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MAY 03 2013

Rocks in India Coal Supply Means More Power Blackouts: Energy

  • Economic Times, ET Bureau / Hyderabad
  • Created: Fri 03rd MAY 2013

People gather near vendors at a market in Kotla Mubarakpur, New Delhi, India during a power failure.

Dharmendra Kumar owes his job to rocks masquerading as coal.

He drives a payloader at NTPC Ltd (NTPC)., the countrys largest electricity producer, scooping out boulders from mountains of coal disgorged from open-topped railway cars. He drops the rocks, some as large as a bathtub, into a pile forming its own mountain at NTPCs Dadri power plant in north India.

The pile of rubble represents a brewing conflict between state-owned Coal India Ltd (NTPC). and NTPC thats threatening to cut electricity supplies in 20 states across India, Asias third- biggest economy. The country already has a 9 percent shortage of power at peak demand, shaving about 1.2 percentage points from gross domestic product, according to government estimates.

"The government must step in immediately to resolve the crisis, said Deven Choksey, managing director at KR Choksey Shares & Securities Pvt. in Mumbai. "There is a lot at stake here.

In March, state-owned NTPC reached the end of its patience with adulterated coal and told Coal India it wouldnt continue paying for rock. It also refused to sign 20-year supply contracts for recently built power plants unless assured of "minimum quality, NTPC Chairman Arup Roy Choudhury said last month.

In response, Coal India reduced supply to two NTPC power plants. On April 4, NTPC wrote to utilities in about 20 states where it provides electricity, warning the dispute could result in a power crisis, according to an e-mailed copy of the letter provided to Bloomberg News.

Coal India, which has fallen 11 percent this year, fell 0.6 percent to 317.30 rupees at the close of trading in Mumbai. NTPC gained 1.8 percent to 160.25 rupees.

Peak Demand

As of March 31, NTPC owed Coal India 28.4 billion rupees ($527 million), Deputy Coal Minister Pratik Prakashbapu Patil told lawmakers on April 30. He didnt clarify how much of the amount was in dispute.

Indias power demand peaks in June and July when temperatures in the north approach 50 degrees Celsius (122 degrees Fahrenheit).

NTPCs refusal to agree to long-term coal supply contracts has brought an added wrinkle into the standoff with Coal India, which controls 80 percent of the countrys supply.

Coal-fired power capacity built since 2009, including part of Dadri, are supplied under memorandums of understanding, which, unlike contracts, dont include penalties on Coal India if it fails to supply agreed quantities.

Falls Short

Consequently, the Dadri plant, 60 kilometers (37 miles) northeast of the capital New Delhi in Uttar Pradesh, is operating on daily deliveries instead of the recommended two- week stockpile, according to the Central Electricity Authority.

NTPC has support from other state utilities that complain of poor quality coal.

"The coal that we get from Coal India falls short in quality by about two or three grades when it reaches us, S.P. Rekhade, chief engineer for fuel management in Maharashtra State Power Generation Power Co., which supplies electricity to Indias financial capital Mumbai. "We incur an almost 30 percent increase in fuel and transportation costs because of this, as utilities pay for coal by weight and quality.

Maharashtra State Power took the matter to the nations antitrust body last year, criticizing what it called Coal Indias "monopolistic behavior. The Competition Commission of India in March asked the miner to respond.

Transit Tampering

Coal India says the fuel may be tampered with on the way to power stations.

"We are open to any sort of quality checks at our mines, but we cant ensure what reaches the plant, Chairman S. Narsing Rao said in an interview on April 17. "What happens during transit is not our responsibility.

The company will introduce third-party checks at the point of loading from September.

One way for Coal India to improve its product is to use washeries, said Oscar Veldhuijzen, a partner at the London-based Childrens Investment Fund, the biggest non-state investor in the coal miner. Washeries use a process known as float and sink to separate coal from rocks and soil, providing a higher quality fuel that costs less to transport.

"I dont see why Coal India is not building washeries, he said. "It will boost profits for Coal India and reduce the burden on power plants.

Washed Coal

Coal India operates 17 washeries that have a capacity to clean 39.4 million metric tons of the fuel, or less than 10 percent of its output. It floated tenders to build 20 more washeries in 2009. None are operating.

The delay is because washed coal cost more and utilities, including NTPC, are reluctant to sign the purchase contracts, according to two Coal India officials, who asked not to be named because they arent authorized to speak to the press.

"Washeries are expensive projects and Coal India officials will be extremely cautious in putting in money unless they are sure it will not be a bad investment, M.P. Narayanan, a former chairman at the coal miner and an adviser to the World Mining Congress, said in an interview.

Meanwhile, the heads of the ministries that control the two sparring companies are trying to work out a solution. Indias coal minister Sriprakash Jaiswal and power minister Jyotiraditya Scindia met on April 18. The two told reporters they hoped to resolve the dispute within a month.

"Both are government companies and that should be reason enough for us to settle it quickly, Jaiswal said a day before the meeting.

The uncertainty of coal supplies in India has its damping effects on investors who might help ease the countrys electricity shortages.

CLP Holdings Ltd. (2), Hong Kongs biggest electricity supplier with assets across Asia, reported a HK$182 million loss after one-time items in its Indian business in 2012, citing coal shortages at its plant in Jhajjar.

CLP Chief Executive Officer Andrew Brandler commented on Indian spending plans at a Hong Kong press conference on April 30: "We wont be investing further in the thermal power generation business in India.

Tags

Delhi Maharashtra Coal Power Generation Sriprakash Jaiswal NTPC Ltd Arup Roy Choudhury Asia Central Electricity Authority S. Narsing Rao Mumbai Power Electricity India

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