Weak Coal Handling Capacities of Indian Ports and Challenges Faced by Key Consuming Segments

Current Coal Import Traffic in India

India has imported over 70MTs of coal (coking and thermal) so far Country Wise Coal Imports in India FY'01-FY'12in this calendar year. The coal imports highest traffic is seen from months of June and has been consistent till October, 2012. This may be of the reason that domestic mining goes low in the rainy season in India and also the transportation becomes an issue in these months due to rains.

Also, during these months the moisture content in the coal increases and hence the rise in imports is observed. Given the current coal scarcity faced by major consuming industries like power, steel and cement the port infrastructure of India has to be beefed up. In India, at present coal is imported mainly from Australia, Indonesia and South Africa. With sealing being imposed by Indonesia search for new destinations for sourcing coal has brought in picture countries like Mozambique and US under purview of imports

Coal Handling Capacities of Ports

Majority of the major ports are running at over 90% capacity utilization rate in India which handle coal. This has lead to deterioration in their average turn round time (TRT) which has increased from 3.8 days in FY07 to 4.6 days in FY11. This rise was mainly on account of an increase in preberthing  time at the ports. The high TRT at Indian ports can be attributed to the fact that many of the ports operate at capacity utilization levels of more than 100%, resulting in high congestion levels which impacts their operational performance.

Almost all major ports in India have a TRT of more than 3.5 days except Ennore, Cochin, JNPT and New Mangalore which have a TRT of 2-3 days. This is still relatively high as compared to international ports whose turnaround time for ships is a few hours. This is still relatively high as compared to international ports whose turnaround time for ships is a few hours. We expect major ports to grow at modest 7% CAGR over FY12-17E given their high capacity utilization and delay in outlined capacity expansion plans.

Investment during the Eleventh Plan is now projected at INR.40, 647 Crore, which is less than half of the original projection of INR 87, 0000 Crores. As a result of congestion at the major ports, the traffic at the minor ports has grown at higher pace (14% CAGR as compared to 5% CAGR for major ports) and account for a larger chunk of traffic at 36% in FY11 as compared to 29% in FY07. We believe that minor ports will continue to grow at a robust pace of 11% CAGR over FY12-17E increasing their market share to 43% by FY17. Container and coal has grown at robust pace of 38% and 33% CAGR over the last five years followed by POL and fertilizer at 18% and 13% respectively.

Capacity Utilization and Turn Around Time (TAT) of Major Ports in India

Shortfall in the Import Infrastructure and the Challenges Faced by the Private Players

The import infrastructure shortfall is going to lay an adverse impact mainly on power and steel sector as these are the sectors which have growing need of imported coal in India. Almost 70 per cent of the coking coal required by Indian steel plants is being imported from countries like Australia and Indonesia, and given the pace of capacity addition by Indian ports; it will be difficult to match up with such pace.

Challenges  For Ultra Mega Power Project Developers

UMPPs of cumulative capacity 43 GW are awarded under competitive bidding, and are under construction. Around 30 per cent of this capacity or 13,000 MW is based on imported coal. Power companies had offered bids based on their agreements with fuel suppliers predominantly in Indonesia. If the companies are not able to honour their commitments, it would be a concern for bankers and consumers. Indian power developers have sought government intervention as a new law in Indonesia, the largest coal supplier, makes imports economically unviable. Indonesia has said it would not allow exporting companies to sell coal at prices below notified rates after September, 2012.

Australia issued a draft mining law few days ago to impose levy on coal and iron ore projects from next year. A group of 13 private companies has asked power ministry to set up an expert committee to find appropriate solution to tackle rise in imported rates.

Challenges in the Power Pricing

The new Indonesian policy that stipulates benchmarking of coal prices to international market rates is likely to increase the cost of coal imports from that country for Indian firms. The impact on the tariff of such projects may vary, depending upon the quality of imported coal and fuel mix. So with the sudden change of rule in Indonesia, which accounts for 50% of India¡¥s coal import, is likely to affect the Indian power developers. Since Coal India will not be able to provide coal to power utilities, power companies have to go for costlier imports and that will have direct impact on price of power generation. It will be most likely possibility that power producers will demand for hike in power prices. The Government of India is thinking of pooling of prices of domestic and international imported coal for lessening the impact of high price on Indian consumers. Whereas the power generation companies have concern over pooling international and domestic coal prices, the idea of this is to sell the raw materials at a uniform price to the customers.

Relevance Matrix  for Major Consumers vis-à-vis Coal Imports – Cutting Out the Challenges

All end users, if importing coal will rely on better port infra and apt location. The power plants based on imported coal always find it suitable to be located at the coastal regions. Same is applicable of steel plants as majority of the coking coal is being imported in India.

Relevance Matrix  for Major Consumers vis-à-vis Coal Imports – Cutting Out the Challenges

All end users, if importing coal will rely on better port infra and apt location. The power plants based on imported coal always find it suitable to be located at the coastal regions. Same is applicable of steel plants as majority of the coking coal is being imported in India.

Relevance Matrix for Major Coal Consumers

Opportunity for the Stake Holders  vis-à-vis Deficit

On the positive side, with the Government encouraging private participation in port development, non-major ports have begun contributing significantly to the economy. The relative share of non-major ports has grown from 26 per cent to 34 per cent in the seven year since 2004-05.

Government’s ambitious agenda to award 6 concessions for ports and initiate for 20 others through PPP is totalling to more than INR. 3300 crore, within a span of 3 months, was being regarded as a welcome move. Players with ports as their core business can now invest in strengthening their back-end and soft infrastructure such as connectivity linkages and alliances as well as initiatives for productivity improvements, service augmentation and customer development.

Foreign and private equity investments in Indian ports in recent times reflect a strong faith in India’s port sector and suggest the inflow of more such funds in the forthcoming period. The concept of port-based SEZs is fast catching up amongst Indian investors ever since the successful launch of Mundra Port SEZ. It establishes that credible port infrastructure is no more value-adding, but imperative for development of globally competitive hubs of economic activity and thereby promoting international trade

*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

Leave a Reply