Zero coal import remains elusive as Centre leans on foreign supplies again

Move to make it a must for units running on imported coal to remain fully functional comes amid 50-80% spike in global coal price

The latest directive from the Union Ministry of Power to generation units running on imported coal, to mandatorily keep their plants functional, comes at a time when coal prices have jumped in the range of 50-80 per cent in the global market. While the ministry has formed a committee that will decide the selling price of electricity from these units, experts say it would still lead to power tariff increase.

On Monday, the ministry revoked Section 11 of the Electricity Act, 2003, to direct imported coal-based power plants to operate and generate power at full capacity. To pass through the high coal cost these units will incur, the ministry has formed a committee that will work out a benchmark rate for the sale of the power they generate.

The benchmark price, the directive said, would be “so worked out to meet all prudent costs of using imported coal for generating power, including present coal price, shipping costs, O&M cost etc. and fair margin”.

Short-lived boon for imported coal-based units

In Indonesia, which is India's biggest supplier, the cost of coal has risen by 43 per cent year on year so far this fiscal. Australian and South African coal has risen by 78 per cent and 85 per cent, respectively.

The ministry has also allowed these units to sell power in the spot market, in case the beneficiary under the power purchase agreements (PPA) is reluctant to buy power from them. However, preference would need to be given to PPA holders.

Sector experts said at current coal prices, the power tariff is expected to go up by 50-80 paisa per unit. The imported coal-based power generation capacity in the country stands at 17 gigawatt (Gw), all of which is privately owned. Of this, Tata Power Mundra (4 Gw) and Adani Power Mundra (4.6 Gw) have been in a decade long battle with their beneficiary states over compensatory tariff for passing through high imported coal prices.

Both Tata and Adani Mundra are running suboptimally, with most of their units under shutdown owing to the legal tussle over power tariff hike. The decision to sell in the exchanges would give a major boost to these players. Other imported coal-based units may also stand to gain from the sale of power in the open market.

DAM Capital, in a note on Tata Power earnings, said,  “It will have a positive impact on earnings as coal cost becomes pass through. This will lead to an additional impact of Rs 4 billion on a quarterly basis on the Mundra power plants.”

However, unlike last year, the directive is for three month. Last year it was for six.

Zero coal import target remains elusive

In an interview with this paper in November 2022, union minister for coal Prahlad Joshi said, “Our coal requirements will double by next year as compared to a decade back. For that we are prepared. By 2024, thermal coal import should stop.”

The Centre has on several instances said it is aiming to reduce coal imports by the Indian power sector to zero. However, directives by the ministry of power promoting the import of coal for two consecutive years is likely to make achieving this goal difficult.

Last year, during the summer months, gencos and states claimed acute coal shortage, which led to the power ministry directing them to import coal. The directive was rolled back in three months. National miner Coal India, which was also asked to import coal, was able to sell less than 10 per cent of the fuel it sourced from abroad.

At the beginning of this year, when power demand crossed the 200-Gw mark, the ministry of power directed all power generating companies to import up to 6 per cent of their coal requirement. In response, the union ministry of coal said there is enough coal stock in the country.

Amrit Lal Meena, secretary, ministry of coal had said all the coal companies of national miner Coal India Ltd (CIL) have more coal than their targeted production for the upcoming summer season.

Power demand during the upcoming summer is expected to cross 229 Gw, according to the projections of the power ministry. The ministry is also expecting a “demand supply gap in domestic coal” according to the directive.

CIL, however, has claimed its production touched 479 million tonnes (MT) during the nine months of the current fiscal year. This marks a 16 per cent growth over the same period last year and is the highest for this period in the last three years. The miner has a production target of 700 MT this fiscal.