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About US$36b of planned India coal plants could be scrapped

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India's plan to add about 80 gigawatts of coal-fired power plants worth some US$72 billion is unraveling because of insufficient electricity demand.

[MUMBAI] India's plan to add about 80 gigawatts of coal-fired power plants worth some US$72 billion is unraveling because of insufficient electricity demand.

Officials are also rethinking a goal of doubling annual output of the fuel to 1 billion tons by 2020, Anil Swarup, the Coal Ministry's top bureaucrat, said in an interview. The comments come amid some concern that Asia's No 3 economy remains below potential, belying reported growth of more than 7 per cent.

"Realistically, half of the capacity should come up," Mr Swarup said last week in New Delhi, referring to coal plants.

"Those where equipment hasn't been ordered are not likely to be built."

Indian generators such at NTPC Ltd in the past six years outlined an aggregate target of adding 80 gigawatts of plants - equivalent to about a quarter of India's power-generation capacity.

The challenge is that indebted electricity retailers are often required to sell below cost and lack the funds to buy additional supplies. About a fifth of India's capacity is idle.

Mr Swarup spearheaded a successful push by Coal India Ltd to mine more of the fuel in the past two years. Stocks are now piling up, leading to a reappraisal of the 1-billion-ton target.

"We worked with the Power Ministry to assess the demand and that's how we came at the 1-billion-ton number," he said. "We're now working again with them to come up with a realistic number. If the economy grows at 8 per cent to 9 per cent, we will need that coal. But what do you do with the coal if there is no demand?"

India's gross domestic product expanded 7.3 per cent in October through December from a year earlier, a three-quarter low though still the fastest among major emerging markets.

Coal accounts for roughly 62 per cent of power-generation capacity in India. Overall peak power demand in the year ended March 31 was 153.4 gigawatts, half of generation potential, Central Electricity Authority data shows. Coal India's output and deliveries have begun dropping.

A plan to restructure some of the more than 4-trillion-rupee (S$82 billion) debt at electricity distributors may eventually help revive demand, Mr Swarup said.

"The problem is with the intermediaries, the distribution utilities," Mr Swarup said.

BLOOMBERG