'CIL pact with IPPs may not relieve short-term coal shortage'

Last Updated: Wednesday, April 4, 2012 - 23:25

Mumbai: A Presidential directive requiring state-run Coal India (CIL) to sign fuel supply agreements (FSAs) with independent power producers (IPPs) will do little to relieve domestic coal shortages in the near-term, ratings agency Fitch said on Wednesday.

However, over the long term, the directive could resolve some of the bottlenecks affecting coal production, it said in a statement.

"The FSAs signed under this directive will initially have little effect on domestic coal supply as the reasons for lower output, including infrastructure bottlenecks, lack of environmental clearances, problems in land acquisition, high rainfall and labour, need long-term solutions."

"Over the long-term, we believe FSAs signed under the directive could help overcome some of the bottlenecks and improve the long-term availability of coal," the agency said.

The government has directed CIL to sign FSAs with the power producers, assuring them of at least 80 percent of the committed coal delivery.

The directive has been given to the PSU, as it did not meet the deadline of March 31, set by the Prime Minister's Office for CIL to enter into agreements with power producers which were facing fuel crunch.

Fitch, however, noted that much of the initiative will depend on the Government finding a solution to environmental restrictions that prevent extraction of coal lying under forests. "It will also depend on the size of fines that could be levied against CIL."

India's non-coking coal production grew by a mere 13 MT over FY09-FY11, sufficient to fire only 2.3 GW of coal capacity, whereas over the same period thermal capacity addition was nearly 16 GW.

"We believe coal will remain the dominant fuel for the Indian power sector due to lower-than-expected gas production from existing fields and no new major gas discoveries," the rating agency observed.

The Indian power sector received strong investor interest during 2008-2010 and this Presidential directive is part of the Government's efforts to save that investment from going bad, it noted.

"Although improvements in coal supply over the medium to long-term could help save investments that were recently completed or are in the pipeline, fresh investments in the coal-fired power generation sector are likely to remain subdued," the rating agency added.


First Published: Wednesday, April 4, 2012 - 23:25

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