(Updates with comments from analyst in 11th paragraph.)
Feb. 17 (Bloomberg) -- Coal India Ltd., the world’s biggest producer of the commodity, may revive plans to import the fuel to comply with Prime Minister Manmohan Singh’s order to increase supplies to utilities and avoid paying penalties.
“Coal India will have to supply the coal even if they don’t have domestic production, and this is going to force them to import,” said Kamlesh Kotak, vice president of research at Asian Markets Securities Pvt. in Mumbai. “The company is being driven into a corner to boost the power sector.”
Coal India scrapped a proposal to buy the fuel this year and suspended a separate plan for annual imports over a decade because of disagreements with customers on deliveries to plants, three people with knowledge of the matter said Feb. 2. The company, facing a production drop, fell the most in seven months yesterday on concerns that it faces penalties for failing to meet supply obligations.
The miner may have to import as much as 30 million metric tons of coal in the year starting April 1 because its output will fall short of demand, said K. Raja Gopal, chief executive officer of the power business at Lanco Infratech Ltd., India’s second-biggest, non-state power generator.
Zohra Chatterji, Coal India’s chairman, wasn’t available for comment at her office in Kolkata. Asok Kumar Sinha, director of finance, declined to comment. The company is scheduled to hold a media briefing in Kolkata at 3:45 p.m. local time today.
Coal India slumped the most in seven months, dropping 5.8 percent to 320.05 rupees in Mumbai yesterday. The stock has gained 4.9 percent in the past year, compared with the 1.9 percent decline in the benchmark Sensitive Index.
The government ordered Coal India on Feb. 15 to sign agreements to supply projects due to be completed by March 2015 and import the fuel to overcome local production bottlenecks. Fines may spur the company to increase output, Coal Secretary Alok Perti said in New Delhi yesterday.
The directive came after industrialists including Anil Ambani, chairman of Reliance Power Ltd., and Gautam Adani, chairman of Adani Power Ltd., and Tata Power Co. Chairman Ratan Tata last month met with Prime Minister Singh and urged him to help ease fuel shortages.
Coal India reported a 2.8 percent drop in production to 291.2 million tons in the nine months ended Dec. 31, according to a Feb. 13 statement. Operations were curbed by heavy rains, while the development of new mines was hampered by delays in land acquisition and environmental approvals.
The Prime Minister has assured Coal India that approvals will be expedited, Perti said.
“The Ministry of Environment & Forest would expedite and facilitate environment clearances,” Nomura Equity Research analysts Anirudh Gangahar, Ivan Lee and Ankit Kumar wrote in a note. “This would enable Coal India to raise production to 615 million tons by fiscal 2017. We expect fiscal 2012 production at 431 million tons.”
The Ministry of Coal is also working on expediting production from blocks allocated to government agencies to supplement the company’s supplies, according to the analysts. “Imports is the least preferred option,” they said.
Coal India is yet to work out an estimate of imports and won’t absorb prices of fuel purchases from overseas, Secretary Perti said. Contracts with utilities will be signed starting next month, he said.
The agreements with utilities would be the first since 2009 to be signed by Coal India, which produces more than 80 percent of the nation’s output of the fuel. The power plants that will benefit will generate an estimated 50 gigawatts of electricity, or more than half of the capacity added by China last year.
The contracts will “help bring a lot of capacity online, helping the broader economy,” Lanco Infratech’s Raja Gopal said in a telephone interview yesterday.
Lanco Infratech will delay plans to build three power plants in India worth $4.8 billion by as much as a year because of local coal shortages, Chairman L. Madhusudan Rao said Jan. 12.
As much as 28,000 megawatts of capacity will be completed by March 31, which will need 110 million tons of coal, Raja Gopal said. Imported coal may “marginally” increase costs for utilities and result in higher electricity prices, he said.
Power-station coal prices at Australia’s Newcastle port, an Asian benchmark, fell 3.6 percent to $116.45 a ton in the week ended Feb. 10 from a year earlier.
India, which uses coal to fire more than half of its power plants, imported 114.35 million tons of the fuel in 2011, according to shipping data from New Delhi-based Interocean Group. The South Asian nation bought 81.1 million tons of steam coal for its power plants last year.
The BSE Power Index, a measure of 19 Indian companies, rose 5 percent in the past two days, the most since July 15, 2009. Reliance Power climbed 13 percent during the period, Adani Power 17 percent, Lanco Infratech 8 percent and Tata Power 9.4 percent.
India’s coal demand is expected to climb 41 percent to 981 million tons in the next five years, according to estimates by the Planning Commission. Output may rise 28 percent to 715 million tons in this period.
--Editors: John Chacko, Ryan Woo.
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