Indonesian government has
circulated a draft decree among coal producers suggesting a ban of exports of
coal below calorific value of 5100 kcal/kg, starting from 2014. This could cut
thermal coal exports by 120-130 million tonnes. One of the biggest hits will be
India which prefers Indonesian coal for its low sulphur content and competitive
price.
Indian companies have a strong
appetite for low calorific value coal from Indonesia. The calorific content
that India imports is below 5,000 kcal/kg and can be as low as 3,500 kcal/kg.
Indonesia is getting weary about
allowing very heavy exports for valid reasons. Indonesian coal exports grew to
270 million tones in 2010, but their own domestic power producers’ demand for
coal will keep growing. So now Indonesia will set aside 82 million tonne or one
fourth of 2012 production for domestic players. And it will tighten its grip on
coal exports.
What this means for India is more
tightening on coal supply for a country that already has ambitious targets for
power capacity addition but no coal. India wants to add 14 GW of power
capacity in 2011-12. In 2010-11 the state target was 13 GW while 9 GW was
added.
Even to add 9 GW next year, India
needs 40 mt of additional import. The next 5 year plan proposes to add 100 GW
in the next 5 year plan which is not achievable going by the logistical issues
the country faces.
Constraints for importing coal
Infrastructure
The biggest problem in improving
coal supply is infrastructure. If you look at new power plants, they are all
closer to the coasts because of lack of railways. But the big issue is also the
ports. Indian ports cannot take capsize vessels which carry more cargo (can get
only panamax freight: which are smaller and expensive) and reduce the cost.
Moreover the average time taken by ships to load/unload at India ports is
almost 96 hours, 10 times longer than in Hong Kong.
Improved technology
Private players like Adani or GVK
or Lanco have good technology and they are showing the way. The most important
way forward for India would be to get ready for more imports. The Adani group
is investing $1.2 billion in the Mundra Port and Special Economic Zone over
next five years.
Price volatility
This exposure to volatility of spot
pricing is the biggest problem for Indian power producers. Getting mines abroad
is the only option in that case. But they must look at countries other than
Indonesia, like South Africa, Columbia, Mozambique. Diversifying the choice
always helps. South Africa also has problems like railways is not developed
enough. But private players can come together to play better role. Like Adani
and GVK's through the Hancock deal has come together in Galilee Basin in
Australia. So they can come together to improve the infrastructure there for
common use.
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