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Coal India to sign new FSAs with 80% threshold level
Media reports indicate that Coal India (CIL) would be required to sign 20-year FSAs
with power plants commissioned post March 2009 with a threshold level of 80% for
determining penalties instead of CIL’s proposal of 50%. The shortfall in meeting
this 80% level could have to be imported. As part of this, FSAs would be signed by
March 31, 2012 for power plants commissioned upto December 2011.
We estimate shortfall at 93mt by FY14E
Our power research team estimates that including ~22GW (based on CIL linkages) of
power capacity commissioned between FY10‐12, a total of ~42GW and ~54GW would
be eligible for FSAs by FY13 and FY14 respectively. Based on the potential ramp‐up of
these plants, the quantity of coal for meeting the 80% requirement is 120mt and 176mt
in FY13 and FY14 respectively. We estimate a shortfall of 77mt and 93mt (equivalent to
Indian coal grade) in FY13 and FY14 respectively which could have to be imported.
Uncertainty over sharing of imported coal costs
Adjusted for its higher calorific value, we estimate imported coal to be costlier than
domestic coal by ~USD30/t (FOB). This would mean an additional cost of USD2.3bn and
USD2.8bn for FY13 and FY14 respectively (see Table 2 for more scenarios). At this stage,
we lack clarity on who would shoulder this additional cost. Potential scenarios could be:
(i) sharing among Govt, CIL and power producers and (ii) an increase in power tariffs by
passing on this additional cost (though this is highly unlikely, in our view).
Possibility of faster clearances to ramp up coal output
We see the possibility of faster clearances by MoEF and land acquisition to ramp up
CIL’s production. However, this is likely in FY14 only. At this stage, we await clarity on
above issues. We currently have a ‘BUY/ Sector Outperformer’ recommendation/
rating on the stock (Target Price: INR430).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India to sign new FSAs with 80% threshold level
Media reports indicate that Coal India (CIL) would be required to sign 20-year FSAs
with power plants commissioned post March 2009 with a threshold level of 80% for
determining penalties instead of CIL’s proposal of 50%. The shortfall in meeting
this 80% level could have to be imported. As part of this, FSAs would be signed by
March 31, 2012 for power plants commissioned upto December 2011.
We estimate shortfall at 93mt by FY14E
Our power research team estimates that including ~22GW (based on CIL linkages) of
power capacity commissioned between FY10‐12, a total of ~42GW and ~54GW would
be eligible for FSAs by FY13 and FY14 respectively. Based on the potential ramp‐up of
these plants, the quantity of coal for meeting the 80% requirement is 120mt and 176mt
in FY13 and FY14 respectively. We estimate a shortfall of 77mt and 93mt (equivalent to
Indian coal grade) in FY13 and FY14 respectively which could have to be imported.
Uncertainty over sharing of imported coal costs
Adjusted for its higher calorific value, we estimate imported coal to be costlier than
domestic coal by ~USD30/t (FOB). This would mean an additional cost of USD2.3bn and
USD2.8bn for FY13 and FY14 respectively (see Table 2 for more scenarios). At this stage,
we lack clarity on who would shoulder this additional cost. Potential scenarios could be:
(i) sharing among Govt, CIL and power producers and (ii) an increase in power tariffs by
passing on this additional cost (though this is highly unlikely, in our view).
Possibility of faster clearances to ramp up coal output
We see the possibility of faster clearances by MoEF and land acquisition to ramp up
CIL’s production. However, this is likely in FY14 only. At this stage, we await clarity on
above issues. We currently have a ‘BUY/ Sector Outperformer’ recommendation/
rating on the stock (Target Price: INR430).
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