Coal India to seek offtake pact from power companies before import

Coal India Ltd (CIL) will seek offtake commitments from power utilities before importing, as has been asked by the Prime Minister’s Office.

The state-owned coal sector monopoly was recently asked by the Prime Minister’s office (PMO) to meet the supply commitments of the power sector even if it means resorting to imports.

A CIL executive also said that the company could ask designated national trading agencies such as MMTC to import coal on its behalf in the short term, until deals with global coal majors for long-term offtake materialise.

Power utilities are averse to offtake commitments. They are also generally reluctant to buy coal imported by Coal India owing to either the added cost of service charge or the lack of clarity on which party bears logistics cost.

The company will have to import over 70 million tonnes (mt) beginning next financial year to meet the demand, according to the PMO’s order.

A senior coal ministry official told Business Standard: “We will meet import requirements of the power sector if the coal ministry asks us. But a similar plan to import for power companies failed last year in the absence of committed offtake. If the import plan has to work this time, firm commitments have to come. Also, companies must import on their own too.”

Coal imports by power companies remained flat at 21 mt last financial year. Around 12,000 Megawatt (Mw) of the 15,600-Mw power generation capacity expected to be commissioned this financial year is likely to be coal based. This, added to the requirement of plants commissioned in 2009-10 and 2010-11, takes coal demand for 2011-12 to 470 mt for the power sector.

Even if Coal India supplies 343 mt as promised, Singareni Collieries Company Ltd supplies 33 mt and an additional 22 mt comes from captive mines, availability of coal will fall short by 72 mt, which is equivalent to 50 MT of imported coal. Added to this is the 25 mt coal requirement for completely imported coal-based plants.

A case in point is the historic feud between CIL and power generator NTPC Ltd where the miner was to supply imported coal for NTPC’s plants. “Talks failed as NTPC insisted on delivery at the plant site and CIL was not willing to bear the charges for transportation. So, NTPC had to resort to direct imports,” said a senior official from NTPC who did not wish to be identified.

The issue of modalities of coal imports, after the PMO diktat, seems unlikely to be resolved soon as CIL has stated categorically that importing coal is not its area of expertise.