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Coal imports: Issues that matter - Views on News from Equitymaster
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Coal imports: Issues that matter
Sep 22, 2008

At the end of March 2008, India had a total power generation capacity of 143,061 megawatts (MW), of which nearly 64% (91,907 MW) was thermal based. In addition, nearly 153 power plants are expected to be set up during the eleventh five-year plan (2007-2012), of which a majority portion will be coal based plants, making the ‘black gold’ one of the most sought after commodities in recent times. However, due to shortage of the same as also of other fuels like gas and naphtha (the latter being an expensive option), India’s power plants run at low plant load factors (PLF, or capacity utilisation). The average PLF of power plants over the past 5 years has been as low as 76%.

Now with the situation getting worse considering that most of the new generation capacities are based on coal, power generation companies (gencos) are looking at options of sourcing the commodity from overseas. Companies are targeting mines in coal-rich countries like Indonesia, Australia and South Africa.

JSW Energy was one of the first companies to acquire mining rights in Indonesia in March 2007, for a 300 million tonne (MT) coal mine in Jambi. Tata Power was the next to follow. The company acquired 30% stake in PT Bumi Resources’ mines in Indonesia.

Other major gencos that have joined this trend in recent times include Reliance Power, GMR Energy and Emco. Further, state-run NTPC and PTC India are also believed to be scouting for coalmines in Indonesia, Australia and Mozambique.

Logistics is an issue
While scouting for coal resources globally is definitely a good idea, implementation of the same may not be an easy task after all. Logistics will probably be the biggest issue these companies will face while planning to import coal from abroad.

This is especially considering the fact that as importing of coal through water turns out to be the cheapest option, the consequent demand for dry bulk shipping has led to the freight rates skyrocket over the past few years. Further, availability of ships is also an issue. We recently read Tata Power planning to enter into the shipping business for the purpose of transporting coal from its Indonesian mines to the east cost of India.

Overall, we view the development with respect to gencos acquiring coal mines abroad as a positive move considering that their existing plants are running at lower PLFs and there’s short supply of domestic fuel for powering their future projects.

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