The country?s energy import bill is on course to balloon further. The missive from the Prime Minister?s Office to Coal India (CIL) that the company must meet at least 80% of the coal requirement of power plants or get ready to pay a penalty will effectively inflate the country?s coal import bill, already growing at a scorching pace, by another $11 billion annually. High prices of imported coal will increase power tariffs although the whole plan might help reduce the country?s yawning electricity deficit.

The company, which has been made the nodal agency for arranging coal for India?s power plants, will not only have to resort to bulk import of coal but also embrace the idea of price pooling, options it has vehemently opposed so far due to the uncertainties involved.

CIL sources and industry experts concur with the view that following the PMO?s directive, the company will have to drastically change its business model and be more aggressive in chasing coal assets overseas. ?Pooling of prices (of imported and domestic coal) as suggested by the Planning Commission could be one of the options that the company will now have to consider,? a senior CIL official said on condition of anonymity. ?Whether the company likes it or not, proposals like bulk coal imports and price pooling will automatically get implemented now,? Kuljit Singh, an energy expert with Ernst & Young, told FE.

The company will eventually have to invest to increase its production as a disproportionately heavy usage of imported coal could put upward pressure on electricity tariff.

India imported 70 million tonnes of coal in 2010-11. According to quick estimates, the company might have to annually import an additional 70 million tonne (mt) coal to comply with the PMO?s directive, which, according to a rough estimate, would entail yearly outflow of $11 billion on account of coal imports.

Industry experts, however, said this directive would help address the problem of coal shortage. ?It (the new policy) will ensure that coal shortage is addressed in the short term,? the E&Y expert said.

The PMO on Wednesday directed the monopoly coal producer to sign fuel supply agreements (FSAs) for supply of coal to 50,000 mw capacity, including projects that are expected to be commissioned in the period up to March 2015. Apart from imports, other options included tying up with other PSUs with captive coal and stepping up domestic production. Sources said CIL has called an immediate meeting of its subsidiaries to work out strategy to comply with the directive.

?It would be difficult to gauge the impact of such FSAs right now,? the CIL official said.

?Although CIL would be forced to enhance its domestic production, import is unavoidable if it has to meet 80% of coal requirement of power plants,? the official said.

CIL?s plans to sell imported coal in the domestic market have not been successful in the past. The company had requested the government to withdraw the new coal distribution policy which legally binds it to meet coal requirements of buyers through imports.

CIL?s share price fell 5.7% at the BSE on Wednesday.

However, there are dobuts about the viability of CIL sourcing coal from other public sector entities with captive coal. ?They (other PSUs) have to meet their own requirements and secure their future,? Dhananjay Mishra of Emkay Global Financial Services said.

India produced 492.76 mt coal in 2008-09, and 526.16 mt during 2009-10 and imported 59 mt in 2008-09 and 73.25 mt in 2009-10 to meet the shortfall. CIL accounts for about 80% coal production in the country. While the company aims to produce 440 mt coal this financial year, it has set a target of 464 mt for 2012-13.