Government to step up coal quality checks

LONDON, NEW DELHI Thu May 16, 2013 7:09pm IST

Workers drill at an open cast coal field at Dhanbad district in Jharkhand September 18, 2012. REUTERS/Ahmad Masood/Files

Workers drill at an open cast coal field at Dhanbad district in Jharkhand September 18, 2012.

Credit: Reuters/Ahmad Masood/Files

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LONDON, NEW DELHI (Reuters) - India is calling in specialist monitors to improve the poor quality of coal it is getting for its power stations.

Indian utilities complain that poor quality coal reduces the efficiency of power stations, requiring more fuel and an increased need for the costly disposal of pollution.

Last month, India's largest utility NTPC refused to pay for coal viewed as substandard, prompting Coal India (COAL.NS) to respond by suspending supplies and raising concerns of blackouts.

Indian authorities already carry out some quality checks.

"We have already engaged CIMFR (Central Institute of Mining and Fuel Research) and they are carrying out the sampling and analysis," said Niladri Roy, a general manager at Eastern Coalfields Ltd (ECL), a subsidiary of Coal India.

But to further adddress the problem, the government is planning a tender for independent coal quality sampling by September, in which international verification companies such as SGS (SGSN.VX) and Bureau Veritas (BVI.PA) are taking part.

"Coal India has had a long-standing Joint Sampling scheme in place with their consumers which ultimately ended...We have participated in the tender floated by Coal India for independent verification of their coal supplied to their consumers," said Erwin Oosterveen, business development manager with Bureau Veritas.

Indian utilities have become increasingly reliant on imported coal because domestic production is lagging demand, but the quality of many of these imports is dropping.

Low quality coal exports (known as sub-bituminous supplies) from Indonesia, the world's biggest exporter of thermal coal, have risen steadily in the past five years, especially to China and India.

India's government is desperate to avoid a repeat of a huge blackout last year, when half of the country's 1.2 billion people lost access to the power grid.

But with imported coal costing around 50 percent more, some power companies are facing huge losses unless they push up power customer prices, something state governments are resisting.

Last week, India's National Aluminium Company, which uses large amounts of the fossil fuel for its power supply, said it had started cutting output because of a lack of domestic coal supply.

GRAPHICS:

Coal export regions: link.reuters.com/baq97t

Coal prices: link.reuters.com/maq97t

Low quality exports: link.reuters.com/nyd28t

CHINA ALSO TAKES STEPS

Choking on pollution and keen for more efficient electricity production, China also wants to improve the quality of its coal supplies.

In a move to reduce pollution and help domestic producers, which have struggled to compete with Indonesian suppliers, China may soon ban lower quality imports.

"This move does fit in with the policy of promoting 'more efficient' growth. Also, the growing concern over pollution is likely to have played a part," Australian bank Macquarie said.

"Blending of coal to meet minimum requirements should open up large potential for traders," the bank added.

Coal is the dominant fuel to meet booming power demand in most emerging markets.

Asia's two biggest coal users, China and India, with other emerging economies have in recent decades ramped up coal use to account for more than half of current global demand.

But the most economical reserves of the fossil fuel are fast being depleted, leading to a drop in the quality of what remains.

(Editing by Henning Gloystein and William Hardy)

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