Coal India can supply 100 mt of 313-mt demand over 5 years

A coal crunch threatens to trip the power sector with a cascading impact on the country's growth story.

With domestic coal production floundering amid a sharp upsurge in power capacity addition, over 40,000 MW of new generation capacity could get stranded over years for want of fuel. This is close to 70 per cent of the power capacity slated to come up during the period, most of which is being set up by private developers.

The projection, made in an uncharacteristically frank assessment of the impending fuel shortage by the Power Ministry, at a recent advisory group meeting, blames state-owned Coal India Ltd (CIL) for simply not having kept pace with the country's demand for coal.

According to the estimates, coal-fired generation projects cumulatively adding up to 62,680 MW are slated to come up over the next five years, requiring an additional 313 million tonnes of coal. Against this, the incremental coal availability indicated by CIL is only 100 million tonnes.

Based on the projected shortages, the new capacity that could be stranded works out to 42,000 MW, according to the estimates. The current installed generation capacity in the country is 173,626 MW.

For power generators, it is a Hobson's choice. While domestic coal availability is tapering off, there are technical limitations to blending high-calorific imported coal in the typical boilers used in domestic projects. So, without adequate domestic supplies, stranded capacity is clearly on the cards.

Higher costs

Besides, blending of costlier imported coal involves a trade off in terms of higher generation costs, something that NTPC Ltd is already grappling with. The country's largest power generator is currently blending about 10 per cent imported coal at its power plants to tide over the deficit, resulting in a 30 paisa per unit increase in the price per unit (kilo watt hour).

To compound the problem of slack progress by CIL, allocation of blocks and linkages to new players has been mired in controversies, with private project developers renewing their demand for auction of coal resources. Already, for projects that are slated to come on stream in the next couple of years, promoters are facing the heat. The LoAs (Letter of Assurances or preliminary fuel supply pacts) issued by CIL to project developers are not being converted to FSAs (Fuel Supply Agreements or firm agreements) in the wake of continuing shortages, resulting in continued uncertainty for promoters, said Mr Ashok Kumar Khurana, Director-General of the Association of Power Producers (APP).

Rating agency Icra, in a recent report, said the prices of domestic coal too is headed north on account of the shortages.

(This article was published on May 4, 2011)
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