Global coal prices inch closer to CIL's, cheer to IPPs

Demand for imported coal to go up

A fall of 25 per cent in global coal prices over the past six months is likely to bring cheer to power producers in India. At $46 a tonne, the price of imported coal is inching closer to that sold by state giant Coal India Ltd (CIL).

According to CIL executives, the average cost of what they produce is Rs 900-2,000 a tonne. The average sale price of CIL’s coal is Rs 1,400 a tonne, currently. If the transportation cost is added, at a rail charge from Rs 1,000 to Rs 2,000 a tonne, the final cost of CIL coal comes is in the range of Rs 2,400-3,400.

Though the rail transit cost for every tonne per km is the same for both imported and domestic coal, the better heating ability of imported coal gives it an edge. Coal sold by CIL is lower grade, with a value of 3,500 to 5,500 kcal; imported coal has one of 5,550 to 6,500 kcal. The ash content is also low at two per cent in imported coal; in domestic produce, it is 25 per cent. This means to generate a unit (kilo watt) of power, 25 per cent less coal is required if it is imported.  

The global price in 2008 touched $130 a tonne. Since then, it has been sliding, from $80 a tonne in December 2013 to $50 in December 2014. At a foreign exchange rate of Rs 62 for a dollar, the landed price is Rs 2,700 to Rs 3,000 a tonne. After adding transport cost, it is Rs 3,700-5,000 a tonne for power companies. So, for generating the same amount of power as from a tonne of imported coal, the cost of domestic coal would be Rs 3,000-4,250, a cost differential of 15-23 per cent.

A senior power executive said plants operating on domestic coal can, therefore, replace at least half their need with imported coal. “Depending on the configuration, they can save on cost since heat value is higher in imported coal,” said the executive.

Plants banking on blended coal would now stand to benefit, say experts. “Even at a blending of 30-40 per cent, if the prices remain at current levels, the demand for imported coal would go up,” said a Delhi-based sector analyst. Industry experts said as Indian power plants can blend 50 per cent imported coal, there is a strong likelihood that imported coal would replace the domestic one where the input cost favours imports.

“For power plants based in Gujarat, Andhra Pradesh and other western parts, the distance is around 1,500 km and more. The transport cost is above Rs 2,000 a tonne of coal. In such a case, getting imported coal which is also of better quality looks viable,” said a power sector executive.

NTPC, which has most of its power plants near coal mines, has the lowest transport cost. Independent power producers face not only transport cost but a loss of six to eight per cent of the amount in rail transit, said a coal industry official.