Combating the crunch
The coal crisis in India, arising due to structural and operational reasons, can be addressed through reforms — with CIL in the central role
The demand for coal-based thermal power, after stagnating for three years till March 2021, witnessed major growth in the current financial year. This has been attributed to post-Covid economic recovery. In India, coal-based power plants have witnessed rapid depletion of coal stocks from a comfortable level in March end to a precarious level of four days by September end 2021. The country is grappling to know how the crisis is likely to fan out in future. Integral to the issue is the role that Coal India Ltd (CIL) is expected to play in fighting it.
The reasons for the crisis — structural as well as operational — are as under:
• The expectation of CIL to meet the demand for coal mainly from power utilities and CPPs was hugely disrupted in 1993 with the enactment of the Coal Mines Nationalization Amendment Act. It led the Govt to take away over 200 coal blocks with resources of 28 bt for allocation to end-users for captive mining of coal. These resources had the potential to produce 500 mtpa of coal. However, for various reasons, including the cancellation of the blocks by Apex Court in 2014, the coal production never exceeded 60 mtpa. With accelerated power capacity addition from 2007 till 2016, the demand outpaced production and the gap was met by large-scale imports to the tune of 20 per cent. CIL, with denuded resources, was called upon to fill in whenever import prices rose unusually. This structural factor fueled over-expectations from CIL, keeping the company in a state of stress all the time.
• On the operational side, the power plants are required by Central Electricity Authority (CEA) to maintain a minimum stock of 15 to 30 days of normative coal consumption, depending upon the distance of the plant from the source of coal. Compliance with this directive is severely lacking. The absence of this important 'Shock Absorber' enhanced the vulnerability of the power plants, particularly those at longer distances, to supply constraints on account of coal producers or transporter.
• Persistent non-payment of coal sale dues by power plants to coal companies created a serious strain on working capital position. Some companies had to take recourse to borrowings from banks to meet operational expenses including disbursement of salary. Even at present, Rs 18,000 crore is reportedly due. Matters get worse when CIL, as part of its broader commitment to ensure energy security, is required to continue supplies to such power plants, despite payment backlog, at the cost of temporary slowdown on meeting supply commitments to other consumers who have paid in advance against 'Cash & Carry'. The solution to this structural problem lies in the much-awaited reforms that enable the discoms to charge market rates of tariff from every consumer while states subsidize deserving consumers directly.
• India imports around 200 million tonnes (mt) of coal, of which roughly 70 mt goes to meet the demand of power plants. A spurt in imported coal prices, mainly due to a major increase in coal imports by China acted as a brake on the import of thermal coal by Indian power plants. This escalated the demand for domestic coal.
• The demand for thermal power stagnated for over three years ending March 2021. The modest rise in overall power demand during this period was met largely from the incremental flow of renewable power that enjoyed priority in offtake. This resulted in complacency. The thermal power plants not building up stocks and not paying up for coal supplies to CIL, coupled with CIL not producing as per target to avoid pithead inventory of coal becoming large and susceptible to catch fire, were the obvious consequences. All this changed abruptly in Q2 of FY 22 when power demand surged 17 per cent over the same period of 2019, and the supply of renewable power fell grossly inadequate to meet the same.
• The coal production by CIL faced severe headwinds in Q1 due to the second wave of Covid. Many workmen & officers were infected and quite a few lives were lost. In Q2, extended monsoon affected the opencast mines in large numbers. These factors added to supply constraints and aggravated the crisis.
Despite so many constraining factors, it goes to the credit of CIL of achieving a growth of 14 million tonne (mt) or 5.8 per cent in coal production during 1st half of 2021-22, after remaining stagnant for three years in a row. The offtake growth of 52 mt or 20.6 per cent is exemplary. This was possible by drawing down on the opening inventory of coal from 100 mt to 42 mt from April to Sept 21.
With the monsoon behind us and the onset of a good productive season, CIL has already stepped up coal offtake to more than 1.6 mt per day. It is expected to rise further to 1.7 mt in the next few weeks. With these efforts, the supply will match, rather exceed, the consumption daily. With matching effort on the part of Railways in moving the coal, the crisis should dissipate in the near future, at least for the power plants that pay for coal supplies in time. The situation should also enable CIL to meet the supply commitments to those consumers who have paid as per the 'Cash & Carry' scheme. Obviously, it will take a few months for coal stock at power plants to climb up to comfortable levels in line with CEA prescription.
For a medium-term solution, the power plants should continue to pay for coal supplies and maintain stocks as per CEA norms. This should enable CIL to focus on growth in coal production and build last-mile connectivity for seamless evacuation. This will obviously require putting in place the much-awaited permanent reforms of the discoms. In the longer term, with commercial miners entering the scene, the problem should cease to reappear again.
Rapid addition to coal production capacity by the PSUs (CIL/SCCL) as well as the commercial miners will eventually enable the country to phase away imports of thermal coal for power generation. Besides saving forex outgo of several billion dollars, it will insulate the power sector from the huge volatility of imported coal prices. Given that the domestic coal price, even when expressed in energy terms (Rs/GCal) has been consistently at a deep discount to imported coal prices, the strategy will squarely address the issue of affordability of power generation. This is a critical requirement in a country like India with low per capita income.
The writer is former Chairman, Coal India Ltd. Views expressed are personal