India's Coal Sector Seeks Reform as Planned Power Targets Threatened

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--What the power sector in India has known for some time is now official. Sriprakash Jaiswal, the country's coal minister, has said that some power projects that require coal supplies will not be able to obtain the required project linkages.

With the sector pushing the pace of new project announcements to meet targets set in the 12th Five-Year Plan (2012-17), the government has up to now maintained that there would be no slippage on targets, as has been the case with previous five-year plans.

Currently, more than 30 thermal power stations are carrying coal stocks, which represent only a week's demand. Another 29 projects have less than four days of coal reserves.

Power Minister Sushi Kumar Shinde said that more than 80,000 megawatts (MW) of power capacity was under construction and could be available in the 12th Five-Year Plan. Up to 25,000 MW of thermal power capacity is currently stranded, which implies the locking up of more than $22 billion in stalled projects. Shinde said that the crux of the problem was that the fuel sector had failed to keep pace with power sector reforms.

The Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested measures for the coal sector to adopt. These include the introduction of a bill in the winter session of parliament for establishing an independent coal regulator and delinking coal mining from activities of end users by engaging a mine developer-cum-operator that specializes in development activities. Other suggestions include the competitive bidding of coal blocks and the denationalization of Coal India Limited (CIL).

The chairman of the FICCI power committee, R.S. Sharma, the managing director of Jindal Power, suggested an action agenda to put the power sector on a sound and secure footing. Sharma suggested that production from the captive coal mines is crucial for augmenting coal supplies for additional capacity in the 12th Five-Year Plan. Special focus is required for the development of the 58 captive coal blocks allocated to the power sector to start the production between 2014 and 2015. Production from captive coal blocks should be incentivized by allowing surplus coal in the open market to consumers to mitigate the coal shortage. Competitive bidding of coal blocks as planned by the Ministry of Coal must be expedited. The heat rate of thermal units must be improved, and a program needs to be drawn for decommissioning of the units having thermal cycle efficiency of less than 32% for captive use for optimal use of the coal, said Sharma.

The dire situation of coal supplies for the power sector has led to blackouts in Delhi and the country's commercial capital, Mumbai. With winter conditions arriving early this year, more power cuts are anticipated, and the price of power to users is expected to go up as grid supplies suffer increasingly from uneven supplies and transmission. Wet coal, floods, labor unrest and the continued clash of bureaucrats over the coal supply chain bring Sharma's recommendations into sharp focus.

Rajesh Mediretta at India Energy Exchange said that the average power tariff has more than doubled in the past 20 days. This was due to a mismatch in demand and supply. The traded volume in the exchange has come down to 35,000 MW per hour from 100,000 MW per hour on a daily basis, he said.

For related information see October 3, 2011, article - Indian Government Scraps 'Go, No Go' Policy to Improve Coal Supply.

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