Power Plant Delays To Slow India Coal Imports.

By Jacqueline Cowhig LONDON (Reuters) - Indian developers of urgently-needed, 4 GW plus power plants are delaying works until they are freed from loss-making sales contracts, a move which could slow the country's rapid coal import growth for 6-12 months, power firm and coal supply sources said. Tata Power, Reliance Power and Adani Power in 2006 won contracts to supply low-cost power at fixed tariffs of under 2.3 rupees ($0.05) per kWh which they now cannot do without huge losses due to higher coal prices. The power companies have been overtaken by events since 2006, mainly the rise in global coal prices and the Indonesian government's determination to stop coal being sold below benchmark prices, including existing term contracts. Indonesia's government in 2010 issued a regulation stating that export coal must be sold at a minimum reference price issued by the government, based on three benchmark prices.

Work on the plants has almost ground to a halt while the firms lobby the Indian authorities to be able to pass on the multi-fold rise in coal costs, which were less than $50 a tonne CIF when deals were done but are now over $120. "Coal prices are much higher now anyway than they were five years ago because demand is higher and it's true that Indonesian coal now has to be at minimum prices approved by the government but the real problem was aggressive under-bidding on the tariffs," said a power producer who asked to remain anonymous.

"Those tariffs of 2.2, 2.3 rupees were always way too low and they have got to rise, it's the only way," he added. Bidders had to go in with very low tariffs because the Indian authorities have not forgotten Enron's Maharashtra coastal plant for which the state paid Enron 4.6 rupees per power unit but collected only 1.89 rupees from customers.

India's coal imports are set to hit 150 million tonnes a year within a few years, a large chunk of which will be low-grade coal for the so-called Ultra Mega Power Projects (UMPPs), most of which are coastal and which would take all or partly imported coal. India is likely to import around 70 million tonnes in 2011 according to importers. "Four UMPPs are nearly built but halted, ours at Mundra, three of Reliance," said Amulya Charan, Managing Director of Tata Power Trading Company Limited, who chairs the power producers' association which represents the developers and is lobbying on their behalf. "We are stuck based on the power and coal contracts which we have but we are lobbying the ministry of power, the procurers, the finance ministry and the Prime Minister - we are actually meeting on a daily basis," Charan said. "There will be some impact on the rate of coal import growth because of the delays to the UMPPs but I hope there will be a resolution quickly, within four months," he added.

"I've told the coal suppliers if you want to increase your imports to India, first the power tariffs must rise," he said. "The power is needed urgently already," Charan said. "I'm in Delhi and there were two hour power cuts across the city yesterday so I'm optimistic," he said. Other Indian power producers and Indonesian coal suppliers with contracts to supply them were not convinced a swift solution will be found. "There's no question that India needs the power and while the economy has slowed, the need remains so I'm sure the tariffs will rise to allow the UMPPs to continue but these things take time," one of Indonesia's biggest coal exporters to India said. "The coal demand which would come from these UMPPs will be pushed back by anywhere from 6 months to a year, it'll slow the rate at which imports grow," he added. ($1 = 48.975 Indian Rupees)

Source : ibnlive.in.com