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Coastal shipping of coal to double in 6 years

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CRISIL Research estimates coastal transportation of coal to increase to ~63 million tonne per annum by fiscal 2023, from ~32 mtpa as of fiscal 2017 as structural bottlenecks ease.

The bulk of the coastal movement of coal in India happens along the eastern coast, from the mines of Mahanadi Coalfields Limited, via the Paradip and Dhamra ports in Odisha, to power plants in Andhra Pradesh and Tamil Nadu.

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

An addition of ~22 mtpa of coal-handling capacity at Paradip – expected by calendar year 2020, as per Paradip Port Trust – 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 Ib valley and the Paradip and Dhamra ports will be a booster.

According to the estimate, the overall coastal potential from operational plants alone, assuming a plant load factor of 75% and/or existing linkage with MCL, aggregates to 63 mtpa today, including 35.7 mtpa from plants located near ports and 27.3 mtpa from those located 200-400 km inland.

In the longer term, additional coastal coal volume of 25-30 mtpa is envisaged from 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 mtpa.

Says Prasad Koparkar, Senior Director, CRISIL Research, “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% CAGR to 827 MT in fiscal 2022 from 621 MT in fiscal 2017, the share of imports will reduce from 11% to 7%. The share of coastal coal in demand will increase from 5% to 7%, which would also ease the congestion on railway tracks.”

Transportation cost accounts for 25-35% 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.

Our estimate shows the savings can be as much as 50-60% 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%, factoring the first- and last-mile connectivity by rail to/from the loading/unloading port.

Says Binaifer Jehani, Director, CRISIL Research, “The connectivity- and capacity-related initiatives, though, need to be supported by rationalised coal-linkage policies. Rail tariffs are also a critical monitorable, 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.”