The Hindu Business Line : Foreign cos offer to supply coal on fixed-price basis

Sources said that among the international companies which had pitched for tying up long-term, fixed-price, coal-supply contracts included Indonesia's P T Adaro, South Africa's Xtrata and Rio Tinto which operates coal mines in Australia. The sources said that some of these companies were prepared to enter into five-year fuel-supply arrangements. The generating companies to whom such offers have been made included Nagarjuna Power Corporation Ltd (NPCL), which is promoting a 1015 MW interstate power project near Mangalore

The coal available from these sources has low ash content, though the sulphur content was much higher. Consequently, the older thermal power stations would not be able to use it without installation of expensive flue gas desulphurisation plants, for containing sulphur-di-oxide emissions. Only some of the new thermal would be able to use imported coal, since such emission control plants are part of their capital costs.

State-owned power generation stations in the country use coal supplied by the public sector CIL which has a high ash content and calorific value of 3200 kilo calories (Kcals) per kg. Currently international coal prices with a calorific value of about 6000 kcals, costs about $59 per tonne.

So far all the imports of coal by domestic thermal stations or trading companies have been on a spot basis. The imported coal was used mostly for blending with domestic thermal, though imports are expected to rise in the coming months for power generation purposes.

NPCL 's coal requirement alone was estimated at 3 million tonnes per annum. Almost the entire coal requirement for the project would be imported, making it the first thermal project to be entirely dependent on imports.

NPCL when contacted said that some offers had indeed been made, though they were looking at a much lower price than the current international prices. NPCL, the sources said, was looking for CIF (cost insurance and freight) prices less than $35 a tonne for long-term fixed-price contracts. Inclusive of customs duty the price was likely to be about $39. Long-term supply contract for buyers of coal, especially power utilities, would ensure stability in the variable component of power tariffs.

The offer from international companies comes at a time when domestic thermal stations are facing supply bottlenecks leading to shortfalls in generation. The sources said foreign companies' eagerness to supply coal at fixed prices, stemmed from the fall in international prices since the last six months. International coal prices last year had topped $75 a tonne. But prices are expected to drop further, as China begins to ramp up domestic production. Moreover, with Western Europe and the US increasingly shifting to gas for power generation, coal demand has dropped considerably. As a result, most of the large companies have shifted focus to India.

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