The issues of pricing of imported coal, fuel supply agreements and rationalisation of gas allocation need urgent resolution. Otherwise, 7,130 MW of thermal plants based on imported coal would get stranded, along with 22105 MW of projects based on linkage coal commissioned post-2009 and 55,000 MW of projects under implementation based on letters of approval.
Banks have already slowed down disbursement to power projects and private developers have become cautious in making investments, and are awaiting a corrective regulatory/policy response to the issues. A crisis-like situation is emerging in India from a shortage of domestic coal and a steep rise in prices of imported fuel due to price volatility and resource nationalism. The price of imported coal is an issue for both prospective and commissioned projects.
The country is faced with a negative coal balance of 53 million tonne in 2011-12 and is likely to rise to 238 mt by the 12th Plan end .
Pricing is a key constraint in power development. Considering that India’s high growth will require matching power output, the best option is to make necessary changes to absorb the higher cost, of power generated entirely from imported coal and from blends.
But the import of coal is constrained by logistical issues. India?s port and rail infrastructure would need to be augmented to minimise logistical constraints stemming from an increase in the quantum of coal imports.
To ensure that the current projects based on imported coal do not get stranded, it is necessary to deal with such material adversities, which may lead to a scenario of power shortages co-existing with stranded power assets. Also, new power projects would face the same issue of coal shortage. The mechanism of revisiting the PPAs to factor in the cost increases and resultant default from such situations needs to be considered.
Other issues which merit consideration are: expediting environmental clearance for captive mines; incentivising the disposal of surplus coal from captive mines; revisiting the current FSA (fuel supply agreement) framework to make it bankable; and auction of coal mines.
Gas
Similarly, going forward, domestic gas availability will be insufficient to meet the the power sector’s demand, considering the limited visibility of future domestic gas supplies. Today, out of the total gas supply of 129 mmscmd (million metric standard cubic metre per day), supply to the power sector is 59 mmscmd (46%) at an average PLF (plant load factor) of 71%. The present additional unserved demand is 21.21 mmscmd.
In the Eleventh Plan, gas-based capacity of 8,220 MW is expected to be added, which would lead to an additional demand of 31.8 mmscmd by 2012. This capacity is likely to be stranded if additional gas is not allocated to these projects.
The government has, in its gas utilisation policy, termed power and fertiliser as priority sectors and prioritised all natural gas for these sectors. It is suggested that over 18 mmscmd (which can operate over 5,000 MW plants) of natural gas being supplied to non-priority sectors such as steel, petrochemicals and refineries be diverted to priority sector projects?existing and new ones.
The author is director general, Association of Power Producers