The Indonesian government decision to cut discounts on coal exports from September this year will not push up India's import costs substantially, feels Lanco Infratech executive chairman Madhusudhan Rao. Speaking to FE on Wednesday, Rao said that contracts entered into in 2005-06 and earlier would be impacted more by the development.
Indonesia and Australia account for over 50% of India's imported coal. Most of that coal is used for power plants and so the formula notified by Indonesia’s directorate general of minerals — to sell at prices notified by the government there — has the potential to upset electricity tariffs in India. The benchmark notified price is to be based on a formula that links the average coal index price in accordance with international market rates.
Most Indian importers have contracted supplies after 2008-09, when domestic prices began to flare. Coal India, the domestic monopoly supplier of coal, is unable to push production above 534 million tonnes for the last two years.
While media reports pointed at coal becoming costlier by around R1,500 per tonne for Indian power companies due to the new formula, Rao told FE: “With Indonesia selling coal at the index price, only projects which had an earlier contract at a very low price will be hit. The new projects (post-2005-06) will not be impacted.” Rao elaborated that today no coal producing company would sell at a low price. “Five or six years back, when coal supply was very low, people had contracted at low price for a long period without probably knowing the market. What is there at $120 today, in 2006 it was only $55. So those who have entered into contact in 2005-06 will be effected by this law, but for those who want to develop projects now or had initiated them two years back, it is very clear that no one will undersell coal, whether there is a law or not, any coal supplier will sell at the index price. Just as Lanco has Griffin Coal, if we have to sell coal, we will also sell at the index price,” he said.
Rao also expressed his surprise at the media reports which are surfacing now, as according to him, this law has been in place in Indonesia since two years now. “Indonesian coal duty has been there from the last two years. I don't know why it has been making headlines in the last 10 days.
Indonesia had this provision in their Coal Contract of Work (CcoW), which had a clause where the government could exercise control of price on exports, and they started exercising it in the last two-three years when they saw the prices going up. So they started mandating that the export price should be maintained as decided by the authorities concerned in Indonesia,” he said. Rao added that Australia too had a similar law and Indonesia followed it.
Rao affirmed that with the law coming in place, coal blocks would have to sell at the mandated price, without any differentiation, which went well for the Indian companies that were acquiring natural resources overseas. Indian power developers are reportedly also seeking government intervention on this law and asking the power ministry to set up an expert committee to find appropriate solution.
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