Cheaper coal raises India's import bill, dents Railway's freight earnings

A global crash in coal prices has come as a double whammy for India as it has driven up the country's coal import bill even as it damaged Indian Railways' freight earnings.

With global coal ruling at a 5-year low below $65 a tonne, there aren't many takers for domestic coal, which is costly. Moreover, Coal India Ltd (CIL), the country's sole coal supplier, is planning to hike coal prices. 

Despite a 16-per cent increase in Coal India's production, India's coal import bill surged 42 per cent to Rs11,441 crore in November 2014, mainly due to rising coal demand from thermal power plants.

Coal India says that it is not getting enough wagons to move coal from coal pits. But that could be due to more wagons being engaged in moving coal from ports at a time when power producers are forced to pay congestion charges at ports.

India's coal imports are rising because of widening price disparity between domestic prices and import costs of the fuel.

This explains why the import bill widened despite coal prices in major exporting countries such as Indonesia, South Africa, and Australia being nearly 20-25 per cent lower than the same month last year.

With the rupee-dollar exchange rate in November 2014 remaining nearly unchanged from the levels in the corresponding month last year, an increase in import bill points to a surge in India's coal import volumes.

India's imports of thermal coal, used mainly for power plants, has risen by a massive 17.5 per cent from April to November and with prices continuing to fall in exporting countries like Indonesia, imp[orts are expected to shoot up further.

The price of Indonesian coal touched $64.65 (Rs3,879) per tonne in December while a similar grade of Indian coal at the mines now costs Rs4,340 per tonne. Indonesia accounts for 70 per cent of India's coal imports and even after providing for shipping and insurance charges, the prices are very competitive.

Coal India managed to increase output to 45.47 million tonnes in November over and above a 15 per cent year-on-year increase in production achieved in October.

But this has not helped improve supplies to thermal power plants as coal stocks across the country's thermal power plants continue to remain low - around 55 out of 100 thermal power plants had coal supplies of seven days or less in November.

Coal India has set a production target of 507 million tonnes in 2014-15 and expects to reach production level of 1 billion tonnes by 2019, thereby helping the country end dependence on imported coal.

But, with high domestic cost of coal production and falling global prices of the commodity, Coal India may not be able to supply coal to power companies.