India eases coal blending policy for utilities

India has partially revoked its earlier order to domestic utilities to import thermal coal for blending, a move that could weigh on receipts of seaborne coal.

Independent power producers, states and the coal ministry can decide the blending percentage after assessing domestic coal availability, the federal power ministry said, reversing its earlier directive that made it compulsory for utilities to import 10pc of their coal requirements for blending. It has also lowered the blending threshold for federal government-controlled generators NTPC and Damodar Valley (DVC) to 5pc from 10pc earlier.

The coal stocks at domestic utilities "vary significantly" at the moment, the ministry said. There has been an increase in inventories at some units operated by provincial governments following the government directive in April-May, when a heatwave exacerbated coal burn and stock drawdown at power plants, prompting calls for higher imports. But there are still some power plants with very low stocks, the ministry added.

The government's move is aimed at bringing uniformity to stock positions at Indian utilities at a time when coal demand has weakened. There has been a month-on-month drop in coal-fired generation as monsoon rains advanced, helping to ease hot weather conditions and air conditioning demand. The government's latest step may help in addressing shortages at utilities with low coal stocks instead of pushing power plants with comfortable inventory levels to import and blend.

Coal inventories at Indian power plants rose to 31.31mn t as of 15 August, equivalent to more than 11 days of consumption. The stocks were up from about 26.5mn t on 30 June and 23.58mn t on 31 May, according to the Central Electricity Authority (CEA), but were still short of government targets. The power ministry has asked pithead power plants to maintain 12-17 days of coal stocks, while non-pithead utilities are mandated to have 20-26 days' worth of inventories. As many as 55 power plants designed to operate on domestic coal have critical stock levels, the CEA data showed.

The easing of the blending policy has fuelled some concerns among generators and importers of thermal coal, who have already tendered out a bulk of the quantity. This policy change could potentially weigh on the arrival of seaborne cargoes this year after Indian thermal coal imports rose for a third consecutive month in July from a year earlier. Seaborne thermal coal imports rose by 8.68mn t on the year to 18.65mn t last month, according to data from shipping agency Interocean.

NTPC, CIL may delay already-awarded imports

NTPC, along with its joint ventures, and state-controlled power producer Coal India (CIL) have already awarded tenders to import close to 20mn t and 6mn t of thermal coal, respectively. But the two companies may have to delay the receipts of a portion of the tendered volume.

CIL has already given orders to import about 1.4mn t of thermal coal from the awarded volume after receiving purchase commitments from some Indian utilities for blending. But a few utilities, including state-government-owned generators, have indicated plans to back out of agreements to purchase the coal imported by CIL, especially as the federal government has now eased the blending policy, an official said. Some utilities could seek cargoes independently rather than procuring imported coal through CIL as international prices have eased. Argus most recently assessed Indonesian GAR 4,200 kcal/kg coal at $73.14/t fob Kalimantan on 12 August, down by 39pc from mid-March.

NTPC may not need about a quarter of the already-awarded quantity this year, and could consider deferring the receipts of some of the contracted volumes after the latest government order on blending, another official said. A decision to defer seaborne coal receipts can only be taken after assessing the domestic coal output and supply situation in August-September, when seasonal monsoon rains typically affect production and dispatches. NTPC could also review power consumption patterns in the country before requesting suppliers to potentially defer shipments.

The power ministry has also asked NTPC and DVC to not issue new tenders for imported coal.

By Saurabh Chaturvedi