KOLKATA: Imported thermal coal has become a much more viable proposition for domestic power generators in coastal areas, erasing the 30-40% price differential with state-run Coal India's produce of the same variety.
Experts say the recent drop in international prices will benefit importers in coastal areas and those buying the fuel from Coal India's underground mines under a special contract. Power producers in India use a blend of the premium quality imported coal and Coal India's produce.
"Coal imports by domestic power producers are expected to rise by at least 10% this year due to reduced international prices as well as reduced availability of coal from the monopoly," said Gautam Kumar, director of Asian Minerals. "It makes sense for a host of power companies to import coal now that prices have dipped."
MK De, power secretary in West Bengal, said, "We are paying at least 1,000 per tonne more for the coal extracted from Coal IndiaBSE 2.11 % subsidiary Easter Coalfields' underground mines in comparison with the landed price of imported coal of the same category."
Coal prices in the international market are now at two-and-half-year lows, primarily because of decreased demand from China, one of the largest importers of the fuel, after it ramped up domestic production. Indonesia, another major coal exporter, is producing more coal with the passing of the monsoon season.
"Prices have bottomed and are at its lowest in more than two years. We hope prices stay this way at least for the next two-three months," said a senior executive of a large Indian coal importer.
According to the executive, Indonesian coal with 6,600 gross calorific value (GCV), a premium category, costs about 7,000 a tonne inclusive of ocean freight and customs.
Power plants within 100 km of the coastline are finding imported coal cheaper than Coal India's produce of the same variety, the executive said, adding that these companies have to spend large sums of money on transporting Coal India's produce from its mine heads.
"Other categories of Indonesian coal with energy content of 5,300 GCV are ruling around $41 per tonne at the port of origin. This coal, including customs and ocean freight of about $13 per tonne, will cost about 3,100 per tonne at Indian ports," said Kumar of Asian Minerals.
Buyers, however, will have to add rail freight depending on the plant's distance from the port, he added. In comparison, a similar category of coal from Coal India would cost around 2,500 per tonne, he added.
According to a senior executive of a large public sector power company, Coal India's offering suffers from quality slippage issues too. "CIL's coal isn't homogenous and contains foreign materials that adds to the cost substantially."
A senior executive of state-run Damodar Valley Corp said, "We have to pay around 5,600 per tonne for coal with energy content ranging between 6,100 GCV and 6,400 GCV. This, however, does not include railway freight, which will be about 110 for every 50 km," he said.
Coal prices are governed by the commodity's energy content, or its gross calorific value (GCV), which is the amount of energy released by burning one kilogram of coal.