India Coal Price Boost Seen Raising Power Costs, Cutting Demand

  • Generation tariffs for power provider NTPC could rise by 5%
  • Cost increases could weaken power demand further: Deloitte

An increase in coal prices by India’s biggest producer will boost generation costs and could further reduce demand from cash-strapped regional power retailers already curtailing purchases because they can’t afford the cost of electricity.

State-run Coal India Ltd. increased lower-grade coal prices, a staple for Indian power plants, by as much as 19 percent on Sunday to pay for a wage increase due in July. That will boost generation tariffs by as much as 0.15 rupees a kilowatt hour, or about 5 percent, according to power producer NTPC Ltd.

India’s regional electricity distributors are curtailing purchases, forcing generators to leave at least a third of the country’s power plant capacity unused. Distributors had unpaid loans of almost 5 trillion rupees ($74 billion) as of last year and are in the process of transferring 75 percent of that debt to states as part of a federal effort to make the companies profitable.

“It raises the power-purchasing cost for distribution companies and puts pressure on them to increase consumer prices,” NTPC Finance Director Kulamani Biswal said.

Coal accounts for more than 60 percent of India’s power generation capacity and more than 75 percent of the nation’s electricity production. In February, the federal government doubled an environmental tax on the fuel.

“It’s bad news for generation companies, especially those that don’t have a long-term purchase agreement or those that are selling in the spot market,” said Debasish Mishra, a partner with Deloitte Touche Tohmatsu ILA Group Ltd. in Mumbai. “It doesn’t help the already sluggish demand situation.”

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