Coal India Plunges on Penalties for Failing to Supply Nation’s Utilities
Coal India to Sign First Contracts in 3 Years
Brent Lewin/Bloomberg
Coal India produces more than 80 percent of the country’s coal.
Coal India produces more than 80 percent of the country’s coal. Photographer: Brent Lewin/Bloomberg
Coal India Ltd. (COAL), facing a decline in production, fell the most in seven months after the government ordered it to increase sales to power utilities and said it will face penalties for failing to meet the obligations.
The world’s largest producer of the commodity declined 5.8 percent to 320.05 rupees in Mumbai, the biggest loss since July 8. The stock has climbed 6.5 percent this year, compared with a 17 percent increase in the benchmark Sensitive Index.
The government ordered Coal India yesterday to sign agreements to supply projects due to be completed by March 2015, and import the fuel to overcome local production bottlenecks. The decision came after Anil Ambani, chairman of Reliance Power Ltd. (RPWR), and Gautam Adani, chairman of Adani Power Ltd. (ADANI), joined Tata Power Co. Chairman Ratan Tata last month in urging Prime Minister Manmohan Singh to help ease fuel shortages.
“Coal India is clearly in no position to meet this demand,” said Rahul Jain, an analyst with RBS Equities India Ltd. who has a “hold” rating on the stock. “By forcing Coal India to sign supply agreements for higher quantities of coal, the government is shifting its responsibility to the company without an adequate compensation mechanism.”
Coal India will pay a fine if supplies fall short of commitments, the Prime Minister’s office said yesterday in a statement. The mining company hasn’t signed fuel agreements since April 2009, after saying it could provide only 50 percent of the requirements of power plants.
Output Drop
The power plants that will benefit from the new supply agreements will generate an estimated 50,000 megawatts of electricity, according to the statement. That’s equivalent to about 27 percent of the country’s current installed capacity.
Adani Power gained 3.2 percent to 81.35 rupees, Tata Power rose 3.3 percent and Reliance Power climbed 0.3 percent.
State-owned Coal India, which produces more than 80 percent of the country’s output of the fuel, reported a 2.8 percent drop in production to 291.2 million metric tons in the nine months ended Dec. 31, according to a Feb. 13 statement. Operations were curbed by heavy rains, while the development of new mines was hampered by delays in land acquisition and environmental approvals.
Power companies have mothballed plans to spend a record $36 billion to build new capacity needed to spur expansion in the world’s second-fastest growing major economy.
India’s coal demand is expected to climb 41 percent to 981 million tons in the next five years, according to estimates by the Planning Commission. Output may rise 28 percent to 715 million tons in this period.
The nation had 187,549.6 megawatts of installed capacity as of Jan. 31, according to the Central Electricity Authority.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net
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