By SAURABH CHATURVEDI
Coal India's board approved a proposal Monday to import thermal coal under a 10-year arrangement, Nirmal Chandra Jha, the company's interim chairman, said from Kolkata, where Coal India is headquartered.
"The aim is to bridge the domestic shortfall," Mr. Jha said.
Importing coal will help the state-run company meet its supply commitments to Indian utilities. Coal India, which provides more than 80% of the country's coal needs, can't significantly increase production due to issues such as delays in receiving environmental clearances.
The company therefore is looking to import coal and is scouting for investment opportunities in mines overseas.
India is facing a shortage of about 142 million tons of coal this fiscal year through March 2012. Total demand is 696 million tons, according to government estimates, while local production is just 554 million tons.
More than half of India's power generation capacity of 173.6 gigawatts is based on thermal coal. The country aims to add 163 GW of capacity in the 10 years through March 2017. The power sector is India's main consumer of coal.
"Consumers were not able to meet import targets mainly because of the high price of imported coal," Mr. Jha said. "Our coal is likely to be slightly cheaper compared to international prices, as we are seeking discounts from suppliers."
Mr. Jha said Coal India has short-listed 27 coal-importing proposals from 16 companies -- some submitted more than one proposal -- but declined to name the companies.
Under the proposed agreement, coal prices will be revised every six months, while maintaining the offered discount rate over the average of Australian and South African index prices, Mr. Jha said.
In the financial year ended March 31, Coal India postponed plans to import 4 million tons of coal when it couldn't finalize supply agreements with NTPC Ltd. and Damodar Valley Corp., two state-run power utilities.
"We have consumers for such imported coal," Mr. Jha said. "We have informed them that 50% of the assured commitment will be met through our imports."
Any increase in costs will be passed on to customers, Mr. Jha said, "whether the increase is due to a rise in coal prices or foreign exchange fluctuations. For us, the coal import business will be more like a service than a profit-making opportunity."
Coal India will take advance payment from consumers and pay suppliers in U.S. dollars. The company makes 100 million rupees-120 million rupees ($2.25 million-$2.70 million) every year from hedging its currency risks, Mr. Jha said.
Bhavesh Chauhan, an analyst at Mumbai-based Angel Broking, called it "a good model."
"Coal India will have bargaining power with the foreign suppliers as it would buy in bulk under a long-term contract," Mr. Chauhan said. "Indian power utilities will also reap the benefits."
Mr. Jha said Coal India already has a pact with Shipping Corp. of India Ltd. to ship the coal from suppliers overseas, and is in talks with Indian Railways to move the coal from Indian ports to customers.
"We are also looking at storage capacities at Indian ports," Mr. Jha said. "We are evaluating options."