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Coastal shipping of coal expected to double in the next five years

Crisil Research expects coastal transportation of coal for thermal plants to double and expected to touch 63 million ton per annum in the next five years, from nearly 32 million tons per annum in 2016-17 as structural bottlenecks ease.

Bulk of the coastal movement of coal in India happens along the Eastern Coast, from the mines of Mahanadi Coalfields (MCL), via the Paradip and Dhamra ports in Odisha, to power plants in Andhra Pradesh and Tamil Nadu.

 However, congested berths, particularly at Paradip Port, are holding back rise in potential volumes. The mechanized coal handling plant berths at Paradip, through which most of coastal coal is loaded, have occupancy well above the benchmark norms of 70 per cent.

An addition of 22 million tons per annum of coal-handling capacity at Paradip - expected by calendar year 2020, as per Paradip Portís assessment - and coal loading through dry cargo export berth at Dhamra will ease the capacity constraints significantly and boost coastal shipping volumes. Additionally, ongoing projects are expected to improve rail connectivity at both loading ports.

In the longer term, the heavy-haul rail corridor connectivity between the Coal rich Ib Valley and the Paradip and Dhamra ports will be a booster.

According to the estimates by Crisil, the overall Coastal potential from operational thermal plants alone, assuming a capacity utilization of 75 per cent and existing linkage with Mahanadhi Coal fields Ltd, aggregates to 63 million tons per annum today, including 35.7 million tons per annum from plants located near ports and 27.3 million tons per annum from those located 200-400 km inland.

In the longer term, additional coastal coal volume of 25-30 million tons per annum is envisaged from coastal movement to power plants with MCL linkage in Maharashtra and Gujarat, on the West Coast. Partial import substitution of import-based power plants would add a further ~15 million tons per annum.

Prasad Koparkar, Senior Director at CRISIL Research said:"A spurt in domestic production would bring down the share of imports in the power sector's coal demand. While demand will grow at 6 per cent CAGR to 827 million tons in fiscal 2022 from 621 million tons in fiscal 2017, the share of imports will reduce from 11 to 7 per cent. The share of coastal coal in demand will increase from 5 to 7 per cent, which would also ease the congestion on railway tracks."

Transportation cost accounts for 25-35 per cent of the cost of power produced by a plant located 1000 Km from the mine it sources coal from. Since coastal shipping is far cheaper compared with transportation by rail, power plants are expected to prefer the coastal route once the loading infrastructure at ports and the rail connectivity projects come on stream.

Crisil's estimate shows the savings can be as much as 50-60 per cent for a plant that is located near a port in Tamil Nadu or Andhra Pradesh, and sources coal from a mine in Odisha using a 45,000 dwt vessel.

The savings can increase if a larger vessel is used. For a plant located 200-400 Km inland, the savings would be less, though still significant, at 10-20 per cent, factoring the first- and last-mile connectivity by rail from the loading or unloading port.

Binaifer Jehani, director, Crisil Research said: "The connectivity- and capacity-related initiatives, though, need to be supported by rationalized coal-linkage policies. Rail tariffs are also a critical part, as higher short-haul and lower long-haul tariffs would impact the overall cost-competitiveness of coastal movement. Further, deployment of larger vessels for coastal movement would be crucial as it will safeguard the cost-competitiveness of seaborne movement over larger distances."


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