Despite Coal India reporting the sharpest production growth in two decades in FY15 and the momentum expected to remain in the current fiscal, the country’s coal imports are set to accelerate. Power companies, one of the major consumers of coal, have firmed up plans to import 73 million tonne of coal this fiscal, up more than a third from last year.
Higher imports have been scheduled because of the fuel’s declining prices in global markets and the transportation bottlenecks that made domestic coal relatively unattractive for coastal power stations.
With the planned hike in coal imports by power plants, the consensus estimate of the overall coal imports for the fiscal—up 10% at 220 million tonne—could go awry. The relentless rise in coal imports in recent years has put pressure on the current account, along with the heavy oil import bill, which has been a perennial issue for India.
The current account deficit (CAD), which had hit a record 4.8% of GDP in FY13, dropped to 2.3% in FY14 and further to 1.7% during April-December 2014.
In what could be a relief to the managers of the country’s current account balance, the higher coal imports in the current fiscal won’t add too much to the country’s import bill, unlike in FY13 when the prices of the commodity skyrocketed. Global coal prices have declined dramatically over the last two years from a high of over $100 per million tonne to a modest $50 per million tonne, currently. The import bill for FY15 was around Rs 64,500 crore, nearly 40% cheaper than in the previous year, although the volume of imports increased from 170 million tonne in FY14 to 200 million tonne in FY15.
According to sources, the Central Electricity Authority (CEA) has finalised the list of power developers, which have raised the demand for importing coal. “The demand for import has risen because of capacity addition and falling imported coal prices, making the prospect attractive to power producers in view of congested and inefficient transportation available for procuring domestic coal,” a CEA official told FE on the condition of anonymity. The CEA’s “approval” is sought by the power companies to import coal because it allows them to pass on the additional cost, if any, to the distribution companies.
Recognising that transportation constraints need to be removed for CIL to supply coal to coastal power units, the government is exploring forming joint ventures among the Indian railways, CIL and mineral-rich states to build rail connectivity to pitheads. CIL’s plan to augment production to 1 billion tonne relies heavily on improving railway infrastructure, including in many cases, last-mile connectivity to coal mines.
CIL’s production stood at 494.23 million tonne in FY15, up 7% over the previous year. The company has set a target of 550 million tonne for the current fiscal.
The largest thermal power developer NTPC will alone import 30% of the total CEA-approved coal imports in FY16, at 22 million tonne. “NTPC has 11 new units. Given that CIL only assures 67% of the total requirement to plants commissioned after 2009, we need to tie up imports,” a company official told FE. He, however, added that the company would cease to import coal in five years as its own mines will start producing.