-owned trading firms such as MMTC and State Trading Corp. of India Ltd, the usual conduits for such trade, but help NTPC buy coal at competitive rates, avoid paying commission and thus lower generation costs. The deci- sion is inline with a new coal import policy approved by NTPC's board.“This is a tender for direct coal import and will help in reducing fuel costs,“ said R.S. Sharma, chairman and manag- ing director of NTPC.

One of the bidders for an earlier tender floated by MMTC on behalf of NTPC, Knowledge Infrastruc- tureSystems Pvt. Ltd, had al- leged wrongdoing in the way the order was executed, and demanded an investigation into the procurement process and an intervention by the Prime Minister's Office.

The new tender calling for expression of interest (EoI) was floated on 20 July and the last date for the submission of EoIs is 10 August. The utility has invited proposals from coal suppliers for buying 14.5 mt of coal either on free-on- board (f.o.b.) basis or cost and freight (CFR) basis.

In the first method, the responsibility of shipping the coal is with the buyer (NTPC), whereas the supplier will have to make shipping arrangements in the second. The tender also seeks proposals for transporting coal from the originating port to the discharge port in India as well as for handling and transportation of imported coal from the discharge port to NTPC's power stations.

Fuel supplies are critical for NTPC as most of its coal-based projects don't have sufficient stocks. At least 80% of its installed capacity of 31,704MW is coal-based. NTPC owns and operates 15 coal-based power stations and has a coal re- quirement of 150 mt per annum (mtpa). Its coal imports are likely to increase to about 24.8 mtpa by 2015-16.

According to the policy that will hurt revenue from coal imports at state-owned trading firms, NTPC will source the fuel through a combination of direct imports and purchases through state-run Coal India Ltd. It may import small quan tities through traders during exigencies.

Analysts believe that the cost advantage in the tendering process is determined primarily by the degree of competition and risk perception, including counterparty risk, credit risk and supply chain risks.

“From the competition perspective, bulk procurements may attract a higher degree of competition. This may be negated if the qualification criteria are perceived as favourable to a few, in which case the market can be compared with that of monopolistic competi- tion,“ said Dipesh Dipu, an ex- pert on the mining sector.

“Also, counterparty and credit risks will be lower if the buyer procures directly rather when the intermediaries are involved.“ “Overall, it appears that NTPC may get better pric- ing if they can ensure higher degree of participation in the tender process, particularly from the coal mining companies,“ he added.

Coal demand in the country is around 600 mtpa and is set to touch 2,340 mtpa by 2030. India has a known coal resource base of 264,000 mt, the fourth largest in the world, of which proven reserves are around 101,000 mt.