Indonesia's coal pricing norm affects Indian power cos

S. Shanker Mumbai | Updated on March 12, 2018 Published on December 08, 2011

indonesian coal

14,000 MW capacity addition stranded

About 14,000 MW of capacity addition in the pipeline, based on Indonesian coal, appears to have hit a roadblock after Indonesia made it mandatory for coal exports to be benchmarked to international prices from September 23.

Tata Power, Reliance Power, Adani Power, JSW Energy and Lanco Infratech, had aggressively bid in the tariff-based competitive bidding process for power projects, based on their agreements/ arrangements they had made for fuel stock from Indonesia. It is learnt that the developers had worked the financials of their projects factoring in the coal price they had entered into in Indonesia for long-term supply, which in some cases are about $26-$30 a tonne, almost half the benchmark prices.

Tata Power has commissioned the first of its 830 MW unit at Mundra. Reliance Power has slowed down work at its 4,000 MW Krishnapatnam project till a decision is taken as no substantial investments had been made and lenders too were reluctant to release funds citing fuel price cost.

Mr Ashok Khurana, Director-General, Association of Power Producers, the apex body of power developers in the country, said “the issue concerns about 20,000 MW of stranded capacity”. The association is only asking the Government for a forum or mechanism where the voices of the developers would be heard. A decision needs to be taken. It is not only about imported coal even domestic producers are impacted as Coal India is not able to address their requirements, he said.

Mr Khurana said it must be understood that the ultra mega power project format was put up by the Government and assurances were given. It is not the developers' fault. Today bankers and investor were spurning them. Asking developers to speak to procurers is just “passing the buck,” he felt.

Mr Khurana said Tata Power's Mundra project quote at Rs 0.90 fixed cost per unit was most competitively priced on the back of a good financial package.

A few months back, Mr Alok Kanagat, Chief Executive Officer, Coastal Gujarat Power, wrote to the Power Minister stating that while initial calculations based on the Central Electricity Regulatory Commission (CERC) norms provided for 14 per cent return on equity would be around Rs 600 crore per annum, but with the coal cost increase the impact could be up to Rs 1,800 crore and nullify returns. Further, the impact on tariff could be up to Rs 1 per unit.

To tide over the crisis, Tata Power has provisioned Rs 823 crore for impairment in Coastal Gujarat Power Ltd (CGPL) this quarter. This has been worked out on the projected fuel cost that could impact future cash flows. Further, to address coal price volatility, Tata Power said it would also consider transferring 75 per cent ownership of investments in coal companies to CGPL.

Recently, Dr Pramod Deo, Chairman, CERC, said it did not matter much to generators here, who had arrangements in Indonesia for mining coal. The difference in coal price would go to the account of their Indonesian entity.

Power Producers say 20,000 MW capacity stranded due to Indonesian policy.

Tata Power has provisioned Rs 823 crore for impairment and volatility of coal prices.

CERC chief said no intervention was needed as difference in coal price goes to the account of developers' Indonesian entity.

Published on December 08, 2011
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