INVESTOR BRIEFING: Water Shortages Threaten Coal Company Revenues

by Ashish Fernandes and Jai Krishna R, Greenpeace India, June 2016.

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This report highlights the increasing financial and social stability risks being poised by water shortages in India. Across the country, coal power plants consume an estimated 4.6 billion cubic metres of freshwater per annum, mostly for cooling purposes, which is enough to provide basic water needs of 250 million people.

Lenders and shareholders are exposed to increased financial risk with over 50 GW of new coal power plants planned in areas of high water stress – Lanco, GMR, Adani Power and Reliance Power are among listed companies at risk. These 50 GW of new plants could consume up to 1.1 billion cubic metres of water, enough for the basic needs of 65 million people.

Despite the risk that water scarcity poses to the financial viability of coal power projects, companies have plans for future coal projects in areas of significant water stress. State governments and the central government have not exercised sufficient scrutiny over the issue of water availability before granting water allocations and project permits. This poses a serious risk to lenders to specific projects and their parent companies, and also to company shareholders.

2016 has seen severe drought in large parts of the country, with stories of distress migration, water trains being sent to alleviate the misery of entire districts. and widespread civil unrest and conflicts between competing users of water. Given the precarious water situation in large parts of India, the fact that generating electricity from coal requires significant quantities of water is a clear financial risk multiplier. Financial risks from water scarcity could range from physical constraints, where plants will experience water shortages leading to shutdowns, to regulatory risks with increased constraints on water use, the restriction or cancellation of permits and tighter technological requirements to curtail water use. Civil unrest because of the conflict between power generators and local farming communities over access to water will further reduce companies’ social license to operate, and bring reputational damage to financiers of new coal projects. This could result in abrupt policy changes, as policy makers realise that water consumption based on existing policies is unsustainable.

For the full report follow the link provided here.