Coal India to enter power production, in talks with NTPC to form JV

Coal India is in talks with NTPC to form a joint venture to come up with a 1,600 megawatt pithead power plant at Sundergarh in Odisha
Addressing the problem of evacuating coal from remote locations to feed power plants, Coal India is embarking on power production itself, which it believes will help ease the high demand for thermal power in the country. This will mark Coal India’s maiden entry into thermal power generation.

Under this plan, it is in talks with NTPC to form a joint venture (JV) to come up with a 1,600 megawatt (2x800 Mw) pithead power plant at Sundergarh in Odisha. This hitherto remote region has been recently unlocked by connecting a 53-km long railway track to evacuate coal to feed other plants as well.

“All licences are given to Mahanadi Coalfields (MCL). We will want at least 51 per cent stake in this JV. I think NTPC will not have any issue with that,” A K Jha, who recently took charge as the new chairman and managing director of Coal India, said here.

Under this plan, while NTPC will take care of the power purchase agreements and the operational requisites, Coal India’s role will be majorly as an investor and also chip into daily operations as the need may be. A formal agreement with NTPC is yet to be concluded.

The estimated cost of construction of this plant is Rs 130 billion and will be funded with a mix of debt and equity. MCL has an estimated cash reserve of Rs 150-160 billion.

MCL is Coal India’s largest subsidiary and the project will be executed by Mahanadi Basin Power – which currently is a wholly owned subsidiary of MCL, but will be transformed into a JV once NTPC chips in.

The world’s largest coal producer has also conceived a similar project in North Karanpura, which falls under Central Coalfields command area. Power Finance consultancy and NTPC was also offering consulting for the proposed project. However, it is yet to select a partner for this power plant. 

As a result of the new focus on thermal power generation, and its strive to improve coal quality by investing in washeries and set up new infrastructure, Coal India’s capital expenditure (capex) might go up by Rs 15 billion this year to touch Rs 120 billion.

“The targeted capex is Rs 95 billion this year but if this power project gets steam, the capex might shoot up by another Rs 15 billion. Additionally, other expenses will also be incurred for washeries and infrastructure,” Jha said. In the last fiscal year, Coal India exceeded its capex target for the first time in its history. Against a target of Rs 85 billion, it spent Rs 88.88 billion. For the current fiscal year, Coal India has set a production and sales volume target of 630 million tonne (mt), of which 525 mt is reserved for the power sector which includes allocation from e-auctions as well. The rest of the coal will be made available to the non-power sector.

The coal monolith is expected to put 90 mt of coal on the e-auction route in case the demand for power continues to go up. As the county is faced with increased demand of thermal power, Coal India has been routing more coal through the fuel supply agreement and contract route which, in turn, has contracted its offer via the e-auction route.

Jha expects that in the coming months, the hydel stations in the country are expected to up their production as monsoon sets in and with increased evacuation facilities executed by Coal India, the coal situation in the country will ease in the coming two months.

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