New Delhi: India’s coal and power ministries, which had locked horns over the supply of coal to new power projects, have reached a compromise by which 10-15% of the coal requirement for such projects will be made through imports by state-owned Coal India Ltd, or CIL, although this will increase the cost of the power generated by these plants.

The decision was taken at a recent meeting held between the ministries of coal and power, according to a government official who didn’t want to be named. The meeting was also attended by representatives of NTPC Ltd, CIL and Central Electricity Authority. The proposal to import coal was made by the power ministry, and the coal ministry agreed to it on the condition that the former facilitates the fuel supply agreement between the power utilities and CIL.

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The power ministry had earlier asked the coal ministry for coal to generate 125,000MW, which includes 68,000MW for so-called independent power producers, or IPPs. It later scaled down its demand to 35,000MW, with half this amount designated for IPPs. The coal ministry had agreed to supply coal for only 10,000MW.

“There is no escape now. We will have to import coal. This will be applicable to all the utilities. It is not that we don’t need coal for the remaining capacity. We had prioritized the demand for 35,000 MW. With imports to constitute around 10% to 15% of the total coal requirement, the power tariff from these projects may go up," said a senior power ministry official who asked not to be named because the issue remains a contentious one.

Ways of coping: A coal mine in Andhra Pradesh. India will not meet its projected demand of 730mt by 2012, unless 100mt of coal is imported. Noah Seelami / AFP

To generate 1MW of power, around 5,000 tonnes of coal per annum is required. India has 256 billion tonnes of coal reserves, of which around 455mt is mined every year. The country currently imports around 40mt of coal.

Domestic coal demand is expected to touch around 2 billion tonnes a year by 2031-32, about five times the current rate of extraction, with the maximum demand coming from the power sector.

However, power project developers are not happy with the arrangement. “Even if the imported coal is priced at around $70 (about Rs3,346) per tonne at the entry ports, with inland transportation, it will come to around $94 per tonne. This, in turn, will increase the electricity tariff by around 10-15% depending upon the amount of imported coal used," said a Hyderabad-based IPP developer on condition of anonymity. Domestic coal is available for Rs1,000 a tonne (including transportation costs).

While the coal ministry has expressed its inability to meet the demand due to the long gestation time required for the development of new mines, the power ministry is of the view that there is a shortage of 14mt even for the operating stations due to low production by CIL, the country’s largest mining company.

CIL has a coal output of 380 million tonnes per annum, or mtpa, and plans to increase it to 405mtpa by 2009-10.

H.C. Gupta, coal secretary, said, “We need to maximize domestic production and any gap has to be met through imports. The coking coal (used by the power sector) production in the country has not grown as per the demand. As per the 11Plan (2007-12) projections, we expect the imported coking coal demand for the power sector to go up to 40 mtpa by 2012."

The government would not be able to meet the projected demand for about 730mt of coal by 2012, unless 100mt of the fuel is imported.

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.

On 9 September, Mint had reported that power projects capable of generating a combined 68,000MW were being put at risk because of the government’s failure to assure coal supplies.

“Inevitability of coal imports may not be synonymous to CIL being the facilitator since such canalizations may mean additional cost to the consumer in terms of CIL’s administration charges. However, such options of imports that exist for most power producers may be well exercised by developing bargaining power in the international markets through demand consolidation, which CIL can assist with. There is a need to look at import markets with a long-term view, rather than resorting to ad hoc spot purchases, which may be expensive and uncertain," said Dipesh Dipu, principal consultant (mining) with audit and consulting firm PricewaterhouseCoopers.