Wide variance in price of imported coal

The price paid for imported coal ranges from $72 by NTPC to more than $100 by some state utilities
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First Published: Tue, Sep 25 2012. 11 32 PM IST
Coal demand is expected to grow from 649 mtpa to 730 mtpa in 2016-17, with the projected local availability at 550 mtpa in that year. Photo: Sam Panthaky/AFP
Coal demand is expected to grow from 649 mtpa to 730 mtpa in 2016-17, with the projected local availability at 550 mtpa in that year. Photo: Sam Panthaky/AFP
Updated: Wed, Sep 26 2012. 09 13 AM IST
New Delhi: At a time when India is facing a domestic coal shortage, there is a wide variance in the prices of imported coal contracted by various government-owned utilities, which some analysts partially attribute to “inefficiencies” in procurement.
While NTPC Ltd has sourced coal (6,300 kilocalories) at $72 (Rs.3,852 today) per tonne, the state power generation utilities of Gujarat, Andhra Pradesh, Rajasthan, West Bengal and Maharashtra have contracted to buy coal having the same calorific value at $105, $103.6, $102, $101 and $99 per tonne, respectively, according to a senior NTPC executive, requesting anonymity. Also, Damodar Valley Corp. Ltd (DVC) has signed contracts for imported coal at $95 per tonne.
This is significant given India’s growing demand for imported coal, which stands at an annual 137 million tonnes (mt), and the impact on consumers. Coal demand is expected to grow from 649 million tonnes per annum (mtpa) to 730 mtpa in 2016-17, with the projected local availability at 550 mtpa in that year.
To be sure, the price depends upon the quantity, quality, tenure of agreement, delivery mechanism, and the terms and conditions of trade. The prices mentioned above are for the current fiscal year, and correspond with the time in which there has been a dip in imported coal prices.
“Over the last six-eight months, prices of imported coal have reduced by almost 15-20%, (mainly) driven by the subdued demand of China,” said Amol Kotwal, associate director (energy and power systems practice) for South Asia and the Middle East at Frost and Sullivan.
US coal demand shifting to shale gas has resulted in additional supplies of coal coming to other markets, leading to a fall in price from elevated levels. Also, the falling freight market has resulted in cheaper shipping rates.
“The import price for coal would depend upon the calorific value, source (country) of import, and the time of the year. Besides the quantum of import requirement and duration of the contract (in case of long-term contract or memorandum of understanding) would also play in striking the deal price,” Kotwal said. “Additionally, the variation in coal import price brings to light the inefficiencies in the procurement process such as coal procurement without calling for bids.”
Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based energy and resources-focused consulting firm, said, “Indian power companies have attempted coal procurements that are tailor-made for their requirements, which may explain the reasons for price variance. However, inefficiencies may not be ruled out in cases of such customization.”
The country’s largest power producer and coal consumer NTPC has an annual coal requirement of 160 mt, of which it will have to import around 16 mt from overseas. It has already contracted for 9.4 mt, of which 4 mt has been contracted at $84 per tonne, 4.1 mt at $80 per tonne, and 1.3 mt at $72 per tonne.
Another NTPC executive confirmed the contracted prices for imported coal.
While executives at utilities of Gujarat, Rajasthan, West Bengal and Maharashtra couldn’t be immediately reached, K. Vijayanand, managing director of Andhra Pradesh Power Generation Corp. Ltd (AP Genco) said, “In best of my knowledge, the price AP Genco paid to source imported coal is very competitive, even when compared to other state utilities.”
“Imported coal prices are bound to be variedly priced depending on specific tenders,” a DVC executive said, requesting anonymity.
According to the 12th Plan (2012-17) paper on energy, in 2006-07, coal demand was 474.18 mt, while output was 430.84 mt, resulting in an import of 43.08 mt. This number exponentially increased to 137 mt in 2012 and is expected to reach 185 mt by 2017.
While there have been suggestions about state utilities together floating contracts to source coal at competitive prices, Dipu said, “Attempts to canalize all trades through one or two designated agencies may not work well unless there is total alignment in objectives of all consumers concerned... the market participation in different tenders have varied substantially, which reflect traders’ interests, their risk-assessment, and ease of doing business with entities.”
India has a power generation capacity of 205,340.26 megawatts (MW), of which 56.7%, or 116,333.38MW, is coal-based. With more than half of the country’s total power generation currently based on coal, the power sector is the major consumer of the fossil fuel, absorbing nearly 78% of total domestic production. India has a known gross resource base of 264,000 mt of coal, the fourth largest in the world, of which proven reserves are around 101,000 mt.
Vishwanath Pilla in Hyderabad, Manish Basu in Kolkata, Makarand Gadgil in Mumbai and Maulik Pathak in Ahmedabad contributed to this story.
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First Published: Tue, Sep 25 2012. 11 32 PM IST
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