User will pay for excess coal imported by coal fired power plants!

India’s Coal production (in million short tons) was 611.719 (2011) against world production of 7954 while in the latest year (2012) it had an anticipated production of 639.627. Its consumption during the same period was 662(2012) against world’s 4961 and the corresponding consumption in 2012 being 721.419. There was a nett import to the tune of 58.995 (2011) against 81.792 (2012).

India professed to an installed capacity of 211 gig watts of power in the coal fired plants. There was a huge shortage of coal in the country, as the primary source of power in India was from the coal fired projects. India has the fifth largest coal reserves, but it is not able to augment demand. India has 20 operational nuclear reactors and 7 more under construction at various stages (Source: eia US Energy Source information). 

India’s per capita consumption of power is less than that of the developed countries and 25% of India’s population lack basic access to electricity while urban areas which are electrified has unwanted blackouts. Largest energy source for production of power in India is from coal, and while industry sector consumed 40% of the power produced from the coal sector. Coal powered power plants are the fastest growing area of energy demand as it grew from 23% in 1990 to 42% in 2012. (US Energy Int Administration- Independent Statistics and Administration). In India, for economic purposes, Services industry which provides India’s half of economic output is relatively a non energy intensive source. Hence lack of urgent importance to the power sector which could accelerate India’s growth.

India imports 81.982 mt of Coal, and 75% of this coal is from Indonesia, while 19% is from S Africa and 1% from Australia. Indonesia is one of the biggest suppliers of Palm Crude Oil and RBD Palmoilein, which is used for distribution amongst the Public Distribution system beneficiaries to the extent of 10 million by providing a discount of 25%. India is one of the nations on which the foundations of Indonesia’s economy are built around. Indonesia exports 180 million tones from their production of 239.41 million tones. The prices for 1 MT FoB is around 50-60 dollar/Metric ton.

This is the general picture of sourcing of coal, its imports, its utilization, power produced used by coal fired plants, etc. The story begins now. Yesterday, the Cabinet Committee on Economic Affairs met under the chairmanship of the Hon’ble Prime Minister of India, wherein a contentious decision was taken to the effect that coal which are imported by individual power companies, or by Coal India Ltd, and the difference in prices paid between the import price and the domestic price shall be passed on to the users or consumers. Presently there is an import tax of 10% and the government in its wisdom will bring it under a Tariff Rate, where the exporter country or the importer at the place of holding will pay a lesser customs rate on the import value, while the invoice value will be his cost price. This price and the domestic price, the difference, will be added to the cost of power that is being distributed today or will be distributed tomorrow. This decision, Government sources claim was inevitable as it is expected to ignite 38,000 MW of new power in this power deficit country. For production of 1 MW of electricity, cost of capacity building would be approximately Rs 5 Cr (govt reveals this) .The Government encourages the power producers to go in for importing power; it is their responsibility. But the differential in sourcing and domestic price will be levied by the power company on the end user. This was what Association of Power producers asked for.

The Hon’ble Finance Minister feels, a few higher paise paid for a unit of power would not affect the common man, but it would have a big effect on boosting the power availability in the country. Our am admi government wants to force a price hike on the throat of the common man who is already bearing the brunt of inflation tsunami and high price rise.

Like importing 30,000 MT of Palm Oil every year to raising it to 1, 00,000 MT at a throw away Tariff value, Government would definitely increase the quantum of imports Y-o-Y. Presently, 65% of the coal required for the power plants is procured from the Coal production centres, and Government is hopeful that they would be able to meet 85% of the requirements by the end of the 12 th Plan. Then the mismatch between supply and requirement would be a measly 15%.

                    (Source: eia- US Energy Source Infmn)

But this is just part of the minutes of the Cabinet Committee on Economic Affairs of the government of India. The actual scenario would be, the imports which are in the 35% region may touch 50% or more. But a peculiar matter that need to strike us is that we are at the receving end of the Rupee devaluation which is hovering around Rs 59/dollar. Our Foreign Exchange Reserves is a bare $ 297 billion. The difference between Imports and Exports in the first 2 months was a deficit $ 40 billion (Balance of Payments).(CAD). If manufacturers who have a poor track record of reducing their sale prices, if given the right to fix the rates, will never withdraw. The consumer will have to bear the cost of Rupee fluctuation, cost of road/rail transport from the port to the Power factory, etc. It is not peanuts as our Minister wants us to believe but will be in excess of at least Rs 5-6 per unit.

It is a pity that nobody is scared of this development.