Demand-supply gap of coal may widen further: ICRA

The domestic demand-supply gap of coal may considerably widen in the medium-to-long term on the increased demand from power sector, according to a report by rating agency ICRA.

"The demand-supply gap in the domestic coal industry is likely to widen significantly over the medium to long term, largely because of the significant size of the coal-based power projects that are expected to be commissioned over this period," it said.

Primarily driven by the rising demand from power sector, which consumes 70% of the country's total fossil fuel requirement, coal demand grew by eight% between FY06 and FY10 to reach to around 600 million tonne.

On the other hand, coal production recorded around seven% growth during the period leading to demand-supply gap to widening further. India had produced just over 500 million tonne coal in 2009-10.

The shortfall is met through import, which is always a costly proposition. Again, the long-term supply could be a challenge going forward considering the increasing demand for coal from many emerging economies.

Sensing this, a clutch of Indian companies have started scouting for coal mines acquisitions abroad for their future needs. The list is endless and only likely to expand further in the coming days. Some have already succeeded as well.

Power generation through thermal power sector, which ICRA believes to continue to be the prime mover of coal demand in the country, has gone up to 90 Giga Watt (GW) at the end of November last year from 71 GW at the end of FY07. It is likely to increase further to 113 GW by FY12-end.

According to the Coal Ministry's estimates, the widening demand-supply gap of the fossil fuel is likely to touch 142 million tonne next fiscal from projected 84 million tonne in the current fiscal.