A fresh debate seems to have emerged on whether coal miners will continue to extract till March 2015 from the blocks de-allocated following the Supreme Court verdict. The Supreme Court had allowed the companies to mine coal till the end of fiscal 2015.
The 25-odd miners including Hindalco and Jindal Steel & Power Ltd (JSPL) will end up paying a penalty of about ₹9,340.71 crore by the end of 2015 fiscal based on their output projections. But, industry experts feel that there is a high possibility of miners cutting down their output or stop activity till the Government comes out with a clear cut action plan.
There are also those who believe that given the international prices, it may still be beneficial for the domestic players to continue with the extraction despite the penalty. “It will be entirely the miners’ call depending on the economic viability of the project,” one of the industry players said.
While domestic coal of 5,900 kcal/kg gross calorific value sells at around ₹2,590/tonne to ₹2,800/tonne, the free-on-board price for Indonesian coal of 5,900 GCV is currently around $62-63/tonne (or around ₹3,800). The South African 5,500 GCV coal is priced $74-75/tonne (₹4,543-₹4,604). GCV is the heat produced from the fuel. Naveen Jindal-owned Jindal Steel & Power Ltd and its subsidiary will be the worst hit with this penalty as it works out to around ₹ 3,314 crore by March 2015. The company has so far invested around ₹50,000 crore on the blocks and the projects based on them. Its consolidated debt is ₹36,500 crore till June 30, 2014.
The domestic demand-supply mismatch has increased India’s dependence on imported coal. For example, NTPC country’s largest power generator is expected to import 7 million tonne of coal more during this fiscal against 10 million tonne imported last year. According to industry sources, in terms of quality 17 million tonne of imported coal is equivalent to 27 million tonne of domestic coal.
NTPC’s total coal requirement for this fiscal is expected to be 177 million tonne. It had used 160 million tonne of coal last fiscal (including imports). According to research reports, in fiscal 2014 India imported 171 million tonne of coal at $16.41 billion (fiscal 2013: 145 million tonne at $17.01 billion).
According to India Ratings & Research Pvt Ltd, a halt in domestic production of coal would increase the country’s import dependence. In a scenario where Coal India Ltd is not able to extract coal from captive coal mines of cancelled coal blocks, India’s dependence on imported coal would increase significantly in fiscal 2016.
The domestic power sector is under stress, both from the viewpoint of raw material (coal and gas linkage) availability, and infrequent and insufficient power tariff hikes. The present coal situation is likely to lead to an increase in coal prices.