Indian coal miner fails to get coal linkage for power project

KOLKATA (miningweekly.com) - Coal India Limited (CIL) may well be India’s largest coal producer, with a targeted one-billion-tonne production over the next few years, but when it comes to its pet diversification project in thermal power generation, the government is unwilling to grant it preference in offering coal linkage.

Senior CIL officials said that in response to proposals submitted by the coal miner, the government had clarified that it would have to apply for coal supply linkage, and these would be treated on par with thermal power projects of other companies, with no preference given to CIL’s thermal power project plans.

This in effect meant that even if the miner located its proposed pithead-based thermal power plant, it was not assured that coal supplies from its own mines in proximity would be allocated to its own thermal projects, the officials said.

The denial of preferential coal supply linkage was proving to be a speed bump for CIL’s first thermal power diversification project.

Mahanadi Coalfields Limited (MCL), a wholly owned CIL subsidiary, was implementing a 2 X 800 MW thermal power project in the eastern coastal province of Odisha, through a special purpose vehicle.

MCL was expected to produce about 150-million tonnes of coal in the current fiscal of CIL’s total expected production of 550-million tonnes.

“There is no coal linkage for the Odisha thermal power plant. We have written to the government seeking preferential treatment as a government undertaking. Despite this, MCL's own pithead power project there has not been granted coal linkage and the MCL project is being treated as any other project,” said former MCL chairperson A N Sahay, who retired in October 2015

He, however, said that preliminary work on the thermal power project had already commenced during his tenure as the CEO of MCL.

Though not yet an official stand, Coal Ministry officials conceded that one of the reasons for not granting CIL coal supply linkages essentially stemmed from ambiguity over whether it made strategic sense for the coal miner to get into thermal power generation in the first place.

A section of the Coal Ministry was not keen on CIL diversifying into power generation and instead favoured that it “stick to knitting’ at a time when it had been set a target of achieving one-billion tonnes a year production level by 2020.

However, officials said that a section of the government argued that if the country’s largest power producer, the government-owned and -managed NTPC Limited, could get into coal mining for captive power generation there was little rationale for denying coal miner CIL entry to power generation.

It was pointed out that with Indian electricity demand rising to two-trillion units and with 280-million people still lacking electricity connections, there could never be a situation of too many thermal power producers and it was questionable whether CIL should be limited to mining activities only.