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UPDATE 3-India says coal shortage impeding growth plans
September 11, 2008 / 5:38 AM / 9 years ago

UPDATE 3-India says coal shortage impeding growth plans

(Adds details, analyst comment)

By Nidhi Verma

NEW DELHI, Sept 11 (Reuters) - A coal shortage has forced India to delay plans to expand its electricity production by nearly 50 percent, a minister said on Thursday, as power supply bottlenecks threaten to undermine the country’s economic growth.

The Indian government has been unable to allocate coal to new power plants that are meant to generate more than 60 gigawatts of additional electricity, Power Secretary Anil Razdan told Reuters. Two-thirds of India’s power generation is fuelled by coal.

“In the last year, no new linkages (allotments of coal) have been given,” Razdan said on the sidelines of a conference. He did not say how long the power projects had been delayed.

Already plagued by power outages that regularly affect residential supply due to a lack of generating capacity or poor transmission networks, officials now fear that a coal shortage may soon become an even bigger threat.

China has faced a similar problem this year, with electricity output crippled due to low coal stocks, plus soaring fuel prices and low power tariffs that have driven many generators into a loss.

In India, coal shortages have cut India’s electricity supply by two percent, and companies including Tata Power (TTPW.BO), Reliance Energy RLEN.BO and National Aluminium Co (NALU.BO) are now scouting to source supplies from foreign mines.

Power generation rose by only 2.3 percent in the April-June quarter, far slower than the government’s target of more than 12 percent, the Economic Advisory Council to Prime Minister Manmohan Singh said in a report in July.

By comparison in China, where electricity generation has been growing consistently at double-digit rates since 2002, output rose only 5 percent in August, its slowest rate this decade.

Coal-fired plants account for 65 percent of India’s generating capacity of 145.6 gigawatts, which lagged demand in Asia’s third-largest economy by nearly 16 percent in July.

POWER SUPPLY CHOKING GROWTH

Economic expansion in Asia’s third-largest economy, while still strong, slowed to 7.9 percent in the June quarter from more than 9 percent in previous years.

“There is a considerable shortage of power, which is one of the (factors) that has slowed down ... GDP growth,” said D.H. Pai Panandikar, president of private economic think-tank RPG Foundation. “This needs to be corrected soon.”

The shortage of electricity is also forcing companies and households to use diesel-fired generators, which helped lift domestic diesel sales by 18 percent earlier this year and forced state refiners to import the fuel.

The growing gap between India’s coal demand and domestic production -- which the government expects to widen to 49 million tonnes by 2012 -- is also forcing its coal companies to look abroad.

State-run Coal India Ltd, the country’s biggest coal producer, will make its debut as an importer this fiscal year, with plans to buy 4 million tonnes.

State-run NALCO, forced to cut output at its alumina refinery in July, said last month it planned to import 130,000 tonnes of coal.

Also last month, State Trading Corp of India Ltd (STCI.BO) issued an import tender for 8.25 million tonnes for its client NTPC Ltd (NTPC.BO), India biggest power generation company, which imported 2.5 million tonnes in its last financial year.

Additional reporting by Surojit Gupta; Editing by Mark Williams and John Stonestreet

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