The phased deregulation of diesel prices and its impact on railway freight rates may finally force India overhaul its policy for the power generation sector. Also anticipated is a change in how coal is consumed, which should prove to be a relief for the country’s clogged transport logistics.

On Tuesday, the Rail Minister announced a 5.5 per cent hike in coal freight (from April 1) from an average of Rs 701 a tonne in 2012-13 to about Rs 740 a tonne in 2013-14. This will mark a 20 per cent rise in average freight cost of coal from March 31, 2012 (Rs 617 a tonne).

With diesel prices being hiked every month to reduce the subsidy bill, the Rail Minister indicated changes in freight rates once every six months.

Tamil Nadu worst hit

While rising freight rates should increase power generation cost across the country, plants — as in Tamil Nadu or Punjab — located farther from pitheads are definitely going to be the biggest losers. The Rs 61,000-crore NTPC, having plants right on the pithead, for example, anticipates its annual freight outgo for carrying 150 million tonnes (mt) of coal to move up by a mere Rs 200 crore (4 per cent).

On the contrary, West Bengal Power Development Corporation sourcing a mere 15 mt coal from mines located 500 km away in Odisha is expecting a Rs 300 crore hit on its bottom line.

One can only guess the impact on the State utility of Tamil Nadu sourcing approximately 10 mt of coal from Odisha, covering 1,000 km.

Taking advantage of the now-abolished freight equalisation policy, States were once in a race to set up power stations within their geographies. The result is coal produced in Bengal today travels as much as 2,000 km — that too in raw form, with impurities included — to be converted into power.

Game changer

The trend started to change, albeit slowly, after the country opened its economy in 1991. Private power plants started coming up mostly in coal-bearing States. And some State utilities, as in Karnataka, had been exploring ways and means to set up generation capacities at pithead and wheel the power to the consumption-end.

But that needs the Centre to remove a policy hurdle. Since generation is not taxable, coal-bearing States are reluctant to allow their territories to be used only for generation and live with the resulting pollution.

Quality of coal

A.N. Sahay, Chairman of Sambalpur-based Mahanadi Coalfields Ltd, admits that the consumption pattern is haphazard and should be corrected. Mahanadi, located on the east coast, today caters to plants as far as in Maharashtra in the west coast.

Coal India Ltd (CIL), the holding company, had also communicated to the Centre as well as consumers that discipline needs to be brought about in the sourcing pattern. But that means CIL must solve another problem.

Consumers allege that one rake of coal produced in Bengal is as costly as three rakes of finely crushed coal produced in Odisha. The net result: Mumbai-based Mahagenco is more keen to get supplies from Odisha than from mines in Maharashtra.

(This article was published on February 27, 2013)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.