India's Potentially Huge Coal Import Bill
According to a report by credit rating agency Crisil, coal consumption has grown at 7.7% between 2004-2005 and 2008-2009. The power sector alone now accounts for around 77% of the total coal demand. Over the next five years, more than 80% of capacity addition in the power sector will be coal-based, resulting in an incremental coal demand of 254 million tons.
By 2020, the country's total coal demand would exceed 1.4 billion tons, whereas the most optimistic estimate of supply is expected to be around 1.1 billion tons (750 million tons from CIL). "A three-fold increase in import of coal over the next five years will push the share of coal imports in India's total import bill to 4.5% by 2013-2014. This can add up to 0.3% of GDP to the current account deficit if we assume the trade in other goods and services to continue as per recent trends.
The overall current account deficit will be around 3% of GDP by 2013-2014, in my opinion," says D.K. Joshi, director and principal economist, Crisil.
Where Will We Get It From? The 200 to 300 million tones that the country will need, can be imported from Indonesia, Africa and Australia. Essar Group recently did a $600 million buyout of U.S.-based Trinity Coal. Tata Steel and Riversdale Mining are investing $270 million to develop the Benga Coal project in Mozambique. JSW Steel Ltd has said it may spend $500 million to buy coal mines overseas. Reliance Power has acquired coal mines in Indonesia and Tata Power and Adani Power will import coal from there. Coal and Oil group imports coal from many countries.
How Will We Transport It? India simply does not have enough port linkages and dedicated freight corridors (DFCs) from the ports to the power plants. The only DFC that is currently being implemented will cater to the needs of west and north-west India. The railways also do not allow private parties to run their own railway linkages from port to plant. This could push up the price of coal delivered to plants far away from the coast, and could also compel them to opt for larger inventories of coal. The railway earns almost 45% of its income through coal freight, and supplies it through its merry-go-round (MGR) routings. Regulation And Pricing Much of the coal supplied by CIL is at notified prices which are half the market prices. CIL allows 10% of its coal to be sold with the reserve price fixed at 80% above the notified price. So the entire energy sector is split into two parts--one that is market driven, and the other, politically driven. Coal prices are decided by the government, at prices way below market-prices. With 70% of the coal coming through market pricing--through imports--the country will face a situation where some players can claim bumper profits just because they have got coal at these discounted prices. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
****************************************************************
NEW! ==== Check our LINKS and FILES sections for a world of information. REGULARLY UPDATED.
NEW! ==== Check "Tracklist" in Links and Files sections for Investment Ideas.
****************************************************************
No comments:
Post a Comment