COAL IMPORTS / INDIA. :

India is the third largest user of coal in the world and the Indonesia is the second largest country for imports into India!!! It consumes about 400 million tons per year.

Indias energy sector is a jewel in the crown as 55% of Indias power generation capacity is based on thermal coal. APGENCO is proposing to import 1.6 million tons for its thermal plants which have a combined capacity of 5092 MW. COAL INDIA is also proposing to import huge quantities of steam coal from Indonesia as a bid to meet the obligations of supplying a minimum assured quantity of coal to the power producers under the presidential directive.

Coal remains Indias most important fuel and most of the coal is consumed by the power sector (64% for utility and 7% for captive consumption) followed by steel (11%), cement (3%) and others (15%). Indias domestic demand for energy and coal will continue to increase with its buoyant economy and burgeoning middle class.

The govt of India has made a full exemption of basic customs duty and a concessional CVD of one percent to steam coal for a period of two years till March 31st 2014.

There are three main sources of domestic production as outlined below:

Coal India (CIL):Coal India has 65 billion tonnes (BNT) of coal reserves, and accounts for 80% of India's coal production. CILs total coal production has been flat at 430 MT through FY10 and FY11.

Singareni Collieries (SCCL): SCCL is jointly owned by the Government of Andhra Pradesh and the Government of India. It has 9 BNT of reserves and accounts for nearly 10% of domestic production.

Captive Producers: The Coal Mines (Nationalization) Act 1973 was amended in 1993 to allow coal mining for captive end user consumption in the power, cement and steel private sectors. 195 blocks have been allotted so far, with reserves amounting to 43.3 BNT, or 15% of the estimated coal resources in India. Captive coal blocks account for 7% of coal production.

The fundamental reasons for domestic supply not keeping pace with demand are:

Delays in environmental/forest clearance: Forest clearance approvals take several years. The Ministry of Environment and Forests (MOEF) ensures that coal producers take into account adequate environmental safeguards.

Shortage of rakes (trains each with 3,500 tonne capacity) in India: Around 50% of India's coal is transported via rail. Rake availability has been a severe constraining factor in making coal available to the end user.

Heavy rainfall; strikes; agitation: Coal availability has been affected by heavy rainfall, strikes by contract workers and employees, which have resulted in lower production.

It is unlikely that these supply limiting factors will improve anytime soon.

In conclusion, India's domestic demand for energy and coal will continue to increase with its growing economy and burgeoning middle class. However, the domestic supply situation in India does not look promising. As per the Planning Commission, domestic coal demand will increase to 1.0 BNT by the end of the 12th Five-Year Plan (2012-2017). Imports of approximately 200 MT will be needed to bridge the shortfall in domestic output. The demand-supply deficit has been trending higher over the years from 33 MT (7% of demand) in FY 07-08, to 79 MT (22% of demand) in FY 10-11.

In the coming years, India's coal situation will continue to be characterized by regulatory, political and logistical risks; and severe domestic shortfalls with an increasing reliance on imports.

According to the coal minister of India, India's coal imports may be at 250 million tons per annum by 2016. Coal imports are unavoidable options for Indian utilities due to non-availability of economically viable coal from domestic mines. However, according to Indian UMPPs, due to Indonesian government regulation that forces all coal producers must sell coal at government declared monthly prices would cost them at least US$ 30 per ton higher than they previously budgeted.

According to Indian power industry sources opined that Indian UMPPs (ultra-mega power project) suddenly caught in between as the concept of UMPP was implemented 4 to 5 years back. The large scale industrial houses in India have bided and secured UMPP licenses based on the open market prices /long term coal contracts from Indonesian producers (I.e., pre regulated Indonesian market). Now that Indonesian coal reference price mechanism is in place all the UMPP's are seeking Indian governments assistance in revising the Power Tariff of UMPP.

India imports about 12 percent of its coal requirements and sources 70 percent of that from Indonesia, the world's largest thermal coal exporter.

Coal fuels more than half of India's power capacity of 191,000 MW and will be required for 85 percent of the 76,000 MW additional capacity targeted in the next five years.

Out of its 173,356 MW power plants, almost a half or 93,918 MW are coal-fired power plants.

As demand outstrips national coal production, coal imports become its main option.

It is projected that Indonesias coal production in 2012 will reach 380 million tons, topping the governments target of 332 million tons.

To maintain India's growth, it is imperative that energy is readily available and is affordable. According to the Ministry of Coal, the gap in demand and domestic supply of coal has increased to 83 million tonnes (MT) in 2010-11 from about 50 MT in 2007-08. With the shortage of coal, generation in different power plants is getting affected. As many as 18 power plants in the country are facing critical levels of coal shortage. Power utilities have already reported a generation loss of 8.7 billion units in 2011-12 (up to February 2012) due to shortage of coal. By the end of the 12th Plan (2012- 2017), which envisages the development of coal-based power plants, the projected gap between demand and supply is likely to reach a colossal 200 MT.

Buying coal from abroad to meet the demand deficit may make sense on paper but the very prospect of importing coal in today's circumstances is giving sleepless nights to many power producers. Traditionally, India has been sourcing its coal from Indonesia and Australia. The coal import scenario has drastically changed in recent times; while the steep carbon tax in Australia at 30 per cent has made coal imports unviable, Indonesia poses significant political and legal risks in the form of the changing regulatory framework for coal imports. The price of coal imports from Indonesia has already increased phenomenally after the local governments fixed coal prices. A further revision may be on the cards since the Indonesian government is considering imposing fresh taxes.

SUPPLY AGREEMENTS

It is estimated that in order to sustain a 7.6 per cent GDP growth, as per the Finance Minister's Budget announcement, India would need the power sector to grow by 9 per cent. The Central Government and the Planning Commission have also made necessary announcements about setting up approximately an additional 76,000 MW of power generation facilities.

However, simply setting up additional capacities without tying up the fuel requirements for the same is fraught with risks. The Government is well-aware of the problems faced by some of the UMPP projects and the ever-escalating import price of coal and gas. The need of the hour, therefore, is to immediately evolve a long-term National Energy Security Policy.

In its Energy Security Policy, the Centre must consider mediating and help resolve the pending fuel supply agreements for long-term fuel linkages in India and abroad. Mining of domestic coal must be accorded the highest priority. In fact, the Government should set up a single window inter-ministerial body for facilitating fast track clearances of coal mining projects.

The Government should also consider issuing guidelines on power tariff using bulk sourcing of both imported and domestic fuels. There is an urgent need for the government to fully liberalize the coal business and for Coal India Ltd to step up domestic production, as well as acquire coal mining companies abroad, if necessary.

Concurrently, the Government should introduce an independent coal regulator to oversee mine planning and development. The regulator and the Energy Security Policy would together create a conducive and enabling framework which would ensure adherence to investment plans and production schedules to build a road map for commercial mining.

COAL OUTPUT

In India, there are multiple unexplored coal blocks where energy companies government-owned and private can apply for captive mining. However, the inherent challenges are huge and can deter companies from applying. Even in areas which are known to have coal deposits, the distribution of minerals is often uneven and varies drastically from one region to another. Also, a large part of India's coal reserves may not be extractable with current mining technologies.

These problems are compounded by delays in approval of investments in the mining sector, infrastructure impediments, the often contentious issue of large scale displacement of tribal population, resistance of locals and environment issues.

These issues notwithstanding, as far as India is concerned, there is no alternative to developing more domestic coal mines.

While coal has been the mainstay for meeting more than half of India's commercial energy requirements, importing coal is simply not sustainable in the long run. Already, the world's coal reserves have dwindled to 4,200 BT from 10,000 BT over the last 25 years. Therefore, going forward, India's ability to import large quantities of coal will get increasingly restricted.

This is all the more reason as to why India should immediately adopt a National Energy Security Policy, look at removing the roadblocks and pave the path for ensuring long-term energy security.