India allows power firms to pass on imported coal costs

NEW DELHI Fri Jun 21, 2013 10:18pm IST

1 of 3. A worker shovels coal at a yard in the western Indian city of Ahmedabad March 22, 2012.

Credit: Reuters/Amit Dave/Files

Stocks

   

NEW DELHI (Reuters) - India has decided to allow some power companies to pass on the costs of foreign coal to customers, a minister said on Friday, in a move likely to boost imports and investment in power generation but bring higher prices.

The policy will apply only to power stations that rely principally on domestic coal and buy imports to make up for local shortfalls, however. Tata Power Co (TTPW.NS), one of the country's best known utilities, said the policy should be extended to plants that rely on imported coal.

Meanwhile, a proposal to raise gas prices for the first time in three years has been deferred, information and broadcasting minister Manish Tiwari told reporters after a cabinet meeting.

A gas price rise to near world levels would have fuelled investment in the sector and made liquefied natural gas (LNG) imports from major producers such as Qatar more attractive.

India is the world's third-largest producer of coal, and more than half its power comes from burning the fuel. But domestic output falls short of demand, triggering frequent and lengthy power cuts in Asia's third-largest economy.

It also means power producers have to turn to expensive coal imports. Until now, they have not been able to pass these costs fully on to customers.

"That's a very, very positive development," Isaac George, the chief financial officer at GVK Power (GVKP.NS), said of the government decision.

The move could help bring as much as 78,000 megawatts of generation capacity on stream, a power ministry source said.

India's economy grew at its weakest pace in a decade in the year to March 31, and the government is trying to tackle a raft of reforms, some leading to unpopular price rises, ahead of state elections this year and national elections in 2014.

CONSUMERS TO PAY

The new power prices have to be approved by individual states, which can decide to subsidise them and ease the costs for millions of poor Indians.

"Ultimately the consumers have got to pay for the cost of generation, so there is no question of the developer taking a hit on the cost of imported coal. There was absolutely no sense in that," GVK Power's George said.

Shares in GVK and other companies such as Tata Power and Adani Power (ADAN.NS) rose after the decision but lost those gains by the close of the trading day.

India's electricity generation is dominated by state-run NTPC (NTPC.NS), although an increasing number of private players are setting up near the coast to facilitate imports.

Tata Power, which runs a large-scale power plant on the west coast that supplies electricity to five states, has thus far been unable to pass the cost of imported coal on to its customers. That has put financial pressure on the company, its executive director said in an interview in May.

"...based on our present understanding, this order is only limited to domestic coal based plants that were dependent on imports to meet the domestic coal shortfall", Tata said in an emailed statement.

The country's total installed capacity is about 212,000 MW as of January this year, according to the state electricity authority.

Around 80 percent of coal production comes from Coal India Ltd (COAL.NS), which is 90 percent owned by the government.

(Additional reporting by Nigam Prusty; Editing by Michael Perry and Jane Baird)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
ArjunRajpati wrote:
Yes! after selling the soul of our people to foreign nuclear companies now we’re are selling what’s left to coal companies. For the sake of profit we would so anything even risk fukushima times 10 just becasue we have to show project power no matter how naked and poor we are in reality.

Jun 21, 2013 4:51pm IST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Diwali Sales

Diwali Sales

Gold sales jump about 20 pct for Diwali - trade body  Full Article 

World Bank Rival

World Bank Rival

Three major nations absent as China launches W.Bank rival in Asia  Full Article 

Wal-Mart India

Wal-Mart India

Murali Lanka appointed as Wal-Mart India operations chief  Full Article 

Microsoft Earnings

Microsoft Earnings

Microsoft sales beat Street hopes, cloud profits up.  Full Article 

Special Report

Special Report

Why Madrid's poor fear Goldman Sachs and Blackstone  Full Article 

U.S. Economy

U.S. Economy

Spectre of no-inflation world looms over Fed's return to normal  Full Article 

Insider Trading

Insider Trading

Rengan Rajaratnam, SEC to settle civil insider trading charge.  Full Article 

Market Watch

Market Watch

Betting on the beaten up? Investors pin hopes on stocks in Europe, Japan.  Full Article 

India Insight

India Insight

Kalki Koechlin on her role as a disabled girl in “Margarita, With a Straw”  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage