Coal India waits for cost details on any imports

By Krittivas Mukherjee and Sanjeev Choudhary

NEW DELHI (Reuters) - Coal India needs more clarity on who will foot the bill for any imports before it commits to major purchases needed to meet supply obligations to power producers, officials said on Thursday.

Prime Minister Manmohan Singh has directed Coal India to guarantee long-term supplies to the under-performing power sector, even through imports if needed.

"We have not been told anything about import liabilities, so the question of imports does not arise just yet," said a senior Coal India official.

"Let us see what the policy says about import cost pass through," he said, referring to sharing of any financial burden with power producers.

Singh's new ruling applies to power plants due to be commissioned by 2015 and have a pact with distribution utilities to sell power.

A decision on imports by Coal India would also be influenced by other factors.

A significant number of the upcoming plants do not have long-term power purchase agreements with distribution companies. This means Coal India would not be under any obligation to sign supply deals with them immediately.

Besides, technology used at many of power stations prevents them from going beyond a certain limit for blending local and imported coal.

"There is a limit to the blending of coal Indian power plants can handle," said Seshan Balakrishnan, Director-Infrastructure Practice, Ernst & Young.

"Therefore, the entire domestic coal shortfall can't be met through imports and the plant load factor at many plants may remain lower just because they can't use coal blended beyond a limit."

A shortage of fuel has constrained expansion in India's power sector, which consumes about two-thirds of the country's coal output, putting a drag on growth in Asia's third-largest economy.

India's coal demand, about 80 percent of which comes from Coal India, is set to jump to 981 million tonnes by 2017, official data shows, but output in this period may only be at 715 million tonnes, leaving imports to bridge the gap.

Coal India aims to produce 464 million tonnes in 2012/13, and has already scaled down output target to 440 million tonnes in 2011/12, crimped by hurdles over environmental clearances and land acquisition.

Because of higher demand, the estimated imports of 54 million tonnes in the current fiscal year are projected to rise four times to 213 million tonnes in 2016/17, though a lack of rail capacity from key ports to end-users remains a constraint.

Coal India currently signs long-term fuel supply agreements with power producers, but guarantees only local coal supplies for only 50 percent of the allocation because of shortages.

It does not import any coal directly, even though it has approvals for this. Coal imports are currently handled directly by power producers.

Singh's decision followed intensive lobbying by top executives from India's power companies, who had sought his help to boost supplies of coal.

Domestic coal supply has fallen short of targets, largely due to regulatory hurdles faced by miners, while poor infrastructure hinders the transport of imported coal, leaving many power plants running below capacity.

(Additional reporting by Prashant Mehra in MUMBAI, editing by William Hardy)