Rising coal costs to hit India power projects - Fitch

Tuesday, Dec20, 2011

MUMBAI(Reuters)-The rising cost of imported coal, coupled with a weakening rupee, could force some Indian power projects to default on their debt obligations, ratings agency Fitch said on Tuesday. Fitch estimated that the average cost of generation could rise to 4.41 rupees (8 cents) per kilowatt hour for projects relying entirely on imported coal, from the current average of 2.29 rupees, if current trends continue.

Coal accounts for 55 percent of India's power generation capacity of 182,344 megawatts.
But while the country holds 10 percent of the world's coal reserves, power companies often struggle to access local supplies due to environmental and land acquisition delays, forcing expensive imports. The higher costs could put massive pressure on plants that cannot pass on higher fuel costs to customers, and in some cases this could render projects unviable, the ratings agency said.

"Financial margins of power projects will also come under severe pressure in the absence of a significant tariff revision or injection of additional sponsor equity," Venkataraman Rajaraman, director at Fitch's Global Infrastructure group, said in a statement accompanying a report on the industry. Most new Indian power projects are dependent on imported coal and have seen their costs jump over the past year.

Asia's third-largest economy has a peak-hours power shortage of 13 percent of requirements as rising demand from industry, homes and shopping malls outstrips capacity growth, but investments in the power sector have been slowing.

(sourced Reuters)

Indonesia thermal coal export ban proposal worries India

Fri, Mar04,2011

Indonesia may be looking to ban the exports of low-grade thermal coal by 2014, a move, which if undertaken, could have an impact on the domestic power sector that is dependent on the Southeast Asian country to bridge the coal supply shortfall in India.

"There are domestic market obligations, as we need coal for our own power producers. From 2014 onwards, we will only export value-added coal of more than 5,600 kilocalories (kcal)," Djunaedi, deputy director of oil, gas and mine products at Indonesia’s Ministry of Trade, said on the sidelines of the ninth Annual Coal Markets Conference.

As the world’s largest thermal coal exporter, Indonesia has often found it difficult to procure enough supplies for domestic consumption. Earlier this year, it implemented a series of measures to ensure that a portion of production was allocated to local industry.

However, the proposed ban on exports of coal under the 5,600-kcal mark stands to change the dynamics of the global thermal coal market, which has seen spiraling demand from Asian economies such as China and India. The latter, for instance, is currently the world’s fastest-growing coal importer.

"Such a ban will have a substantial impact on the thermal coal market, as large amounts of low-quality coal from Indonesia are exported to India and China," said Mark Pervan, global head of commodity research at ANZ.

Low-quality coal, of between 4,800 and 5,800 kcal, constitutes a significant portion of exports out of Indonesia and, considering the country accounts for about 30 per cent of the global thermal coal supply, an export ban could reduce worldwide supplies by at least 10 per cent, Pervan added.

But Indonesia’s local mining industry is pushing hard to stop the move. "We are in discussions with the government and are trying to postpone the ban. If this measure is implemented, it will hit 60 per cent of our exports and we don’t have the technology to undertake value-addition. The government must give us the technology if this is what it wants," said Bob Kamandanu, chairman of the Indonesian Coal Producers Association.

India Impact

India is already among the largest buyers of coal from Indonesia, and is expected to maintain this position considering the growth in domestic demand and stagnating production of major miners such as Coal India. Earlier this month, Coal Minister Sriprakash Jaiswal said India might have to import 142 million tonnes (mt) of the fuel in the next financial year, up from the earlier estimates of 104 mt.

"There will be an overall impact on the Indian power sector, as currently about 60 per cent of the total thermal coal imports are coming from Indonesia. If the ban comes in, it could also affect domestic coal prices, apart from influencing global thermal coal prices," said Rupesh Sankhe, an analyst at Angel Broking.

Moreover, Indian firms have considerable interests in Indonesia’s coal sector. Tata Power holds a 30 per cent stake in two of the country’s largest coal mines and the Adani Group, India’s biggest coal importer, last year committed $1.6 billion to build mining-related infrastructure in that country.

"It is a draft law at present, and there will be consultations with interested parties before finalisation," a spokesperson for the Adani Group said, adding that the group was already evaluating the possibility of setting up a power plant in Indonesia that would run on locally-mined coal.(sourced:BS)