Coal shortage for Power Generation in India - My comments on Forum - Powerline magazine
Q. Do you think the coal supply situation could potentially decelerate the growth of the power sector, given the rising coal prices on one hand and the anticipated shortage in the medium to long term?
It is likely that the demand for coal for power generation will outstrip supply by quite a margin. This will result in lower than expected growth in the power sector. The growth in domestic supplies was subdued this year (2010-11), and this weighed down the index of industrial production. The supply from imported sources is expensive. The projected gap in coal demand and supply in India is substantial when compared to the size of the internationally traded coal markets, and this is likely to ensure that the global pricing will remain strong. Coal supplies from Australia and South Africa have been growing at a relatively slower pace. Also, the brisk growth of Indonesian exports over the past five years is unlikely to continue. The fact that coal mining projects tend to have a longer gestation period, and that newer projects in these countries will increasingly come up in areas that will need investments in logistics and support infrastructure, raises questions about the feasibility of importing coal. Domestic projects have, on the other hand, run into regulatory and policy uncertainties, apart from the normal procedural issues that exist. The declaration of “go and no-go” zones has impacted several new mining projects including the proposed ultra mega power projects (UMPPs) in Orissa and Chhattisgarh. Uncertainties with regard to the mode of competitive bidding for new blocks have stalled new captive coal block allocation. They have also impacted domestic supplies and will surely impact generation capacity addition.
Q. What strategies in terms of policy and action should be put in place immediately to counter this issue?
India needs to create an institutional framework to support faster implementation of the sanctioned projects. Single window clearance through coordination of the central and state agencies is needed, which, however, need not mean any compromise on the quality of approval mechanisms. The investment environment needs to be enhanced, and this requires stability in fiscal and policy regimes. New policies, fiscal, environmental, technological or otherwise, should not be allowed to impact the existing or sanctioned projects as the mining industry, which otherwise has longer payback period as compared to other industries, could lose out to capital inflows elsewhere. With regard to non-serious players that have not been able to develop their coal blocks, the government needs to be objective in its assessment and decisive in the cancellation of allocation.
The Case 2 mode for competitive bidding of UMPPs has proved successful, and could be considered for deciding the bidding mode for coal blocks. Upfront payment or production-linked payment or any combination thereof may lead to an increase in tariffs. Coal blocks packaged with preparatory works bid under the Case 2 type may be appropriate for the power generation sector. Investments also need to promoted in creating the backbone infrastructure for coal mines in India and for supporting imports. The wish list may seem long but these are a must if the nation desires to avoid severe power shortages.
It is likely that the demand for coal for power generation will outstrip supply by quite a margin. This will result in lower than expected growth in the power sector. The growth in domestic supplies was subdued this year (2010-11), and this weighed down the index of industrial production. The supply from imported sources is expensive. The projected gap in coal demand and supply in India is substantial when compared to the size of the internationally traded coal markets, and this is likely to ensure that the global pricing will remain strong. Coal supplies from Australia and South Africa have been growing at a relatively slower pace. Also, the brisk growth of Indonesian exports over the past five years is unlikely to continue. The fact that coal mining projects tend to have a longer gestation period, and that newer projects in these countries will increasingly come up in areas that will need investments in logistics and support infrastructure, raises questions about the feasibility of importing coal. Domestic projects have, on the other hand, run into regulatory and policy uncertainties, apart from the normal procedural issues that exist. The declaration of “go and no-go” zones has impacted several new mining projects including the proposed ultra mega power projects (UMPPs) in Orissa and Chhattisgarh. Uncertainties with regard to the mode of competitive bidding for new blocks have stalled new captive coal block allocation. They have also impacted domestic supplies and will surely impact generation capacity addition.
Q. What strategies in terms of policy and action should be put in place immediately to counter this issue?
India needs to create an institutional framework to support faster implementation of the sanctioned projects. Single window clearance through coordination of the central and state agencies is needed, which, however, need not mean any compromise on the quality of approval mechanisms. The investment environment needs to be enhanced, and this requires stability in fiscal and policy regimes. New policies, fiscal, environmental, technological or otherwise, should not be allowed to impact the existing or sanctioned projects as the mining industry, which otherwise has longer payback period as compared to other industries, could lose out to capital inflows elsewhere. With regard to non-serious players that have not been able to develop their coal blocks, the government needs to be objective in its assessment and decisive in the cancellation of allocation.
The Case 2 mode for competitive bidding of UMPPs has proved successful, and could be considered for deciding the bidding mode for coal blocks. Upfront payment or production-linked payment or any combination thereof may lead to an increase in tariffs. Coal blocks packaged with preparatory works bid under the Case 2 type may be appropriate for the power generation sector. Investments also need to promoted in creating the backbone infrastructure for coal mines in India and for supporting imports. The wish list may seem long but these are a must if the nation desires to avoid severe power shortages.
posted by Dipesh Dipu @ 11:22 PM
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