Coal ministry to allot a part of spot sales to power plants

Under pressure to meet the ongoing shortage in coal supply committed for the power sector, the coal ministry on Thursday agreed to set aside a portion of coal earmarked for spot sales for supply to long-term power consumers.

While the decision would be in effect for a month, it would help ease the current shortage temporarily. The government sells around four million tonnes (mt) of coal — 10 per cent of what it produces — every month through spot sales at e-auction. “Some part of this four mt will be sold to public sector undertakings (PSUs) in the power sector at notified prices to meet the shortages in fuel supply agreements (FSAs) signed with them. This is only a temporary relief measure and would end when the shortages subside,” a senior official from the coal ministry told Business Standard.

The decision is a follow-up to the intense negotiations with the power ministry over the past few months which has been concerned over stranded 40,000-Mw capacity due to lack of coal availability. While coal is supplied under long-term FSAs to power PSUs at the plant site, offtake of the commodity occurs from the pithead of state-run Coal India’s mines when contracted through electronic trading at e-auction. “Thursday’s decision was taken after the power ministry agreed to our condition that their companies would lift coal from mine heads,” the official said.

Coal India Ltd (CIL), the country’s biggest producer, defaulted in FSA commitments after heavy rains in the eastern and central parts of the country in the past two months, coupled with logistics constraints and delayed clearances for expansion of projects, took a toll on the production. India’s annual coal production of 530 mt falls short of the domestic demand by 80 mt, which is met through imports.

The domestic shortage is expected to cross 200 mt by the end of the Twelfth Plan period, primarily because of delayed clearances to new and expansion projects of Coal India, which accounts for over 80 per cent of domestic production.

While coal supply has grown by four per cent in the last five years, demand for the fuel rose 7.5 per cent during the same period. The power sector’s requirement of coal is set to go up by more than seven per cent from 442 mt last financial year to 473 mt by March 2012.

Experts believe Thursday’s decision could hurt the price discovery function of e-auction of coal temporarily. The domestic power industry, however, hailed the move.

“We welcome this first step from the government. This will definitely help mitigate the immediate coal crisis,” said Ashok Khurana, director general of industry body Association of Power Producers.