India’s largest power generation utility NTPC Ltd will for the first time float an international tender for direct procurement of coal, cutting out state-owned trading firms such as MMTC India Ltd and State Trading Corp. of India Ltd (STC), the usual conduits for such imports.
This will help NTPC buy coal at competitive rates, avoid paying commission and thus lower generation costs.
“We will float the tender by January or February. By directly procuring coal from producers, pricing will improve as we will be able to get coal at competitive rates,” said R.S. Sharma, chairman and managing director of NTPC. “We will follow the Japanese and Korean models where there will be long-term contracts. There will be price guarantee for two-three years linked to certain indices. We are finalizing the terms and conditions for the tender along with the quantity required.”
Fuel supplies are critical for NTPC as most of its coal-based projects don’t have sufficient stocks. At least 80% of its installed capacity of 30,644MW is coal-based. NTPC used 125 million tonnes per annum (mtpa) of domestic coal and 6.41 mtpa of imported coal in 2008-09.
Mint reported on NTPC’s plans of directly importing coal on 5 August.
Power secretary H.S. Brahma backed the utility’s move.
“We expect coal imports to increase from 28 million tonnes (mt) for the power sector this year to 53 mt next year,” Brahma said. “Of the 28 mt to be imported for the power sector in the country during the current financial year, NTPC alone will account for 12.5 mt.”
NTPC’s move, which could affect revenue from coal imports at the trading firms, arises from a controversy over MMTC’s execution of an order to import a record 12.5 mt of coal valued at Rs6,000 crore for NTPC.
While the move would lower costs, holding a stake in coal mines is the most effective tool for keeping fuel prices in check, said Dipesh Dipu, principal consultant, mining, at audit and consulting firm PricewaterhouseCoopers.
“Disintermediation is likely to reduce trading expenses and may be cost effective in case of bulk procurements, he added.