India allows state utilities to sell 25% allocated coal to other producers

India has allowed some state utilities to sell up to 25% of the coal allocated to them to other producers and urged states to import coal for blending with local grades to avert power cuts this year, a government statement said on Wednesday.

India is likely to face more power cuts this year as utilities' coal inventories are at the lowest pre-summer levels in at least nine years and electricity demand is expected to rise at the fastest pace in at least 38 years, officials and analysts say.

"Tolling", or selling up to 25% of state utilities' allocated coal, would allow some power producers access to fuel from the coal mines, helping to boost power generation at a lower cost.

This would also ease rail congestion by reducing the need for long-distance fuel transportation.

"Tolling would enable states to optimally utilize their linkage coal in the plants nearer to the mines as it would be easier to transmit electricity instead of coal transport to far off states," a government statement said citing the power minister R. K. Singh.

A steep surge in power demand in India -- the world's second-largest coal producer with the world's fourth-largest reserves -- could mean local supplies may not be enough.

India has also asked the utilities, reliant on local coal, to strive to import up to 10% of their coal needs to blend with the domestic grade to meet increased power demand.

"State-wise and generation company-wise targets were fixed and it was urged to ensure delivery of coal for blending purpose before onset of monsoon as domestic coal supply gets affected during rainy season," the statement said.

(Reporting by Nidhi Verma; Editing by Bernadette Baum)