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Indian power plants not operating to full capacity as coal imports drop by 32 per cent

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Modi government discouraging of thermal coal imports has been effective. But rising domestic supplies are failing to keep pace with demand.

The decline in coal imports by India’s power plants points to distress in an increasing number of generators and a domestic supply shortfall.

Imports by power stations fell about 15 per cent from a year ago in the first two months of the fiscal year to March caused mainly by a 32 per cent drop in overseas purchases by plants designed to use imported coal, according to calculations based on data from Central Electricity Authority, a unit of the power ministry. Higher coal prices and a weaker rupee forced them to cut generation. At the same time, plants that use domestic coal saw a 35 per cent spurt in imports as they tried to bridge a shortfall in domestic supply.

A court order last year barred some Indian power plants that use imported coal and have fixed-tariff contracts from passing on an increase in fuel costs to customers. Adani Power Ltd.’s 4.6 gigawatt plant at Mundra in Gujarat, which runs mostly on imported coal, used merely 6 percent of its capacity during April and May, power ministry data show. Essar Power’s 1.2 gigawatt imported coal-fired generator in the same state was closed during the months. Average thermal coal prices at Australia’s Newcastle port, considered an Asian benchmark, have risen about 25 percent in the period from a year ago.

While Prime Minister Narendra Modi’s government seeks to discourage imports of thermal coal and sees the decline as an achievement, rising domestic supplies are failing to keep pace with demand. Plants designed to run on Indian coal are now increasingly importing the fuel for blending, as state miner Coal India Ltd. fails to meet requirements.

“Domestic coal is in short supply and the gap is going to be filled by higher imports,” by these plants, said Rupesh Sankhe, an analyst with Reliance Securities Ltd. in Mumbai. “The government is realizing that the increase in electricity demand will be sustained and domestic coal supplies will not be enough. It has asked state utilities to import to plug the shortfall.”

Power minister R.K. Singh last week asked state generators, who had earlier been advised to curtail coal imports, to buy from overseas if they needed to as shortages continued to persist.

India’s power plants imported 8.64 million metric tons of coal in the two months ended May, compared with 10.13 million a year earlier. Plants that run exclusively on imported coal, accounted for most of the imports at 5.07 million tons, while those using domestic coal purchased 3.57 million tons from overseas during the period this year.-Bloomberg

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