Anticipating rising demand for imported coal from the Indian power sector, overseas coal suppliers have started charging premium for assured coal supplies, besides reducing the normal tenure of long-term contracts from 10-15 years to 3-5 years.

The quantum of generation capacity based on 100% imported coal is rising fast in India, with developers increasingly opting for setting up plants in coastal areas to avoid bottlenecks in domestic coal availability and transportation constraints. As a result, out of the 42,000 mw expected to be commissioned during the current 11th Plan period, as much as 7,138 mw or 17% is based on 100% imported coal. This figure is expected to go up significantly in coming years as the power ministry has envisaged 100 giga watt capacity addition under the 12th Plan, the bulk of which is likely to be based on coal.

Companies like Adani, Reliance Power, Tata Power, Lanco and JSW Energy have tied up over 100 million tonnes a year of foreign coal supplies to feed their Indian power plants. The quantum of imports will rise with the capacity addition in power generation in coastal areas.

Power project developer JSW Energy is currently importing 3-4 million tonnes of coal every year to feed its power plants in coastal areas. Its coal imports would go up to 6 million tonnes by the end of this calendar year when under-construction capacity comes onstream. ?Our coal import will go up to 6 million tonnes by the end of 2011,? LK Gupta, joint MD & CEO, JSW Energy told FE.

Indonesian coal was available at heavy discount until a few years ago. However, with more Indian companies scouting the overseas market for tying up coal supplies, Indonesian coal suppliers have stopped offering discounts, industry sources said.

Australia, South Africa and Indonesia are the key sources for Indian companies importing coal. Newcastle monthly index, a free-on-board reference price for thermal coal imported from Australia, has risen from $94.69 in September 2010 to December $119.47. Similarly, monthly price index for South African coal, Richards Bay, has gone up from $85.87 to $ 115 during the same period. DES ARA, GlobalCOAL?s fob export price index for key North European port climbed from the level $91.98 in September to $122.31 in December. ?India?s coal imports are projected to rise to 300-500 million tonnes a year between 2015 and 2010. Such a large demand would have a significant impact on international prices,? Kuljit Singh, an energy expert with Ernst & Young, said.

?It (world coal market) is a seller’s market and our demand is going to rise exponentially,? says Charudatta Palekar, principal consultant, PwC.

?The supplier would like price to be market-linked if quantity is assured. However, the seller might agree to keep a part of the overall price fixed in case buyers do not insist on penal provisions for shortfall in contracted quantity,? Dilipkumar Jena, another consultant from PwC, said. The international coal market is already tight because of the rise in import requirements of China and Japan. The entry of Indian players has dramatically changed market dynamics. For example, coal supply contracts were earlier signed for 10-15 years.

But now suppliers are not ready to sign contracts for more than 3-5 years, though memorandums of understanding may signed for 25 years matching the normal life of a coal-fired power plant.