June 14, 2012 / 9:26 AM / 7 years ago

UPDATE 1-India's Tata to shelve new imported-coal projects

* CFO says awaiting clarity on imported coal regulations

* Tough to meet 25,000 MW target capacity by 2017-CFO (Adds details, background)

By Sanjeev Choudhary

MUMBAI, June 14 (Reuters) - India’s Tata Power has put on hold all new imported-coal based projects, its chief financial officer said, warning that it would be a challenge for the company to meet its target of a five-fold increase in generating capacity by 2017.

The country’s power generators have been slow to add much needed capacity due to fuel shortages, delayed regulatory clearances and debt-crippled distribution utilities buying less power.

Tata Power had put on hold its 2,400 megawatt project in the western state of Maharashtra until it gets more clarity on the regulatory environment in India and coal exporting nations, CFO S. Ramakrishnan told Reuters.

The company will press ahead with its only imported coal-fired project, a 4,000 MW plant in Gujarat state, hoping the government eventually allows it to raise tariffs to reflect higher import costs.

Coal accounts for two thirds of power production in India, which is struggling to produce enough power to meet the demands of a fast-growing economy and increasingly affluent population of 1.2 billion people.

A change in Indonesia’s mineral export rules has pushed up the cost of coal for Indian buyers, who source 70 percent of their coal imports from the southeast Asian nation, making about 9,000 MW of imported coal-based projects in the country economically unviable, including Tata’s Gujarat plant.

The projects were originally bid for at a fixed tariff and now Tata Power, Reliance Power and other power producers are lobbying the government to raise the prices at which they sell power to state-run distribution utilities.

“As of now we have put all our imported coal plans on hold,” Ramakrishnan said.

The expansion will be “subject to the (Indian) government coming out with an appropriate policy on how the issue of imported coal price will be handled and how the export restrictions that are being brought in by the export countries ultimately settle,” he said.

Tata Power commissioned the first 800 MW unit at its Gujarat plant early this year and is incurring losses since it cannot pass on higher fuel costs.

The company imports about 5 million tonnes of coal per year, which is expected to rise to 14 million tonnes next year, largely to fuel its Gujarat plant. It will, however, miss its target to import 25 million tonnes by the 2014/15 financial year, Ramakrishnan said.

He said it would be difficult for Tata Power to raise its capacity to the targeted 25,000 MW by 2017.

“It looks like a challenge because of both the global economic outlook, Indian economic outlook and India power sector issues,” he said.

The company now operates around 5,000 MW of capacity.

Last week, India’s largest power producer NTPC said it would miss its 2017 capacity target, blaming the government for chronic fuel shortages. (Editing by Aradhana Aravindan and Ed Davies)

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