With banks reluctant to fund power projects, Coal India, which is flush with funds, should form joint ventures with power producers to ensure sales and power supply

After Tuesday’s board meeting of Coal India, chairman Narasing Rao announced that the company plans to import some 18 to 20 million tonnes (MT) of coal during 2012-13 since most of the power producers have agreed to its proposal for sharing the cost of imported coal.
 
In order to ensure supply of coal to power producers, which have signed the FSAs (fuel supply agreements), such an arrangement would be a relief. Although this cost sharing arrangement will result in a marginal increase in cost of 8 to 10 paise per kilowatt hour (kWh), it will enable the power utilities to generate an additional 32 billion units in the current year which will go up to 44 billion units in the next fiscal.
 
Under the proposed cost sharing arrangement, all the power producers irrespective of how much imported coal they consume will have to pay the average price. As of now these producers are obtaining domestic coal at much lower prices and the average price now proposed will eat into their profits, though it will guarantee their production will not fall.
 
However, it remains to be seen what the ultimate decision will be if and when the Coal Regulator is appointed, and whether his decisions will overrule all previous and existing contracts and supplies!

 In the meantime, Coal India has been making some serious attempts to increase its domestic coal supplies. For instance the Gevra project in Chhattisgarh, a wholly-owned subsidiary of South Eastern Coalfields, is India's largest single source of power grade coal and it is also an open cast mine. CIL produces 435 MT annually, out of which 35 MT came from Gevra. The production, however, stopped way back in 1980.
 
It was not possible to continue the production due to CIL’s inability to overcome the resistance by seven villages which were controlling 1,100 hectares of land, containing an estimated 160 MT of power grade coal.
 
Now, after a series of negotiations, it has been able to overcome the issues and come to acceptable terms of compensation and rehabilitation of the affected villages. The final acquisition process has just begun and is expected to be completed in the next few months.
 
When complete, SECL will begin to consolidate the land holdings so as to plan the mining operation which one can foresee is likely sometimes next year.
 
There is one other area when financially rich companies like Coal India can come to the rescue of power producers. Due to the current market situation and uncertain state of affairs, coupled with poor and deteriorating finances of state electricity boards, banks are showing their hesitancy to lend money for power projects.
 
Banks are willing to extend financial support for those power units which have guaranteed fuel supply arrangements together with transport logistics, because they consider these are ‘bankable’. Advances to power producers are now getting reduced as compared to last year.
 
So, in the interest of ensuring sales as well as power supplies, why not organizations like Coal India, which are flushed with funds, come forward to form some sort of joint ventures with these power generators?

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)