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Rediff News  All News  » Business » India Inc shops abroad for cheaper coal

India Inc shops abroad for cheaper coal

February 12, 2018 16:41 IST

Between 2007-08 and 2017-18, the number of countries they imported steam coal from has increased from six to 12.

Indian firms over the past 10 years have made trips to Italy, Bhutan, and Macau among more than 24 destinations.


These weren’t pleasure trips but business travels aimed at finding cheaper and suitable grades of coal.

Between 2007-08 and 2017-18, the number of countries they imported steam coal from has increased from six to 12.

In 2015-16, the number went up to 24.

Coal is one the largest contributors to the cost of generating thermal power.

It is because of this and inefficiencies in domestic coal production that Indian power companies are sourcing coal from other countries.

However, with the Indian government imposing higher taxes on coal imports and a Supreme Court judgment not allowing revising tariffs even if prices of imported coal go up, power companies may look at domestic options.

“We took the lead to import coal from Colombia, and found coal was sold based on a lower index.

"And also the freight was lower. However, as soon as they realised this, they changed the policy,” said an executive of a thermal power producer heavily dependent on imported coal.

Sharad Mahendra, executive vice-president, energy business, JSW Energy, said: “We are not looking at newer geographies but well-established geographies like South Africa, Mozambique, and Indonesia.

"We keep looking at various mines to source coal based on quality and other parameters like gross calorific value (GCV), moisture content, and ash content.

"If GCV is lost during transportation, it could wipe out the price advantage.” Colombia is not an isolated example.

Power companies such as Tata Power have invested in coal mines in Indonesia while Adani Power has made tariff bids on the presumption that imports from Indonesia will be less expensive.

However, both power companies were in for disappointment because Indonesia changed its export policy later, making purchases costlier.

“Power companies look at other countries from time to time. For example, in sourcing coal from Colombia, they have to contend with heavy seasonal rain and infrastructure costs.

"Similarly, sourcing from Russia involves harsh weather. It is harder to mine there and ports are closed for several months,” said Kameswara Rao, partner, PwC India.

The commerce ministry data says between 2014 and 2017 India imported steam coal from lesser-known countries like Andorra, Chad, Panama, and Moldova.

As the global landscape changes and with policy changes in the country, new trends are emerging.

“The market is split into two categories. Power companies that have regulated PPAs (power-purchasing agreements) are adapting to the government’s push to discourage imports through improved local availability and regulatory limits on the pass-through of global price variations.

"The smaller category of merchant producers, including captives, continues to evaluate options on coal sourcing, whether for acquisition or short-term contracts,” Rao added.

JSW Energy, for instance, is reversing its strategy though so far it has relied on imported coal.

The company has approvals to blend domestic and imported coal for 50 per cent of its coal requirements and looks to participate in coal linkage auctions.

Photograph: Reuters

Amritha Pillay in Mumbai