Coal aplenty, but power companies prefer foreign assets

Despite India’s abundant coal resources, many power producers are investing in coal assets outside India to buy the commodity to fuel their proposed power projects in the country. Major private players like Tata Power, Reliance Power, Adani, JSW Energy, Jindal Steel & Power, GMR and Essar Energy have invested more than Rs 35,000 crore for coal assets abroad and seek further investment opportunities in countries with conducive regulatory norms, say people connected with the development. 

India has the world’s third-largest reserves of coal at 267 billion tonnes, and the country’s biggest coal company, Coal India, has scheduled a public offer to raise funds for expansion to improve the quality of coal and also release funds to develop mining. 

Tata Power, India’s largest private utility, has a 30% stake in the Kaltim Prima Coal and Arutmin coal mines of Bumi Resources in Indonesia and is exploring further overseas opportunities. “We continue to look at overseas coal mines including in Indonesia, Australia and South Africa to secure coal supply to our forthcoming power projects,” S Padmanabhan, executive director Tata Power told ET. 

Availability of domestic coal is a challenge for local companies due to capacity constraints at Coal India, delays in coal block allocation, tribal land acquisition and environmental and forest clearance. Tata Power aims to scale up the generation capacity eight-fold from the current 3,000 mw. A majority of the addition will be of coal-fired power plants including a 4,000-mw ultra mega power project, in Gujarat. 

JSW Energy, from the stable of the JSW Group, says its requirement for coal will treble in the next eighteen months, to 9 million tonnes. “Most of our existing power plants are fuelled by imported coal and this will continue further if domestic coal is not available,” said Pramod Menon, chief financial officer, JSW Energy. The company currently has about 1,000 mw generation capacity and targets to scale it to 11,000 mw in five years. 

Another private major Reliance Power, which has plans to develop a capacity of 35,000 mw in seven years, is also looking for overseas coal assets. “The shortage of coal is so acute that most of the power generation companies are looking at imported coal as a viable alternative to domestic coal,” said R-Power in its 2009-10 annual report. 

Lack of sufficient rail freight capacity is another significant hurdle to the use of domestic resources in new power plants. Ironically, most coal reserves are in the country’s less developed eastern states, that are struggling with lack of infrastructure development in the backdrop of security issues. 

With large projected shortfalls in domestic supply, imports are set to increase sharply, according to Fitch Ratings. The import of coal is set to treble to 150 million tonnes by 2013, from the current 50 million tonnes. “Procedural hurdles facing private sector coal development is a significant reason why power generators are looking offshore for coal supplies,” said the international rating agency in its latest report. Coal blocks can only be allocated to private parties through the mechanism of an inter-ministerial screening committee, which includes state-owned CIL. Allocations are decided by the government on the recommendation of the committee, taking into account various qualification standards including techno-economic viability of the end user project and the track record of the applicant company. 

India being power starved, needs significant new power capacities to reduce current deficits and meet future demand driven by economic development and electrification. The government plans to add 78,700 mw capacity under the Eleventh Five Year Plan that will end in 2012, and another 100,000 mw by 2017, of which more than 80% will be coal-fired.