Coal, power ministries lock horns over fuel

Coal, power ministries lock horns over fuel
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First Published: Mon, Apr 28 2008. 12 16 AM IST

In deficit: Coal suppliers are reneging on their commitments as they have not started production in their mines, say analysts and officials.
In deficit: Coal suppliers are reneging on their commitments as they have not started production in their mines, say analysts and officials.
Updated: Mon, Apr 28 2008. 12 16 AM IST
The Union power ministry has opposed a move by its coal counterpart to ration out access to what it believes is a limited number of coal blocks, implying that some power plants planning to start operations by 2012 will not have assured supplies and might have to import coal.
In deficit: Coal suppliers are reneging on their commitments as they have not started production in their mines, say analysts and officials.
It could also upset the power ministry’s plans to produce more electricity in the country as quickly as possible.
“We have made it pretty clear to the coal ministry that the linkages should be provided to all the units,” said a power ministry official, who did not wish to be identified. The so-called linkage means a coal-fired power plant is assured of supply, which requires approval from a committee headed by the coal ministry.
The committee is yet to discuss such coal linkages for the power and cement sectors although a meeting was scheduled on 7 April. It is expected to consider linkages for around 20 independent power producers that would add capacity to generate 15,000MW of energy in the 11th Plan that ends in 2012.
Earlier, power projects were directly awarded coal linkages. However, scarce resources and increasing applicants prompted the government to introduce a system of awarding letters of assurance, or LoAs. These letters are converted to linkages after a project completes financial closure, which occurs when the promoters make legally binding commitments to mobilize funds.
Still, coal production has been unable to match demand, resulting in some LoAs not being converted to linkages. “Delays in coal linkages will certainly impact the investment environment in the as it may make fuel security doubtful and consequently, financial closure difficult. This will certainly have negative impact on generation targets,” said Dipesh Dipu, a manager with audit and consulting firm PricewaterhouseCoopers. “There have been delays in project sanctioning as well as implementation, and in view of the fuel supply agreement regime, new linkages may mean commitment from the coal producers, which they may find difficult to keep.”
The coal ministry has issued LoAs of around 200 million tonnes per annum, or mtpa, in line with India’s coal distribution policy, which says the demand of the power sector has to be fully met. However, there is no coal available to cater to these LoAs.
Coal suppliers, say analysts and officials, are reneging on their commitments because they have not started production in their mines; in some cases because they have not received environmental clearances. “There are very serious problems in coal mining. Land acquisition problems, delays in environment and forest clearance have delayed the coal mining plans,” said a coal ministry official, who requested anonymity.
According to India’s economic survey for 2007-08, growth in coal production has dropped from a high of 6.2% between April and December 2006 to 4.9% in the same period in 2007. The country has an installed power generation capacity of 141,080MW and plans to add 78,577MW more by 2012. Of this, around 46,600MW is expected to come from coal-based projects.
Around 67% of India’s electricity production capacity is based on coal. The power sector currently needs around 390mtpa of the fuel. Even though 78% of the coal produced in the country is used to generate power, projected supply falls well short of demand.
The energy sector, excluding the planned 4,000MW power projects, is expected to need 545mtpa of coal by 2012, compared with domestic coal supplies of around 482mtpa. The shortfall will have to be made up through imports.
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First Published: Mon, Apr 28 2008. 12 16 AM IST