Indian power generation has been somewhat stronger in the first two months of the year, although the preliminary Feb data seem to be usually weak, perhaps due to a reporting issue. The strength of coal burn is due to units that came online last year, although more units should come on this year. This should help underpin solid import growth in 2013.
The big plunge in the February data to 0%YoY growth does look weird against seasonality of previous years. While the preliminary report was so different to the final in Jan, I'd be skeptical of these numbers. Particularly as all forms of generation reported a similar decline in the month.
Thermal generation at IPPs remains at levels seen in December, which means YoY growth is very big. The comparison will get harder through the year, but there are further units at big projects still to come in 2013.
Hydro generation remains weak, but its not clear at this stage whether we see levels similar to 2011 or 2012. This is not dissimilar to the situation in China this time last year, when hydro ultimately proved to be a significant negative for coal.
Indian imports have started the year at strong levels, but there is some conjecture about their future thanks to taxations changes in the most recent budget.
I don't make much sense to raise taxes on imports as you are basically penalising projects that have just come on stream are already either not making much money or are making a loss. It also changes the incentives for future projects.
So either power prices need to rise to compensate these plants, or they may consider not producing power. Future projects which are needed are also at risk. The deepening of India's power shortage is a much bigger problem that the impact of coal imports on the budget. If the government seriously wants to curb coal imports, they should look at improving domestic production rates rather than punishing importers.
Also, coal demand in the short term is relatively inelastic. So this unlikely to make a huge impact to import profiles now, but does create an uncertain future for projects based on utilising imported coal.
