Imported coal demand to rise to 62 mt in FY19: Report

Demand for imported coal is likely to increase to 62 million tonnes this fiscal to meet the incremental generation from coal-based power projects, said India Ratings.

According to a recent report by the ratings agency, considering a 6-7 per cent increase in electricity demand, coal-based power generation is likely to rise to 996 billion units from 951 billion units.

"Assuming a 4 per cent increase in coal availability to the power sector, imported coal needs to increase to 62 million tonnes in FY19 from 56 million tonne in FY18 to meet this incremental generation. Hence, there could be higher usage of imported coal in FY19 than that in FY16-FY18, when imported coal usage declined," the agency said.

The report further stated short-term power prices would continue to be determined by lower-than-required growth in domestic coal output.

"This could lead to increased reliance on imported coal. Also, short-term power prices would remain range-bound at Rs 3.75-4.25 per unit in FY19 as against Rs 3.25 per unit FY18," Ind-Ra said.

The agency had earlier hinted at 6-7 per cent increase in demand for electricity in FY19 and the continued reliance on thermal-based capacity.

"Given the expectation of healthy power demand growth in FY19 and thermal-based capacity remaining the mainstay of power generation in India, domestic coal availability becomes a key determinant in deciding short-term power prices. If domestic coal production grows at a lower rate than the demand growth rate, the reliance on imported coal could go up," it said.

The agency further noted that in such a situation, short-term power prices would be determined by the marginal cost of energy production undertaken using imported coal.

To ensure higher domestic coal availability to power producers, the government has increased the share of coal allocation to the power sector by diverting a part from other sectors.

"This has led to higher coal availability for the power sector. The share of domestic non-coking supplied to the power sector increased to 91 per cent in FY18 from 89 per cent in FY17," it said.

Ind-Ra further said that although the current situation has been handled through diversion, continuing such diversion could be challenging in case of increased resistance from other sectors, which have been facing pro rata-cuts, thus increasing their reliance on imported coal.