India Likely to Miss Power Targets Due to Coal Supply Problems

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Written by Richard Finlayson, Senior International Editor for Industrial Info (Johannesburg, South Africa)--The revised target of 62,347 megawatts (MW) of additional power generation capacity for India's 11th Five Year Plan (2007-12) is unlikely to be met, as to date only 34,462 MW have been added during the plan period. The highest annual addition of capacity was in 2010-11, with 12,160 MW of power commissioned, but the target for the year was 20,539 MW. The lowest annual addition was in 2008-09, when only 3,454 MW were added. During the 10th Five-Year Plan (2002-07), a total of 21,711 MW were added.

In the first four years of the current plan, 29,461 MW were from thermal-sourced power; hydropower projects contributed 4,121 MW; and nuclear power contributed 880 MW.

The country's Ministry of Power has cited several reasons for the failure to reach the additional power targets . These include delays in equipment supply; general site and contractual works; technical constraints from the environmental impact assessment; and law and order problems.

But perhaps the key concern in the sector is the question of coal supplies linked to and approved for specific power projects. Without the guarantee of coal supplies, project developers could find their financial position crimped, causing them to be unable to make loan repayments. This, in turn, makes investors and funding sources cautious about new projects.

Ashok Kumar Khorana, the director general of the Association of Power Producers (APP), which represents independent power project developers, said that investors were reluctant to fund new projects. He added that there are a number of projects in which the state-owned Coal India Limited (CIL) had not converted letters of assurance into firm fuel supply agreements.

Over the past two years, up to 35 thermal power projects totaling 14,000 MW have been commissioned without CIL and project developers signing fuel supply agreements; this means that CIL is not bound to maintain a minimum annual supply of coal for the projects. The APP has a project portfolio of about 120,000 MW worth of planned power projects.

Power Finance Corporation, the central state-owned funder for power projects, has become cautious when evaluating new projects as the vicious cycle of the chronic shortfall in coal supplies and ability to repay project loans worsens. Khurana has said that imports are an option to meet the domestic supply gap, but they are not the solution to the problems. Imported coal has a higher calorific value than domestic supplies, causing problems in blending for boilers that are designed to handle the local product, resulting in an inability to use the full installed capacity of power units.

Another negative factor in the sector's scenario is that state electricity boards have been purchasing less power, as their losses are $12.2 billion per year. There has been a steep decline in merchant power rates for private developers, and the SEBs' funding problems have caused income problems for major state-owned and private power companies.

CIL has been able to increase promised coal linkages for the power industry by only 3.5%, to 347 million tons. The Ministry of Power has asked for an additional 90 million tons to supply 25,000 MW of new projects due for commissioning in the three years, ending in March 2012.

CIL is constrained by rail transport bottlenecking, with coal production growing 6% per year in 2008-11, and rail transport capacity growing between 1.5% and 3% in the same period. Transport logistics and wagon offloading problems reduced coal supplies to power plants 10% in 2010, to 304 million tons. Environmental impact and anti-pollution legislation also have impacted CIL's ability to meet production targets.

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