Bewildering Indian policies fuel needless coal imports

Mon Oct 14, 2013 2:07pm EDT
 
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By Matthias Williams and Malini Menon

NEW DELHI (Reuters) - Tata Power's (TTPW.NS: Quote) 1,050 Megawatt power station in the state of Jharkhand is a textbook case of the absurd results that India's 1970s-era coal supply laws can produce, and why power utilities are lobbying the government to change them.

The Maithon power station is located in the heart of India's vast coal belt, but a shortfall in local fuel supplies has forced Tata to import some of the coal for the plant all the way from Indonesia - an expensive and cumbersome alternative.

The company has a coal mine nearly ready in the neighboring state of Odisha, which is meant to feed another power plant whose construction has been held up by government red tape. Tata wants, but has so far not got permission, to use coal from that mine to fire the Maithon plant.

The case underscores how restrictive supply policies helped push up India's coal imports to a record high of nearly 138 million metric tons in the last fiscal year. India sits on top of the world's fourth-largest reserves of the fuel, but it has become the third-biggest coal importer after China and Japan, an estimate by the World Coal Association showed.

That is an anomaly India can ill afford, as the government fights to tame a current account deficit (CAD) that hit a record high last year and helped knock the rupee currency to record lows in August.

"At current import prices, we are talking about around $14 billion of coal imports, which is likely to go up to $25 billion by 2016/17," said Rahool Panandiker, principal at The Boston Consulting Group. "In this context, when there is a focus on reducing the current account deficit to $70 billion, every bit of increased coal production contributes to decreasing the CAD."

Amid lobbying from private companies, the government set up a committee to look into how to free up supplies of domestic coal, and is due to publish its findings this month. However, interviews with government and company officials suggest that no consensus has emerged about how best to proceed.

"There is a very strong need to augment domestic coal supplies and reduce our dependency on imports," said the Association of Power Producers (APP), a powerful lobby group that gave a closed-door presentation last month to the power ministry's top civil servant.   Continued...

 
Local women carry coal taken from open cast coal field at Dhanbad district in the eastern Indian state of Jharkhand in this September 19, 2012 file photo. REUTERS/Ahmad Masood/Files