Next twist in Coal India-power cos saga: A cap on supplies?

Coal India’s to-ing and fro-ing with power companies on fuel supply agreements as well as other issues.

In the latest development, it seems the coal and power ministries have agreed to fix a cap on Coal India’s commitment to supply coal to power plans in view of the coal producer’s increasing liabilities and stagnating production growth.

A Business Standard report says the government has drawn up a list of power projects totalling capacity of 127,448 megawatts (Mw) that will need about 557 million tonnes of coal. Projects were chosen on the basis of preparedness, including whether they had placed orderes for

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A power ministry official told the newspaper that “the Standing Linkage Committee (Long Term) for power, at its meeting held in February, discussed the issue of freezing capacity of power projects to be supplied by CIL during the 12th Plan. The committee was informed that the subsidiary companies of CIL had issued 172 letters of assurance (LoAs) for power projects, which excludes projects commissioned till March 31, 2009 and drawing coal from CIL and Singareni Collieries Company Ltd.”

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Coal India has said that it will be able to supply 50 percent of the required coal from local production, while the rest would have to be imported.Of course, the financial viability of importing coal remains in doubt, as Coal India has not been able to ink any long-term contract for importing coal so far, despite talking about it since its initial public offering in late 2009.

Plus, even if did by some miracle manage to import coal, there are big questions over whether power producers will accept higher imported coal prices because it will only increase the cost of producing power.

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In order to optimise the use of coal, the government is now taking a cautious stance while allotting coal blocks for ultra mega power plants (UMPPs). Power Finance Corporation (PFC), which is the nodal agency for awarding UMPP bids, could now be roped in to conduct exploratory work to make a more thorough assessment of the reserve potential of coal blocks set to be allotted for UMPPs, another report in_ Business Standard_said.

This decision comes after the Tata Group challenged Reliance Power’s decision to use coal from the blocks alloted for Sasan UMPP for other power plants. If PFC agrees to the proposal, its exploratory work could provide a better indication of the reserves available in a coal block and thereby, lead to more efficient use of these blocks.