Coal India plans to set up power plant citing insufficient connectivity

By Krishna N Das

PANAJI, India (Reuters) - Coal India Ltd, the world's largest coal miner, plans to set up a 1.6 gigawatt power plant by 2015/16 near one of its mines from which coal cannot be shipped and sold due to a lack of rail connections, a company executive said.

The company has often said its output would be 300 million tonnes more than the current figure of about 475 million given enough rail tracks to carry the fuel from new and remote mines.

Insufficient connectivity is one of the reasons the company has lagged output targets for more than six straight years - leading to shortages at power producers and crippling outages.

"The country either needs coal or power," said CB Sood, an executive director at the company. "If we are not able to evacuate coal, we should set up pit-head power plants."

Speaking on the sidelines of a coal conference in the resort state of Goa, Sood said the company was seeking a joint venture partner to set up the plant.

Coal India has already received some clearances and more are likely, he added. The plant will be near a mine that produces 20 million tonnes per year in the eastern state of Odisha.

"Pit-head power plants make a lot of sense for the country," said Niladri Bhattacharjee, a resources expert with KPMG Advisory Services. "Power tariffs will reduce by at least 50 paisa per kilowatt hour compared with conventional plants due to savings on transportation and other costs."

However, it was important for Coal India to ensure it fulfilled its coal supply obligations to power companies before venturing into electricity generation itself, he told Reuters.

Without assured supply from Coal India that controls 80 percent of the country's coal production, private companies will have no option but to ramp up imports.

India is already the world's third largest importer of coal despite sitting on what BP Plc ranks as the fifth-largest reserves. Imports rose 21 percent to 152 million tonnes last year, according to research firm OreTeam.

"Long term, pit-head power should be part of policymaking, it's beneficial in terms of power tariffs and coal availability," Bhattacharjee said.

(Reporting by Krishna N Das, editing by David Evans)