Regional coal: Australian coal majors in talks with Indian thermal power stations

Australian coal majors Wesfarmers Coal Company Ltd and Griffin Coal Company Pty Ltd have begun discussions with thermal power stations in India for long-term coal supplies, The Hindu reported Thursday.

Speaking to Business Line, the Premier of the Government of Western Australia, Dr Geof Gallop, said, "We have large coal reserves and our companies are willing to meet the requirements of India's thermal power stations." Both Griffin and Wesfarmers have had discussions with some potential importers, he added.

Asked about the prices, Dr Geof was non-committal but said that these issues would have to be sorted by the companies themselves. "Ours will be an extremely competitive price," he added.

Currently, several power producers in India import coal to supplement their domestic coal linkages. So far, all the imports by thermal stations or trading companies are on spot basis. The imported coal is used mostly for blending with domestic thermal, though imports are expected to rise in the coming months for power generation.

Only one thermal power station, Nagarjuna Power Corporation which is setting up a 1,015 MW plant in Udipi, Mangalore, has so far entered into a long-term (five-year) fixed-price arrangement for supply of imported coal. The coal suppliers have agreed to provide 3 million tonnes per annum at a fixed tariff of $50 per tonne. The suppliers include Glencore International from South Africa, RioTinto from Australia and P.T. Adaro of Indonesia.

The offer from the Australian companies comes at a time when domestic thermal stations are facing major supply bottlenecks. The shortfall in domestic coal supplies from Coal India Ltd (CIL) has, in turn, led to slippages in power generation targets. As a result, even thermal stations such as the National Thermal Power Corporation and State government-owned stations are expected to begin importing coal to offset the supply bottlenecks from CIL and ensure that there is no power supply outages.

Besides, despite being on the high side, international coal prices are still attractive. On the face of it, domestic coal appears cheaper at Rs 1,800 per tonne (around $41). However, the domestic thermal coal had a calorific value of only 3200 kilocalories per kilogram (kcals per kg) and high ash content.

Imported thermal coal had a calorific value of 6100 kcal per kg. This, in turn, implied that imported coal, though priced close to about $59 per tonne on a c.i.f. (cost insurance and freight) basis, would still be considerably cheaper.

Even these international prices are unlikely to hold for long, industry sources said. Part of the reason for last year's price hike was Chinese coal imports. However, China's ramp-up efforts of domestic coal production are expected to bring down tariffs this year.

For domestic thermal stations, long-term supply contracts have some advantages. Long-term contracts would ensure stability in the variable component of power tariffs. This, in turn, would allow utilities to contain the fuel escalation component and hold power tariffs closer to Rs 2-Rs 2.25 per unit.(*)