New Delhi: Fuel-starved state utility NTPC Ltd has devised a novel way to move coal from the mines to its power plants: it’s offering Indian Railways the money to set up the required rail links.

The country’s largest power producer and coal consumer, NTPC, proposes to recover the investment by setting it off against freight charges levied by the cash-strapped railways for moving coal.

NTPC’s proposal pertains to the Railways’ Infrastructure for Industry Initiative, which is currently being discussed at an inter-ministerial level and will be sent to the cabinet for approval.

“Railways say that they don’t have the money. We will give them cash and recover it against freight charges when they move coal to our stations. This is for the first time that we have thought of such a mechanism," said a senior NTPC executive on condition of anonymity.

Indian Railways moves 52%of the coal that is mined in the country—a share that’s expected to rise to 58% in 2016-17. 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 India’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.

“We have to attract private investment in these projects as we do not have enough funds to undertake all of them on our own," said the official.

NTPC will be responsible for acquiring the land to build the railway line, said another government official aware of the proposal who spoke on condition of anonymity.

NTPC posted a net profit of 9,224 crore on revenue of 64,830 crore in the year ended 31 March and has a cash surplus of 17,000 crore.

The utility is concerned that its plans to increase its installed capacity from 39,174MW to 75,000MW by 2017 and 128,000MW by 2032 may be hobbled by constraints in the movement of coal.

A case in point is its 3,300MW Barh project in Bihar that has been delayed because there is no railway track to haul coal from Central Coalfields Ltd to the project site. Electricity from the plant will be supplied to India’s eastern, western and northern regions.

This is the same project on which work had come to a standstill following contractual disputes between NTPC and Russia’s JSC Technopromexport and JSC Power Machines over the supply of boilers and steam turbine generators, respectively.

India, however, relented on the dispute between NTPC and Technopromexport under pressure from Russia. While 1,980MW is being developed by the Russian firms, state-owned Bharat Heavy Electricals Ltd (Bhel) is developing the second phase of 1,320MW.

“The first unit of 660MW constructed by Bhel will be commissioned by September 2013 and will require 10,000 tonnes of coal per day. Even if the construction for the track starts today, it will take one-and-a-half years for its completion," said the NTPC executive cited above.

“We are in a bind. Going forward, the coal requirement for the project will increase with other units coming online," the official added.

NTPC has an annual coal requirement of 160 million tonnes (mt), of which it will have to import around 17 mt from overseas. A majority of its coal-based projects don’t have 15 days’ coal stock as mandated.

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.

Coal demand in India is expected to grow from 649 mt per annum (mtpa) now to 730 mtpa in 2016-17, making the country heavily dependent on imported coal, given the projected availability is only 550 mtpa.

“Although the company (NTPC) had healthy coal materialization during 1QFY2013 (first quarter, fiscal 2013), the maintainability of the same remains uncertain considering the domestic coal shortage situation," Angel Broking Ltd said in a 3 August report.

HDFC Securities Ltd in a 2 August report said, “NTPC’s RoE (return on equity) is expected to decline due to near-term coal availability issues and stricter grid operation norms."

Indian Railways currently has in place a policy under which it builds a private rail line to a plant or factory in lieu of a commitment of traffic for 10 years from the plant owner.

The railways bears the capital cost of laying the track while the owner bears the cost of land acquisition, earthwork, substructure of the track, ballast within the siding and buildings outside the siding, and pays interest and maintenance charges for the line. The railways may also reduce freight tariffs at its discretion.

R. Sree Ram contributed to this story.