The Government of India with an aim to reducing dependence on imported coal and auctioning long-term coal linkages to power companies recently approved a long-awaited coal linkage policy, which provided a breather to the thermal power sector.
As coal availability is not adequate in India and international prices are high compared with domestic prices, the government is going in the right direction. Also, the government is aiming to bring down thermal coal imports of power PSUs this financial year to “zero”. This should reduce the country's import bill by around Rs 17,000 crore.
Actually, inadequate domestic coal, rising imports and high price of imported coal necessitate government intervention so that power-producing firms can get sufficient coal. Named Shakti or the Scheme to Harness and Allocate Koyla (coal) transparently in India, the policy would help allocate coal among different coal-using thermal power plants, with the active guidance of coal assigned state governments.
Under this policy, coal linkage would be first given to DISCOMS and after that the government would assign linkage to state or central power generation companies through allocation or auctions. The linkage is expected to revive 30,000 Mw of power plants and would help revive stressed assets in the power sector. The policy is expected to ensure that power companies can operate in a true open market environment and it should help them repay loans.
With the economy poised to grow at the rate above 7.5 per cent per annum, energy requirements will also rise at a reasonable level. The Indian coal market is set to witness a big boost in the near future because of rising government initiatives.
Coal, the key raw material for about 60 per cent of the power produced in the country, has been placed under the five per cent GST slab. The opportunities arising from better fuel availability, reduction in financial distress of DISCOMS and lower interest rate regime are likely to benefit the power sector greatly. As per a government report, India will double its coal production to 1.5 billion tonnes by 2020. This policy is expected to boost energy, utilities and mining sectors.
Given the various policy developments in domestic coal sources, it is expected that companies such as Coal IndiaBSE -0.45 %, Reliance PowerBSE -2.79 %, Adani PowerBSE 1.31 %, Lanco InfratechBSE -2.43 %, GMR Energy, DB Power, CESCBSE -1.19 %, Cummins and KSK EnergyBSE -3.29 % would see better growth in business going forward.