Monday, June 13, 2011

Indonesian coal export cost hike adds pressure on Indian utilities

Indonesia may soon cease to be the favourite destination for coal-buying Indian power firms. This is due to the Indonesian government linking the price of coal exported from the country with a benchmark based on international prices of coal. The coal could be dearer by up to $40 a tonne.

The new rule will also be applicable retrospectively to all contracts with mining companies having to modify all their old contracts by 23 September.

"That puts currently operational plants of Tata Power (the Mundra ultra mega power project in Gujarat), Adani Power, (also in Mundra), JSW (in Ratnagiri, Maharasthra) and Lanco Infratech (Udupi) in the line of fire because most of their feedstock comes from Indonesia," reported DNA which quoted a Tata Power claim that "if an exemption is not got from the Indonesian government, coal prices for Mundra would go up by $30 or around Rs1,340 per tonne."

The Indian Express observed: "The new policy comes at a time when domestic utilities are battling coal shortage and are dependent on Indonesian for importing nearly 50% (40 Mt) of the country’s total fuel needs. Amid projections that India would import nearly 60 Mt coal from the island nation this year, the new regulation, effective September, is bound to be a dampener."

To keep the cost of production low at Mundra, Tata Power had purchased a 30% stake in two thermal coal mines and trading companies of Bumi Resources of Indonesia for $1.1 billion in 2007.

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