KOLKATA (miningweekly.com) – Large bulk end-users of coal are not benefiting from the availability of surplus coal, as much of the potential windfall has been eroded by an increase in railways freight rates and the doubling of the Clean Energy Cess.

In fact, thermal power companies have warned that electricity tariffs could rise by as much as 25%, depending on the distance of power plants from coal pit-heads, even though coal stockpiles are rising in the face of power companies reducing offtake.

Last week, government-owned and -operated Indian Railways increased rates by between 8% and 15% for carrying coal between 200 km and 700 km, while rates for distances of up to 200 km were kept unchanged.

Further, an official with NTPC, the country’s largest power producer, said that with the government doubling the Clean Energy Cess to Rs 400/t ($6/t), the generating costs per unit of electricity increased by at least 10% to 12%.

He pointed out that these two cost elements had negated the entire benefit of higher availability of coal and that surplus coal would not be a trigger to increase generation, as demand for power was depressed.

According to the Central Electricity Authority, the federal advisory and policy-making body for the sector, pan-India plant load factor (PLF) capacity usage averages between 50% to 57%. Power companies will only be able to increase their coal requirement, and thereby offtake from pitheads, once the PLF averages above 70%.

Power company officials said that the detrimental impact of the higher cost of fuel, even at a time of surplus coal availability, was reflected in the operations of Coal India Limited (CIL), which accounted for over 80% of coal supplies.

As a result of falling appetite for the dry fuel, CIL had during the April-to-August period recorded near-zero sales growth on a production increase of 1.3%. The situation was further aggravated by 28-million tons of coal stocks already stocked at power plants and CIL carrying an inventory of about 48-million tons.

The officials said that there was no price incentive to increase coal stocks when levies and freight charges only resulted in higher electricity generation costs, which the power companies were unable to pass through to consumers given depressed energy demand.

The falling sales were already impacting CIL’s bottom line. The miner on Tuesday reported a 14% fall in net profit to about $457-million for the quarter ended June 30.

Most significantly, CIL reported that during the period, coal sales under fuel supply agreements were down by one-million tons, indicating depressed demand from large thermal power companies.