Coal shortage hits Vedanta, Nalco and other aluminium makers in Odisha

Aluminium producers forced to source coal from outside the state and abroad or resort to power imports, impacting their production cost

Aluminium producers such as Vedanta, Nalco and Hindalco in Odisha, home to 54 per cent of the country's aluminium capacity, are in a bind over acute shortage of coal affecting their operations.  

These metal makers in the state are dependent on Mahanadi Coalfields Ltd (MCL), a subsidiary of Coal India (CIL), for their coal requirement to run captive power plants (CPPs) -- a key component in the aluminium making process as energy costs account for 40 per cent of the production cost of the metal.  

In the absence of adequate supply of coal from MCL, the aluminium producers are forced to source coal from outside the state and abroad or resort to power imports, impacting their production cost.  

According to sources, while sourcing of coal from domestic alternatives has an additional cost impact of Rs 300 to Rs 1,200 per tonne, use of imported coal pushes up the input cost for CPPs by Rs 1,500 per tonne. 

One of the producers, Vedanta, as of now, has a 3,000-Mw CPP to support the installed aluminium capacity of 1.75 million tonnes (MT) at the Jharsuguda smelter. It had to bear additional cost of Rs 20 billion in FY18 towards procurement of coal and power from alternate sources due to shortage in coal supply from MCL, while clocking 1.1 MT of metal production in the last financial year.

Vedanta required around 18 MT of coal annually to run its CPP units, against which the company received less than 10 MT from MCL, sources said.

Similarly, Nalco, with 0.42 MT of metal production in FY18, required 64 MT of coal to feed its 1,200-Mw CPP. The company has a fuel supply agreement with MCL for the supply of 4.7 MT coal annually, against which it has received 4.5-4.6 MT coal in the last two financial years. In the current financial year, against a supply commitment of 2.5 MT from MCL till date, it has received 2.1 MT. 

MCL, the second-largest subsidiary under the CIL umbrella, has missed its coal production target continuously for the last three years. While it produced 138 MT coal against a target of 150 MT in FY16, the output was 138 MT against the target of 167 MT in FY17. In FY18, its output was 144 MT coal against a target of 150 MT.  

But more than the shortfall in targeted production, it is the prioritisation of coal supply to government-owned utilities and independent power producers, along with logistic issues relating to despatches, that have constrained coal supply to the aluminium plants. 

"Poor road conditions, lack of adequate rail rakes, malfunction of weighbridges, intermittent suspension of operation in key mines due to strikes by locals, etc, are often choking coal supply to our plant," says an official of an aluminium company operating close to Ib valley coalfield.

MCL officials, on the other hand, claim they have enough coal to meet the demand of the consumers, including those from the aluminium sector. "Our mining expansion plan has been hit to some extent due to delay in forest clearance and land acquisition, but we have enough coal to meet the demand of consumers," said a company official. "The despatches are sometimes affected due to agitation by local villagers on demand of jobs or other facilities. But it is a law and order issue, which needs intervention of the administration," he added.