The government may request Indonesia to reconsider a recent decision to raise taxes on coal exports that threatens the fate of many Indian power projects, according to Coal Secretary. The aim would be to get a “more friendly price” for Indonesian coal, he told reporters after inaugurating the 4th Asian Mining Congress on Saturday.
The Coal Secretary pointed out that Indonesia proposes to restrict exports of certain grades of coal from January 2014. “Once implemented, these restrictions will also be applicable for many Indian companies who have coal ventures in Indonesia,” he said. The import price of Indonesian coal has already gone up by $20 to $50 per tonne and this is creating problem for many power producers here.
He said a number of domestic power producers have already raised the issue with the Prime Minister. The Coal Secretary said the problem for India would have been much more serious had it been Australia imposing restrictions on coal exports. "Australia, Indonesia and South Africa are the three most important sources for coal imports by domestic consumers. Any export restriction measures by any of these countries will have to be dealt with bilateral negotiations at the government levels," he said.
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Beginning January 2014, Indonesia will not allow export of coal with low calorific value (below 5100 kcal/ kg) unless it is improved to the next grade (5700 kcal/ kg) by lowering the moisture content. The new regulations will benchmark export prices against the Indonesian government’s own export price, which was recently raised. They also override all agreements between mining companies and buyers.
Coal with energy value of 5100 kcal/kg or less accounted for a little over 41 per cent of Indonesia’s total coal exports in 2011. Last year, Indian power utilities imported 42 million tones of thermal coal from Indonesia, edging out China as that country’s largest coal buyer. Most of these grades are in the range of 3,500 –5,000 kcal/ per kg.
Indonesia’s decision to increase taxes and export benchmarks has raised fears about the viability of many Indian power projects, which had based their costing on long-term contracts for coal. While the Tata and Adani groups have coal ventures in Indonesia, Tatas and Anil Ambani-controlled Reliance groups had made aggressive pricing bids for ultra mega power projects (UMPPs), or projects with a capacity of 4,000mw and above, on the basis of their coal tie-ups in Indonesia.
The proposed regulation along with the increase in government export prices in Indonesia has now put them in a tight spot and they are looking for fresh power purchase agreements for the UMPPs.
According to a Standard Chartered Bank research report, "Even if we assume that domestic power producers source 60 per cent of their coal requirement from domestic production, the country it (India) would still need to produce an additional 106 million tonnes of coal capacity in the next five years. This is double of what Australia has planned for capacity expansion over the same period and 65 per cent of Indonesia’s planned growth."
"This shows why Indian consortia are spending so much money buying coal projects in Indonesia, Australia and South Africa," the report said. Coal imports by the power sector are expected to grow to 164 million tonnes by 2015 assuming a 10 per cent annual growth in power generation capacity addition.
The Coal Secretary said Coal India has given a conservative estimate of increasing its production by 100 million tonnes during the 12th Five Year Plan (2012-17). “… if environment and forestry clearances are done fast, production can be ramped up by 160 million tones,” he said. "We are aware that the power sector is facing coal shortage. But a large part of this can be attributed to the kind of expansion has taken place in the power sector,” he mentioned.
The last two years were bad as domestic coal production remained almost stationary. This increased the gap between demand and supply. “But concerns about economic viability of some power projects are also growing. To ensure economic viability of power projects, we have to limit the coal linkage basis in the Twelfth Plan,” he said.
Power companies that sell 85 per cent of their generation capacity to state distribution utilities at a competitively bid price on a long-term basis would get coal linkage during 2012-17. Since January this year, state power distribution companies will have to go through the competitive bidding route for purchasing fresh power from a generation company.
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