Coal India may end up supplying nearly 90 per cent of its targeted production of 531 million tonnes to the less-remunerative power sector, in the next three years. The company currently supplies over 70 per cent of production to power generation utilities.
Approximately 40 per cent of the projected supplies to the power sector (498 mt) will be made through the recently formulated fuel supply agreement (FSA), ensuring guaranteed supply of 80 per cent of the requirement. The draft differs from previous FSAs in that it guarantees 90 per cent supplies.
The higher share of power consumers should reduce offerings to sectors such as steel and cement. Moreover, considering the company’s strategy of charging other consumers a higher price, this may either impact CIL’s profit margin or necessitate a rise in prices of thermal coal in the future. According to CIL chairman S. Narsing Rao, the country has added 25,000 MW in last three years (from April 2009) and is set to add another 35,000 MW in the first three years of this Plan, requiring a total 240 mt of coal. Of this requirement, CIL will guarantee a supply of 80 per cent, at least. Rao was speaking at a seminar on “Indian coal story: Current challenges and future outlook” organised by the Financial Journalists Club (FJC) and Assocham here on Thursday. However, he did not mention the impact of increased exposure to the power sector on the company’s profitability.
The coal major plans to augment its annual production capacity by 180 mt to 615 mt in 2016-17, the terminal year of the current Plan. “We had added about 180 mt over the last 15 years. We now take the responsibility of adding 180 mt in the next five years,” the CIL chairman said.
According to Rao, land acquisition is one of major hurdles to reaching growth objectives. “Even by paying compensation we are not getting land. Our revised rehabilitation and resettlement package, which promises a job to one person from the family relocated, launched about six months ago, has not seen any great progress,” he said.
CIL has apprised the Union Government of the problem. “We have to take the State governments into confidence in case of land acquisition and rehabilitation in order to expedite clearances,” he said.
Environment and forest clearances, as well as the lack of adequate evacuation infrastructure, were other issues plaguing the industry, he said.