Rising coal costs puts CESC in a bind

CESC Ltd may find its plans to contain costs going awry as it faces rising generation costs owing to rising coal prices.

This might force CESC to buy more power from generating agencies such as West Bengal State Electricity Board (WBSEB).

Sources said CESC has been generating power at its plants using imported coal. Its cost of power generation on an average was Rs 1.2 a unit against Rs 2.2 a unit for power bought from WBSEB.

CESC for the last few years has been importing premium quality coal from Indonesia at a price higher than coal sold by Coal India Ltd (CIL) but the superior imported fuel led to savings in generating costs.

The best CIL produce from Ranigunj mines, of grade-B, was around Rs 1,200 per tonne against Rs 2,600 per tonne for Indonesian coal.

"International prices of coal has been skyrocketing and so has the freight rates. We use the imported coal to blend with domestic one to reduce its ash content. With availability of imported coal getting reduced by the day we have to find a way out," said CESC managing director, Sumantra Banerjee.

He added that since the quantum of coal imported was small, it was expected to have little effect. CESC had reduced power purchased from WBSEB to around 200MW of power a day.

Another 10 per cent rise in cost of imported coal will make CESC's cost of generation equal to the cost of WBSEB power, experts said.

The power utility receives around 80 per cent of its coal requirement from the government through Coal India. The rest of the power generation requirement is met from WBSEB.

Sources in the company said that with futher rise of coal prices and decline in its availability CESC will have to source its power requirement from the state generating agency.

CESC buys around four lakh tonnes of coal from Indonesia at a landed price at present. CESC used around 42 lakh tonnes of coal last year. Around 10 per cent of its requirement was met mainly through imports.