Tata, Adani, Lanco to be hit as Indonesia may ban export of low-grade coal
Even as Indian power producers were thinking the government had resolved their problems by putting in place a pass-through mechanism for imported coal, there seemed to be another shocker waiting for them, with Indonesia planning to restrict coal exports.
The proposed move is likely to jack up generation cost for half a dozen firms - Tata Power, Adani Power, Lanco Infratech, GMR, Essar Power and NTPC - leading to a rise in power rates.
Indonesia accounts for 70 per cent of India’s annual thermal coal import of around 110 million tonnes (mt). “It’s imperative for Indonesia to tighten its control on exports to secure long-term supply. As there is low domestic consumption of coal till date, the Indonesian government is still evaluating the new regulation that could ban the export of low-grade coal (that below 5,100 kcal) by 2014,” Indonesia’s Ambassador to India, Rizali W Indrakesuma, said.
Around 78 per cent (304 mt) of Indonesia’s annual produce of 386 mt coal is exported to China, India, South Korea, Japan and Taiwan. At this rate of exports, by 2020, Indonesia will have to start importing coal to meet its 125-mt annual demand from its local power industry. The bulk of Indonesian coal imported by Indian power firms is in the range of 3,600-4,200 kcal per kg.
Reacting to the development, India’s largest private-sector electricity producer, Tata Power, said: “Each sovereign government will take decisions specific to its priorities; we will abide by it. India will have to work on its energy security on the basis of robust options.” The company has a current installed capacity of 8,521 Mw, including the 4,000-Mw Mundra project, which is based on imported coal.
Another major power firm, Lanco Infratech, said it would not be hit if the proposal was implemented. “Our imported coal need falls in the high-grade range of above 6,300 kcal per kg. Therefore, this does not impact us,” T Adibabu, Lanco’s chief operating officer (finance), told Business Standard. He added the companies would tweak the mix of low-grade and high-grade coal at power plants to tide over the impact. The company operates 1,200-Mw Udupi Power plant in Karnataka on imported coal.
Experts said there would be an immediate impact on the operational cost of producers. “Considering that the ban is coming into play, costs could go up by 7-11 per cent if low gross calorific value (GCV) is substituted with higher GCV in Indonesia, and 15-20 per cent if companies look for other export destinations like Australia, South Africa and the US (at the current exchange rates),” Kalpit Dubey, analyst with commodity-focused research firm Ore Team, told Business Standard.
He added the impact would largely be nullified in the long run, as the use of higher GCV would reduce the overall volumes. He also said there would be a direct impact on power prices, especially for plants dependent on imports, with the latest pass-through rates for imported coal coming into picture.
Another expert agreed. “Considering the higher moisture content in Indonesian low-grade coal, the net impact on electricity tariff may be incremental,” said Dipesh Dipu, partner at Jenisse Management Consultants. He added Indonesia might not benefit from the proposal, as shutting a low-grade market would make the nation lose a substantial chunk of demand and forex earnings.