Power plant delays to slow India coal imports

Indian developers of 4 GW plus power plants are delaying works until they are freed from loss-making sales contracts. The move could slow the country's rapid coal import growth for 6-12 months, power firm and coal supply.

Tata Power , Reliance Power and Adani Power in 2006 won contracts to supply low-cost power at fixed tariffs of under 2.3 rupees or $0.05 per kWh which they now cannot do without huge losses due to higher coal prices.

The power companies have been overtaken by events since 2006, mainly the rise in global coal prices and the Indonesian government's determination to stop coal being sold below benchmark prices, including existing term contracts.

Indonesia's government in 2010 issued a regulation stating that export coal must be sold at a minimum reference price issued by the government, based on three benchmark prices .

Work on the plants has almost ground to a halt while the firms lobby the Indian authorities to be able to pass on the multi-fold rise in coal costs, which were less than $50 a tonne CIF when deals were done but are now over $120.

"Coal prices are much higher now anyway than they were five years ago because demand is higher and it's true that Indonesian coal now has to be at minimum prices approved by the government but the real problem was aggressive under-bidding on the tariffs," said a power producer who asked to remain anonymous.

"Those tariffs of 2.2, 2.3 rupees were always way too low and they have got to rise, it's the only way," he added.

"Four UMPPs are nearly built but halted, ours at Mundra, three of Reliance," said Amulya Charan, Managing Director of Tata Power Trading Company Limited, who chairs the power producers' association which represents the developers and is lobbying on their behalf.

"We are stuck based on the power and coal contracts which we have but we are lobbying the ministry of power, the procurers, the finance ministry and the Prime Minister - we are actually meeting on a daily basis," Charan said.

The full sotry is available at Reuters.