Political squabble sends power cos on overseas coal hunt

Though India has considerable coal reserves, the political squabble over alleged irregularities in allocation of coal blocks revealed by the CAG reports has made supply scarce. This has forced Indian power companies to explore other avenues such as coal imports, report CNBC-TV18's Dimple Daswani and Farah Bookwala. 

The blackout that paralysed North India in July could become more common with power companies facing a shortage of coal and the problem has deepened with the political brouhaha over coal-block allocations. This increased pressure on power companies has forced them to seriously consider importing coal, even if the resulting high costs could mean a rise in power tariffs.
Platts estimates that India will need 200 million tonnes of coal annually by 2032 and Indian power companies have been quick in identifying potential supply hotspots. GVK and Adani have zeroed-in on mines in Australia, especially the new mines that have been struck at the Queensland Galilee Basin and new coal terminals at Newcastle and Gladstone.
Sanjay Reddy, vice-chairman, GVK Group,says, "We identified Australia due to lower political risks and availability of huge assets. For the short-term, there is adequate stranded capacity in the country."
But sourcing this coal is not easy. There are environmental bottlenecks such as problems with transporting coal from off-shore mines, higher freight costs and of course, new taxes imposed by the Australian government on the profits of mining companies which adds to the cost.
Platts also points out that Indian power companies prefer using coal with a lower calorific value, which is less-refined, is cheaper and is available in large amounts in South Africa.  Prices of coal from the Richards Bay mines are more pocket-friendly, and with fifth phase of expansion underway at the mines, supplies will go up significantly. Of course, some connectivity bottlenecks still need to be ironed out.
Michael Cooper, Platts, says, "From the perspective of a buyer, the global coal market is doing well at the moment and prices are coming down at the moment.  They reached highs this year of USD 150 a tonne before coal landed at Indian ports from Richards Bay and the price now for that product is USD 100 dollar a tonne. So there is a huge decline in prices of coal from Richards Bay."
Australian and South African mines also score over Indonesian mines, mainly because the advantage of proximity is negated by its ban on coal exports. But there are other options. Indian companies are increasingly looking at coal assets in Colombia, despite the large distance over sea. Mozambique with its new mines in the Zambezi basin is closer and offers a freight advantage over South Africa and Australia.
But the only problem for India, is that the increasing competition for coal from China could push global prices through the roof.