Rising coal imports to lead to higher power tariffs, say analysts

Increasing coal import by power plants to compensate for supply shortages by Coal India (CIL) would lead to a rise in electricity tariffs, analysts said.

Absorbing higher imported fuel costs by electricity distribution companies (discoms), instead of raising tariffs, would add to losses of such state-owned entities, a recent note from SBICAP Securities noted.

Reining in costs of electricity generation at state-owned power plants was a major factor which enabled discoms under the UDAY to halve their financial losses to Rs 17,352 crore in FY18.

Power plants which blend domestic and imported coal to increase efficiency imported 3.6 MT of coal in the first two months of FY19, which is 39% more than the same period in FY18. The development comes at a time when global coal prices have gone up by more than 23% CAGR from FY16 to about $100/tonne.

Research firm India Ratings estimates that if there is a 6-7% rise in electricity demand, imported coal needs to increase to 62 million tonne (MT) in FY19 from 56 MT, even if coal availability to the power sector increases by the standard 4% rate.

Power minister RK Singh said earlier this week in the wake of coal supply shortage at power plants, his office has allowed states to import coal to meet demand.

Overall coal imports are, however, lower than last year because a number of power plants designed to run only on imported coal have shut down their units after the Supreme Court ruled in April 2017 that imported coal price hikes cannot be passed on to discoms through higher tariffs. However, power plants with supply contacts with CIL can claim compensation for higher costs for coal imported due to less than contracted supply.

CIL has increased its supplies to the power sector by 15.4% to 122.8 MT in the first three months of FY19, backed by a 15% growth in rake loading to 217 rakes per day. However, supply shortages remain.

Singh said the shortage scenario can persist for another two-three years and the power ministry is in constant touch with the coal and rail ministries to address the situation.

Coal India Ltd