Indian power producers balk at Indonesia's coal tax plan

Indonesia's plan to impose a 25 percent export tax on coal may turn Indian power producers towards Australia and Africa.

"Plants can't run on such expensive coal imports. This will make power unaffordable in India," said Ashok Khurana, director general of the Association of Power Producers.

"It's a setback for power producers. This will discourage them from taking up projects based on imported coal," said K Rajagopal, CEO for thermal at India's Lanco Infratech Ltd , which runs a 1,200 MW plant fuelled entirely by imported coal.

State-run NTPC, Tata Power and Adani Power will be among the many Indian companies likely to be affected by Indonesia's export duty.

About 9,000 megawatts, nearly 10 percent of India's total coal-fired capacity, became unviable last year after Indonesia changed rules on coal prices. An additional sudden spike in coal costs would make matters worse and push other plants to raise prices, which would lead distribution utilities to buy less.

India imports about 12 percent of its coal requirements and sources 70 percent of that from Indonesia.

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.

"The only option is to ramp up domestic production and change the fuel mix with emphasis on renewable sources," said Khurana.

A coal shortage in India between April 2011 and February 2012 led to loss of 8.7 billion kilowatt-hours of power generation. Shortage of power is seen as hurdle in faster industrial growth of Asia's third largest economy.

Australia, South Africa and Mozambique are likely to emerge as the major sources of coal for Indian power firms in the coming years, though these countries also have policy and infrastructure constraints of their own, said Kameswara Rao, executive director at research consultants PwC.

Reliance Power, controlled by billionaire Anil Ambani, is already caught in a legal battle with state governments after the latter threatened to penalise the company for delaying a proposed 4,000 MW plant in the southern state of Andhra Pradesh.

Reliance delayed the project after Indonesia pushed up coal prices last year. Now Reliance, like Tata and Adani, wants state governments to raise tariffs for the projects that were originally bid for at a fixed rate.F

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