Coal India powers productivity spurt, but can it sustain the pace?

The furious pace of production has helped prevent the blackouts of last year but there are questions over whether the state-owned miner can sustain the pace

The cracking pace at which Coal India Ltd (CIL) has increased production has made the coal and power ministry mandarins exchange friendly notes this Diwali. This is a far cry from the tense exchanges in September and October last year because of the acute coal shortage at power plants when Power Minister R K Singh described the coal stock position as “touch and go…for the next six months”. Cabinet Secretary Rajiv Gauba had to intervene and set up a committee to ensure the producer ministry and the consumer ministry sank their differences and cooperated.

Yet, that crisis could well have been repeated this year. International coal prices (benchmark South African coal) are ruling 78 per cent higher year-on-year, according to International Monetary Fund data. What has changed is that the CIL has extracted almost 299 million tonnes (MT) of coal in the first half of this financial year, a 24 per cent growth over FY20, the last pre-Covid year.

In the first half of FY22, total production of coal from all three sources — CIL, SCCL and private miners — have reached 382.02 MT, a 21 per cent year-on-year rise, even though it has come at a higher environmental cost at a time when India’s climate change commitments will be under scrutiny at the COP27 meet in Egypt later this week. In fact, the little noticed aspect of this production rise has been faster environment clearances for expansion of some existing coal mines.

Even so, productivity challenges loom. The average daily pace of coal mining has to touch 2.88 MT per day, an almost 50 per cent rise over the current run rate of 2 MT per day if high cost imports have to be capped. Coal imports from April to August have already jumped over 25 per cent, year on year.

Two things can soften the equation. First, after an initial spurt, the demand for power has not shot up this year, beyond last year’s level. The plant load factor of the coal-run power plants, after jumping to 72.6 per cent in April this year, has eased off to 60.6 per cent in September. If the trend persists, the demand for coal may undershoot supply.

Second, if more commercial mines come into operation in the second half of this year, production from captive and commercial mines would jump from the current 53.81 MT recorded in the first half last year.

The key challenge will centre on CIL again. While research firm CareEdge Research “estimates the coal production to continue to rise and reach around 500 MT in the second half of FY23”, this could be an overestimate.

CIL has 37 mines, which produce about 78 per cent of its annual output. These mines, spread over six subsidiaries, hold the reins to the coal balance of the Indian economy; 25 of them have so far kept producing at over 100 per cent of their capacity, says coal ministry data. Further upside from them is limited.

These mines have kept up the rate due to a combination of faster environment clearances for about 10 of them, including the giant Gevra and Kusmunda mines, (CIL data shows 42 of its projects are running behind schedule due to delays in land and environment permissions), installation of heavy-duty machinery at some more mines and, finally, a very detailed tracking of production at all of them.

But the strain now shows. Bhubaneswari in Mahanadi Coalfields or Jayant in Northern Coalfields with a capacity of 28 and 24 MT per annum, respectively, are running at average production rates of 117 and 108 per cent, according to mine-wise production data for the first half.

Due to the nature of mining, when a tonne of coal is extracted, miners have to also remove stone and soil and pile it next to the mine. In mining parlance, this is known as the stripping ratio, loosely understood as the amount of soil (overburden) that must be removed to get the ore out. A faster pace means there is more room available for the coal to move from the mines. In FY23, in these 37 mines, the pace of OBR (overburden removal) has dipped to 81.17 per cent of the target by the end of September. In other words, to extract the coal at the fastest possible clip, the necessary job of cleaning up the site is being neglected.

Remember, these mines are now being largely operated by private contractors. Their working pattern will be largely based on orders from CIL’s Kolkata headquarters. At the current pace, CIL will come up short by about 11 per cent of the ambitious 700 MT annual target set by Coal Minister Pralhad Joshi. Unless of course, the monitoring committee under the chairmanship of the new coal secretary with chief secretaries from respective host states, Union environment secretary and the Coal Controller Organisation and Central Mine Planning and Design Institute as members can, in their regular reviews, offer some magic.

So who can pick up the pace from here? The other state-owned miner, SCCL, is an obvious candidate. But the Hyderabad-headquartered company’s production dipped 2 per cent in the first half.

But the largest possibility of providing the additional ballast comes from captive and commercial mines. The latter, so far, have not moved fast. The almost 50 per cent rise in production to 53.8 MT in the first half this year is largely a reflection of the very low base of FY22. There is scope for substantial expansion in this category. For instance, of the 64 mines auctioned by the government since June 2020 in five tranches, only two have come into commercial operation. In June, the coal ministry issued show cause notices to 16 of these companies, including NTPC, JSW Steel, Hindalco, Vedanta and Nalco, for the perceived delay in starting mining from their coal blocks. The ministry expects to hit 141.78 MT of production in FY22 from the entire cohort.

As usual, miners complain of slow approvals, which the coal ministry denies. As late as September, the “project proponents shared the efforts made by them and the challenges faced”, the ministry acknowledged in a release. The upshot, as a CoalMint insight report notes, these “delays in project approvals would impact the opening of new mines and thereby curtail the growth pace”. As a result, costly imports could return to haunt by New Year, making the Diwali bonhomie across ministries a forgotten episode.