Coal supply low,power projects of over 32,000 MW shelved,delayed

This is about 50 per cent of the government’s estimated capacity addition for the twelfth five year plan

Written by Anil Sasi | New Delhi | Published:June 20, 2012 1:07 am

For Prime Minister Manmohan Singh,this could be the biggest infrastructure bottleneck to overcome. Over 32,000 MW of upcoming coal-fired thermal power generation capacity has either been shelved or simply put on hold by project developers until June this year.

This is about 50 per cent of the government’s estimated capacity addition for the twelfth five year plan. On June 6,Singh held a top-level review of all infrastructure sectors where he declared “we must create an atmosphere which is conducive to investment and to removing any bottlenecks that may be hurting the growth process”.

But almost all developers have cited coal availability as the biggest spanner in their works. With fuel proving elusive,developers are struggling to achieve financial closure,resulting in power projects being abandoned en masse.

Of this,an estimated 17,195 MW worth of capacity has been more or less shelved,while another 14,990 MW has been put on hold,with projects failing to achieve construction milestones,according to fresh estimates of stranded capacity prepared by the government.

With domestic coal in short supply,the environment ministry’s new norms — these require developers to submit details about the quality of coal they plan to use for their respective projects as a precondition to getting the green nod — have resulted in fresh hurdles for these projects,especially those looking to set up capacity based on imported coal.

Most projects are being set up by first-time private sector developers. The surge in projects being abandoned comes at a time when investor interest in the power sector is petering out fast,with lenders now starting to apply the brakes on funding of new private generation projects.

Apart from concerns on adequate coal supplies for new projects,there are also increasing signs that developers of projects close to commissioning could default on loan repayments due to fuel shortage,resulting in a heightened sectoral risk perspective.

The lack of a bankable medium-term market for sale of power and reluctance among cash-strapped State Electricity Boards to buy power from the spot market are adding to investors’ jitters. “The new-found enthusiasm among private developers is evaporating. By the next Plan (beyond 2012),there will hardly be any players interested in setting up power projects,the way things are going,” an executive with a private power utility said.

The developers for most of these projects have already acquired the land or are in the process of acquiring it.

For power developers unable to tie-up adequate coal supplies,it is a Hobson’s choice. While domestic coal availability is tapering off,there are technical limitations to blending high-calorific imported coal in the typical boilers used in domestic projects. So,without adequate domestic supplies,stranded capacity is clearly on the cards.

Besides,blending of costlier imported coal involves a trade off in terms of higher generation costs,something that raises question marks over whether distribution firms are in a position to absorb the hike in prices of delivered power if costly imported coal were to be used as an input,a representative of one of the affected project developers said.

According to latest coal supply estimates,state-owned Coal India Ltd (CIL) has offered to step up its fuel supplies to the power sector at 347 million tonnes during the current fiscal (2012-13). Despite the assurance of higher coal supplies,the country’s power projects would still be faced with a deficit of close to 80 MT,much of which would have to be bridged by way of imports. Worse,even this reduced imported coal requirement may face logistical constraints due to inadequate first mile connectivity of the ports with the railway network and critical congestion within the railway network itself.

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