Power Ministry's Pooling Proposal May Cut Fuel Cost For Power Companies in India

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Researched by Industrial Info Resources India (Delhi, India)--Government of India is reevaluating a proposal to ask the country's largest coal miner Coal India Limited (CIL) (BSE: 533278) (Kolkata) to import coal in large quantities and to pool it with its domestic production to mitigate fuel crisis in the country. This move is aimed at helping the power companies to better utilize their plants which are running at 50-60% of their load factors due to lack of adequate fuel. India imports about 150 million tons of coal every year.

Last year, the government had shelved the pooling proposal and allowed the retail customers to bear the hike in price of imported coal by power companies. Many power distribution companies have not even purchased the costlier power.

The power ministry is now working on a proposal to ask CIL to import coal and pool the prices of domestic coal with the imported dry-fuel. It is estimated that pooling will increase cost of fuel and, thus, the overall electricity tariff for domestic consumers by about 2%, but it will also help plants to generate more electricity, particularly those which are receiving less coal.

The ministry is separately working on a proposal to align prices of domestic coal with international prices to encourage investments in the sector. The proposed pricing model aims to increase profitability of CIL to enable it to make necessary investment for its expansions.

The government is trying to capitalize on the low global prices of coal but it depends on the consent of the states and CIL's ability to import coal in large quantities. Most state governments, including those of Gujarat and West Bengal, had last year objected to the pooling mechanism.

As per the fuel supply agreement signed with CIL, power companies can ask the state-run behemoth to import coal in excess of the quantity agreed for supply. However, no company has availed the option offer so far.

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