Supreme Court verdict on coal block allocations set to push up coal import bill

The cancellation of coal mines by the Supreme Court is likely to push up coal imports.

While the extent of incremental imports remains debatable, the demand-supply mismatch has increased India's dependence on import for coal supplies.

"If Coal India Ltd (CIL) is unable to extract coal from captive coal mines of cancelled coal blocks, India's dependence on imported coal would increase significantly in fiscal 2016," said V K Arora, president, Karam Chand Thapar & Bros (Coal Sales) Ltd.

According to India Ratings, India imported 171 million tonne (mt) of coal at $16.41 billion in 2013-14 as against 145 mt at $17.01 billion in the previous fiscal.

"A halt in domestic production of coal would increase our import dependence further. In a scenario where CIL is not able to extract coal from captive coal mines of cancelled coal blocks, and factoring in the increase in coal production in fiscal 2014 as compared with fiscal 2013 and 2014 and the average imported coal prices, the fiscal 2016 coal import bill is likely to widen by $6.22 billion," the report said.

India's coal demand is expected to rise 6% to 787 mt this fiscal year, coal and power minister Piyush Goyal had said earlier without discounting the production from the producing captive mines, which could lift imports close to 200 million as local supply, particularly from Coal India, falters.

CIL and Singareni Collieries Co, which together account for more than 90% of India's coal production, plan to produce 561.5 mt this year.

As of today, import price of coal from Indonesia having gross calorific value of 3,800 is about $33-34 a tonne FOB to which freight cost of $13-14 has to be added. The FOB price for 5,900 GCV coal is $64-65 a tonne, an analyst with coaljuction said.

Higher imports, however, are unlikely to impact global prices.

"While international coal traders were looking at what the Indian apex court rules on the deallocation issue, global prices are now being dictated by action of China which has said it wouldn't import low grade coal anymore.

This might led to 30-40 mt of coal looking for newer markets thereby depressing the prices as a favourable destination for such coal could be India," Arora said.

However, many believe that the impact of the apex court ruling on imports would, to a great extent, depend upon how the government comes up with a smooth transition plan. "We believe CIL would do a good job of it. These mines are expected to produce around 53 mt of coal in this fiscal. Even if we discount a drop in production by around 30%-40% from these mines due to inefficiencies of CIL, we don't perceive incremental imports of more than 10-15 mt," said Ashok Khurana, director general of Association of Power Producers.