Corporates 

Electric ­ Corporate 
India 
Indian Coal‐Fired Power 
Special Report  Private Generators Scramble for Coal Assets 

Analysts  Summary 
Corporates India is chronically short of power capacity, and coal is likely to be the fuel of
Salil Garg
+91 11 4356 7244
choice for most new‐generation capacity. Despite India’s abundant coal resources,
salil.garg@fitchratings.com many of the country’s power producers — especially those in the private sector —
are increasingly investing in coal assets outside India.
Girish Mahalingam
+91 11 4356 7244
girish.mahalingam@fitchratings.com Such debt‐fuelled acquisitions can weaken the financial metrics of the power
companies or increase the capital cost of power projects which acquire captive
Global Infrastructure and Project Finance overseas supply. However, Fitch Ratings feels these financial risks are generally
S Nanda Kumar
+91 44 4340 1710 mitigated by the reduction in coal supply risk and coal price volatility risk.
s.nandakumar@fitchratings.com 
Fitch believes that domestic coal supply would improve if more coal resources were
Related Research  open to the private‐sector mining companies for development. State‐controlled
Applicable Criteria Coal India Limited produces 80% of the nation’s coal, and has increased annual
· Corporate Rating Methodology production by 5%‐6%. However, this is far from meeting growing demand.
(August 2010)
· Rating Criteria for Infrastructure and Liberalisation of the coal market is not likely to develop quickly as it requires
Project Finance (August 2010)
legislation and institutional change.
· Rating Criteria for Thermal Power Projects
(June 2010)
Fitch notes that a lack of sufficient rail freight capacity is another significant
Other Research
impediment to the use of domestic resources in new power plants. Furthermore,
· Indian Power Sector Outlook 2010: Riding
on Investor Interest (January 2010) most of the coal reserves are located in India’s relatively less‐developed eastern
states which are facing security issues.
Generators are also increasingly importing overseas coal purchased from third‐party
suppliers. Fitch believes that this trend will also continue, and that ready access to
port facilities will be an important consideration in the location of many new coal‐
fired power stations.
Appendix 1 provides some background information on the Indian power and coal
sectors. 

The Scramble for Overseas Coal Assets 
With 40 gigawatts (GW) of installed capacity additions expected over the next three
financial years, major independent power producers (IPPs) are all purchasing coal
assets abroad, as shown in the table Recent Overseas Coal Investments By Indian
IPPs.
Recent Overseas Coal Investments By Indian IPPs
Estimated deal
Company/group Asset acquired value (INRbn) Country
Reliance Power Limited Sugico Group 75 Indonesia
GMR Barasentosa Lestari 4 Indonesia
ESSAR ND 9 Indonesia
Adani Linc Energy 120 Australia
JSW Energy Indian Ocean Mining ND South Africa
JSW Energy South African Coal Mining Holding 3.8 South Africa
Jindal Steel & Power ND ND Mozambique
Tata Power PT Bumi 60 Indonesia
Includes joint ventures formed
ND: Not disclosed
Source: Companies, Media reports 

www.fitchratings.com  17 September 2010 

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State‐owned NTPC Limited (‘BBB‐’/Stable) has also been interested in buying coal
assets for some time. However, it has been unable to negotiate a purchase, and has
now decided to invite offers from foreign miners through an expression of interest.
NTPC is also evaluating two coal mines in Australia, while in discussions with miners
in Indonesia, Mozambique and South Africa for equity participation to secure long‐
term coal supplies. Fitch does not expect any of these transactions to be of
sufficient size to threaten NTPC’s rating.
In addition, International Coal Ventures Ltd, an SPV owned by Indian public sector
entities, is also looking to acquire coal mines in these countries.
In Fitch’s view, India’s major developers of coal‐fired capacity have little option
but to investigate overseas fuel supply, whether captive through an
acquisition/joint venture or through third‐party contracts. The risks in this strategy
— exposure to international shipping risks, and additional gearing to fund
investment in captive mines — are necessary to access required coal supplies. 

Coal Development – Reform Needed 
Only Captive Private Sector Permitted
Fitch believes that without reform of coal development rights, India’s domestic coal
suppliers will not be able to meet the growing demand. The supply shortfalls are
partly attributable to existing policy, that allows private firms to own coal blocks
for captive use only — primarily for power generation and iron and steel — rather
than to sell coal to the market.
About 80% of power generation is in the public/state sector which procures coal
directly from state‐owned mining companies. Thus, the burden of domestic
production has been placed almost solely on the public sector. As a result, state‐
owned Coal India Limited (CIL) and its eight subsidiaries are responsible for 80% of
domestic output.
Institutional Hurdles
Fitch believes that the procedural hurdles facing private sector coal development
are a significant reason why power generators are looking offshore for coal supplies.
Coal blocks can only be allocated to private parties through the mechanism of an
inter‐ministerial screening committee, which includes state‐owned CIL.
Allocations are decided by government on the recommendation of the committee,
taking into account, among other factors, the techno‐economic viability of the end‐
user project, the state of project preparedness, compatibility in terms of quality
and quantity of coal/lignite in a block with the requirements of the end‐user, the
track record of the applicant company, and recommendations of the state
government and administrative ministry concerned.
Steps towards Reform
Private capital will have to be introduced to the coal sector to overcome the current
constraints. The government appears to have conceded that the public sector alone
cannot meet the demand for coal, and that there is a strong case for opening the sector
to private investment. Fitch agrees with the coal‐fired generators that liberalisation of
the coal sector, and the creation of a private sector domestic coal supply market, are
the best means for increasing domestic production.
To facilitate this, the government has also proposed setting up a coal regulatory
body to allocate coal mines, fix prices, set and enforce standards of performance,
and other operational requirements. These proposals are likely to be discussed in
the winter session of parliament scheduled to start in November 2010.
Fitch believes liberalisation of the coal sector will be beneficial for the coal‐fired
generators. However, freight infrastructure weaknesses will have to be addressed.
The agency is also mindful that institutional reform in India can be a slow process.

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Indian Power, Utilities and Coal: Coverage List 
At 16 September 2010, Fitch publicly rated the following Indian power companies.

International Ratings
· Power Finance Corporation Limited: ‘BBB‐’/Stable

· Rural Electrification Corporation Limited: ‘BBB‐’/Stable

· NHPC Limited: ‘BBB‐’/Stable

· NTPC Limited: ‘BBB‐’/Stable

National Ratings
· AD Hydro Power Limited: ‘BBB(ind) ’/Negative

· AES Chhattisgarh Energy Private Limited: ‘F3(ind) (SO)’

· Damodar Valley Corporation: ‘AA(ind) ’/Stable

· Delhi Transco Limited: ‘A+(ind) ’/Stable

· GRIDCO Limited: ‘BBB‐(ind) ’/Stable

· Jaiprakash Hydro‐Power Limited: ‘A(ind)’/Rating Watch Negative

· IREDA Limited: ‘A+(ind) ’/Stable

· Malana Power Company Limited: ‘A‐(ind) ’/Negative

· NHPC Limited: ‘AAA(ind)’/Stable

· Noida Power Company Limited: ‘A‐(ind)’/Stable

· Neyveli Lignite Corporation: ‘AAA(Ind)’/Stable

· Rural Electrification Corporation Limited: ‘AAA(ind)’/Stable

· Reliance Infrastructure Limited: ‘AA(ind)’/Stable

· Power Finance Corporation Limited: ‘AAA(ind)’/Stable

· PTC India Limited: ‘F1+(ind)’

· Spectrum Power Generation Limited: ‘BB‐(ind)’/Stable

· Tata Power Trading Company Limited: ‘BBB+(ind) ’/Positive

GIG India Power Projects ‐ National Ratings

· Coastal Gujarat Power Ltd.: ‘BBB(ind)’/Stable

· Corporate Power Ltd.: ‘BBB‐(ind)(EXP)’/Stable

· Maithon Power Ltd.: ‘BBB+(ind)’/Stable

· Sathyam Power Pvt. Ltd.: ‘BB‐(ind)’ /Stable

· Transtech Green Power Ltd.: ‘BB+(ind)’/Stable

· Jindal India Thermal Power Ltd.: ‘BB+(ind)’/Stable

· Ideal Energy Projects Ltd.: ‘BB+(ind)’/Stable

· Meenakshi Energy Pvt Ltd.: ‘BB+(ind)’/Stable

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State Power Utilities

· Meghalaya State Electricity Board: ‘BBB+(ind)(SO)’/Stable
· Tamil Nadu Electricity Board: ‘A(ind)(SO)’/Stable
Fitch’s National Ratings provide a relative measure of creditworthiness for rated
entities in countries with relatively low international sovereign ratings and where
there is demand for such ratings. The best risk within a country is rated ‘AAA’, and
other credits are rated only relative to this risk.
National Ratings are designed for use mainly by local investors in local markets, and
are signified by the addition of an identifier for the country concerned, such as
‘AAA(ind)’ for National Ratings in India. Specific letter grades are not therefore
internationally comparable.

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Appendix 1 
India’s Chronic Power Shortage and the Role of Coal
India needs significant new power capacity to reduce current electricity deficits
and meet future demand driven by economic development and electrification. Coal,
despite its carbon intensity, will continue to play an important role in India’s fuel
mix for new power station development. The Indian government is promoting the
addition of 78.7GW of power generation capacity under the 11th five‐year economic
plan which covers the financial years 2007‐2012 (FY07‐12). In the context of this
plan, Fitch Ratings notes that:

· significant progress has been made, but government estimates that only 62GW
of the targeted new capacity is likely to be added by the end of the plan
period;
· coal‐fired generating stations are likely to comprise more than 50% of the
additional capacity;
· most of these power stations benefit from either an assured supply of coal from
state‐owned coal mining companies, or the award of a captive coal mines;
· however, considerable delays in the development of domestic sources of coal —
including captive coal mines — have led to a rise in coal imports by the Indian
power producers, as described in this report.
India’s Coal Requirements
The Indian economy, growing at a steady rate of between 7%‐10%, faces a
significant challenge in meeting its energy needs and power demand. To maintain
or increase its current rate of economic growth, the country will need to boost the
efficiency of its power sector — to enable it to grow at an annual rate of 8%‐10% in
order to supply adequate amounts of energy at a reasonable cost.
For example, if India maintains an annual growth rate of 8% through to 2030, total
energy supply will need to grow by 300%‐400% and electricity supply by 500%‐700%,
and generation capacity will have to expand from a current level of 163GW to
780GW.
The vast majority of power plants in India are thermal; total installed thermal
power capacity is 93GW, 64.7% of the country’s total installed capacity. Coal‐fired
capacity represents the vast majority of thermal capacity — 77GW (82.9% of
thermal capacity and 53.3% of total installed capacity).
The Planning Commission of India has estimated that 80% of domestic coal
production, and 75% of total coal consumption, goes towards electricity generation,
and that coal will continue to be the most viable fuel for achieving sustained
economic growth over the next 25 years. Thus India is highly dependent on coal,
and coal resources will therefore continue to be critical to the power sector’s
progress.

India’s Coal Resources

Coal is India’s most abundant raw material, with reserves of 267 billion tonnes
which account for 10% of the world’s coal — with only four countries holding higher
reserves. India is the third‐largest producer and consumer of coal, behind China and
the US.
Coal is used to generate more than 75% of India’s electricity and 63% of its
commercial energy. Energy acquired from coal is about twice that of the energy
acquired from oil, which contrasts with the worldwide norm in which energy
acquired from coal is generally 30% less than energy acquired from oil
There are three types of coal: non‐coking coal, coking coal, and high sulphur
content coal. The total reserves of coking coal, which is used primarily in the

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production of steel, are 33.4 billion tonnes. Coking coal is prevalent in Chhattisgarh,
Madhya Pradesh and West Bengal. Non‐coking coal constitutes the largest portion,
at 232 billion tonnes, while reserves of high‐sulphur‐content coal are 1.0 billion
tonnes.
The quality of coal available in India is poor. The calorific content is about 15
mega‐joules per kilogram (MJ/kg), in contrast to standard‐quality coal which has a
calorific content of 21‐33 MJ/kg. The ash content of coal in India is also very high,
at a rate of between 30%‐45%. Non‐coking coal is “F” grade coal; and in order to
make this type of coal useful and effective, it has to be washed — which increases
costs. High‐sulphur‐content coal is of even poorer quality than non‐coking coal,
rendering it almost useless.
Non‐coking coal is prominent in seven states — Orissa, Jharkhand, Chhattisgarh,
West Bengal, Andhra Pradesh, Madhya Pradesh and Uttar Pradesh. Orissa is the
richest in non‐coking coal reserves, with 65.2 billion tonnes. Jharkhand,
Chhattisgarh and West Bengal are also quite rich in terms of non‐coking coal, while
Uttar Pradesh, Madhya Pradesh and Andhra Pradesh have modest amounts. High‐
sulphur coal, as discussed above, is not a major contributor to total coal reserves.
The states that are rich in the high‐sulphur variety include Meghalaya (with 577
million tonnes (mt)) and Assam with (384mt).

Domestic Coal Shortages

Despite India’s large reserves, only 90‐100 billion tonnes have been proven. State‐
owned Coal India Limited produces 80% of India’s domestic coal output, and has
performed well in recent years, but its annual increase in production of 5%‐6% is far
from meeting rising coal demand. Without liberalisation of coal development, it
seems unlikely that India can be self‐sufficient in competitively priced coal in the
medium term.
Domestic coal production increased to 493mt during FY08‐09 (FY06‐07: 431mt).
However, demand has outpaced production, rising to 555mt during FY08‐09. Imports
met the 62mt gap. Furthermore, the Planning Commission of India estimates
domestic demand will rise to 731mt by FY11‐12. However, the state‐owned mining
companies which produced only 448mt in FY08‐09 Fitch expects these to expand
production at a slow rate of 5%‐6% per annum.
Further production from captive coal mines is likely to remain lower than the 120mt
by FY11‐12 originally estimated by the industry. This is due to procedural
bottlenecks in developing the 200+ coal blocks allocated to various captive users.
Additionally most of the coal reserves are located in the relatively less‐developed
eastern states, which are facing security issues as well as suffering from poor
infrastructure.

Increases in Coal Imports

With large projected shortfalls between demand and domestic supply, Fitch expects
imports of coal to increase significantly. During FY09‐10, India imported 70mt,
which Fitch expects to rise to 85mt by FYE11. The Ministry of Power has forecast
that coal imports will increase to at least 100mt by FYE12, as aggregate coal
demand reaches 730mt. Even though imports are expected to be a significant
feature of the market in the medium term, Fitch notes that India’s current reserves
are likely to last 50‐60 years; and if coal market is liberalised and institutional and
infrastructure issues addressed, domestic coal should begin to take a greater share
of supply for new power stations.

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