Bloomberg News

Coal-Starved Power Utilities to Get Freight Link Succor

July 10, 2012

Coal-Starved Utilities to Get Rail Link Succor

The freight network linking the biggest coal producing region with generators in north India may cut costs for plants in a nation where half of the power capacity runs on the fuel.

India is poised to start building an 880-billion rupee ($16 billion) rail network, its biggest since independence, as early as September to add capacity and cut the time to move cargo including coal.

State-owned Dedicated Freight Corridor Corp. of India Ltd. has bought about 75 percent of the 10,840 hectares (26,786 acres) of land needed for the 3,373-kilometer (2,096 miles) link and expects to acquire the rest by March, Anil Kumar Saxena, spokesman at the Ministry of Railways, said in an interview in New Delhi. The railways’ coal-carrying capacity will increase eightfold after the project is completed, he said.

The freight network linking the biggest coal producing region with generators in north India may cut costs for plants in a nation where half of the power capacity runs on the fuel. NTPC Ltd. (NTPC), Lanco (LANCI) Infratech Ltd. and rivals have not been able to run some of their plants at capacity because coal supply fell short. Transportation bottlenecks in Asia’s second-largest landmass have added to their woes, according to Dipesh Dipu, director at Deloitte Touche Tohmatsu Ltd. in India.

“The existing railway infrastructure is far from adequate and in many cases plants do not get coal despite stocks at the mine,” said R.S. Sharma, managing director of Jindal Power Ltd., which has a capacity to generate 1,000 megawatts of electricity. “As the power capacity increases, there will be need to haul more and more coal.”

The dedicated freight network will comprise two corridors, according to the company. One will run from Ludhiana, in northern Punjab state, to Dankuni on the eastern coast, while the other will link New Delhi with Mumbai on the western coast. The two will intersect at Dadri, near the capital.

‘Time Guarantees’

DFCC will build a 66 kilometer stretch between Son Nagar and Mughalsarai, both in eastern India, by December next year to demonstrate progress, Saxena said. Work on a 350-kilometer portion between Kanpur and Khurja, also in the east, will be awarded as early as September, he said.

The project involves laying 4,200 kilometers of new feeder lines, Saxena said. These feeder lines will include routes from coal mines to Son Nagar, in Bihar state, and Gomoh, in Jharkhand state, linking at least 15 major power plants along the corridor, he said.

The capacity of railways to carry coal will rise to 400 million tons a year from 50 million tons, Saxena said.

“Travel times will be cut by half,” said Saxena. “We can also enter into time guarantees for movement of coal to power houses, and introduce new efficient wagons, which can’t be done today because of limitations of existing lines.”

About 80 percent of India’s coal reserves are in the five eastern states of Bihar, Chhattisgarh, Jharkhand, Orissa and West Bengal, according the Ministry of Coal.

Power Deficit

NTPC, Asia’s biggest electricity producer by value, said last month that it has scaled back plans to add coal-fired capacity by 42 percent because of fuel shortage. Lanco has 4,988 megawatts of capacity under operation, according to its website and is adding plants in the area that will serviced by the rail network .

Prime Minister Manmohan Singh’s government aims to create 76 gigawatts of generation capacity in the next five years to bridge an 8.6 percent peak-demand shortfall in the quarter ended June and revive economic growth from the slowest pace in nine years. Removing fuel supply constraints will be important, according to Deloitte’s Dipu.

Last year, about 45 million tons of coal was held up in mines because of lack of transportation, Dipu said.

Many Indian mines are operating at one-third of capacity as the rail system can’t move more cargo, Alok Perti, former secretary at the coal ministry had said Jan. 31. State- controlled Coal India Ltd. (COAL), the world’s biggest producer, has been seeking construction of at least four railway links for as many as six years, which it has said will ease congestion and enable a 66 percent increase in output.

Faster Trains

The dedicated corridor, targeted to be completed by March 2017, will help almost quadruple freight train speeds to 70 kilometers an hour and carry 55 percent of the railways’ cargo traffic by revenue, according to the DFCC.

The rail project will be a game changer with potential to introduce predictability of cargo delivery, Kotak Institutional Equities Research said in a note to clients in May.

“It will imply a meaningful addition to railways’ capacity and to infrastructure overall,” Lokesh Garg, an analyst with Mumbai-based Kotak, said by phone on July 6.

DFCC will seek the government’s approval to raise the project cost to about 880 billion rupees from 770 billion rupees, after making additions to include more bridges and more electrified stretches.

Japan International Cooperation Agency will fund 80 percent of the link in the west coast, while a stretch on the eastern line will be funded by the World Bank.

Private Participation

A 530-kilometer section connecting Son Nagar and Dankuni, both in eastern India, will be awarded to private companies, according to DFCC website.

Larsen & Toubro Ltd. (LT), India’s biggest engineering company, GMR Group, Tata Projects Ltd. and IRCON International Ltd., a state-owned builder, are among potential bidders DFCC is in talks with, Saxena said.

The biggest challenge the project will have to surmount is the acquisition of remainder portion of the land required.

“Land acquisition has to be done in a very sensitive manner,” Saxena said. “That’s what we’ve done and that’s why we’ve had the least problem.”

The link, when completed, will carry 55 percent of the railways’ freight traffic by revenue, according to DFCC. Coal accounts for about 45 percent of goods carried by Indian Railways, the oldest network in Asia.

“There’s a limitation to moving coal on trucks,” said Deloitte’s Dipu. “This development would have a huge impact on the way coal is moved.”

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Vipin Nair at vnair12@bloomberg.net


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus