Mixed Messages on Coal Linkages for Power Projects Threaten India's Growth

---

Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Johannesburg, South Africa)--Mixed messages continue to come from the Indian coal industry and the government ministries that control the linkage of coal supplies to the power generation sector. The country's Power Ministry has blamed state-owned Coal India Limited (CIL) for not keeping up with the demand for coal amid a coal supply shortfall, which could hobble the country's growth rate. With total power generation capacity at about 173,000 megawatts (MW), the additional 40,000 MW in the project pipeline could be stalled by lack of coal feed. This represents about 70% of the total additional power now planned by independent power producers (IPPs).

There are plans for coal-fired thermal power projects totaling 62,680 MW in the next five years. This will create the need for an additional 313 million tons of coal annually. Currently, CIL can only promise an annual increase of 100 million tons a year.

Filling part of the gap with imported coal stocks will continue to push the coal price up, which is then passed on to the price of generated power. The director general of the Association of Power Producers, Ashok Kumar Khurana, has said the slack progress in the allocation of coal blocks and linkages to power projects has been made worse by project developers demanding the auctioning of coal resources, as the letters of agreement from CIL are not being followed through with supplies.

The government, in its turn, has put a different gloss on the coal and power conundrum by saying that coal linkages for 80,000 MW have been arranged to cover 80% of the 12th Five Year Plan (2012-17) target of 100,000 MW of additional power. Power Minister Sushil Kumar Shinde said that although coal was an issue, the 80,000 MW of linkages was complete with a 30% imported component. He added that linkages for the balance of 20,000 MW would have to be worked out, as would linkages for additional power capacity above the current estimates, which would be added during the five-year period. He that 15,000 MW of linkages had been added in fiscal 2011, which indicated linkage targets would be achieved.

Another threat to the already-fraught coal supply is that industries could have their coal linkage agreements cancelled if the transporters supplying them flout norms due to spillages and the resulting pollution of the air with coal dust. The Minister for Coal, Pratik Patil, said that cancellation would be used as a last resort, but the ministry would take stricter action on pollution controls and would recognize complaints against transporters from any source.

Overloading and mishandling are the main causes of pollution, and coal trucks must be properly covered, said the minister, referring to coal-mining region Chandrapur, Maharashtra, which is the country's second-most polluted area. The lack of manpower at the road transport offices allowed overloading and consequent spillage to happen and must be addressed, said the minister. Coal transportation, not mining, was the main culprit, he added.

The Maharashtra state government is going to meet with the minister to tackle a range of coal industry issues, including pollution and land acquisition. Problems surrounding the clearance of site regulatory approvals for mines, power projects and other heavy industry have been a handicap for project development for some years. The state government and Western Coalfields Limited (Chandrapur) plan to prepare a joint corporate social responsibilities program, to be executed by Western Coalfields.

Progress in the coal and power sectors has, in the past, been polluted by a lack of cohesion between various ministries, exacerbated by bureaucratic rivalries and sometimes dysfunctional communications between the industries and government at federal and state levels.

For more background on India's coal supply, see April 26, 2011, article - India Likely to Miss Power targets Due to Coal Supply Problems, and April 28, 2011, article - India's NTPC Opens Bidding for $777 Million Coal Imports

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.