Achieving 1-billion-tonne coal output target by 2022 set to disrupt market

In 2015, the Centre had set one billion tonne coal production target by 2022 for Coal India. The move was in line with the plan to reduce coal imports. However, a slight modification has been made to the plan. The one billion tonne production pertains to any domestic source — be it mines owned by steel companies, captive power units, NTPC, state gencos, etc.

While it bodes well for the country’s coal production, the monopoly national miner, CIL, could see eventual shrinking of some of its coal business. However, sector experts pointed out that if supplementary coal arrangements don’t come, CIL alone could be incapable of meeting the rising coal demand, especially from the power sector. This is happening when commercial mining by private companies has remained a non-starter. Government officials said it is facing challenges from trade unions of CIL, which want similar labour rights and laws for private miners. Sector experts said no company can offer employee benefits or R&R facilities like CIL. “Anyway, no global miner would come to India for coal mining,” said a former official.

But CIL’s consumers are bracing up. Like its largest consumer NTPC Ltd — India’s leading thermal power producer is in plans to set up its own coal company. NTPC owns 10 coal mines with geological reserve of over 7.3 billion tonne and production potential of about 111 million tonne per year (MTY). This, the company claims, could cater 20,000 Mw of power generation. NTPC plans to set up a similar power generation capacity by 2022. 

NTPC has work going on in five coal blocks with total geological reserves of 3.8 billion tonne and mining capacity of 56 MT per annum. It started mining at its first coal block Pakri-Barwadih in Jharkhand. As much as 4.3 MT of coal has been extracted till June 2018. The production target for this mine in 2018-19 is 6.27 MT. It would soon start producing from the Dulanga mines in Odisha. It plans to produce 1.68 MT in the current fiscal year.

The company which has an annual coal demand of 180 million tonnes rues that CIL meets on an average 75-80 per cent of the average contracted quantity of coal supply. “Except for the mines in Northern Coalfields area, none of them is without problems. At some places, mine expansion is stuck, at others transport is inadequate. We would like to be self-sufficient to an extent,” said a senior executive, requesting anonymity. He added that coal production and transport, both pose issues.

“Coal mining is integral to NTPC’s fuel security strategies. NTPC realises that greater self-reliance on coal will go a long way in ensuring the sustained growth of generation,” a public statement of the company said, earlier this year. 

An industry source said stocks at the coal pithead and power plants have touched a historic low of around 30 mt now, as demand has gone up and imports have dropped.

The Centre has recently announced that two new rounds of auction of coal mines for steel, iron, cement, fertilisers and captive power units. It has also for the first time allowed mine winners to sell up to 25 per cent of the coal, if it is surplus, in the open market.

Non-power generation sectors have been alleging less coal supply and diversion to power units. The current tranches would offer 19 mines with a cumulative capacity 35 mty. The government earlier offered 86 mines with an estimated production of more than 90 mty.

“In the foreseeable future, CIL will be the main source and performance or the lack of it would decide the coal supply situation in user industries. In the medium- and long-term, however, there would be an impact of alternate sources on the overall coal market in India and of CIL,” said Debasish Mishra, partner, Deloitte Touche Tohmatsu India LLP.

A Delhi-based coal market expert said, given the challenges involved in getting several clearances, production from coal mine, merchant and captive mining would remain in the slow lane in India. 

“Even in the best case scenario of renewable taking 15-20 per cent share in the energy market, coal will continue to be significant. CIL thereby has no challenge for another five years but after that, it needs to buckle up,” he said, "CIL is in need of adopting highly efficient working parameters and production standards to face the new market when alternate sources of coal are available,” said a coal market expert.

In the last fiscal, Coal India witnessed a 24 per cent decline in profit the year before, but its income rose by 8 per cent. The decline in profit was attributed to increase in employee expenses.

CIl said the company saw a double digit output growth since the beginning of the current fiscal year, posting 10.6 per cent production growth during April-September 2018, alongside an 8.1 per cent jump in total coal supplies, against the same period last year. Coal supplies to power sector evinced 10 per cent growth during the period, it said in an emailed note.

“While the production target of CIL was 610 mt for 2018-19, it has been asked by the ministry to have an aspiration target of 652 mt,” said an official. He added that the through these mines, India would achieve the target of 1 billion tonne coal, earlier envisaged only for CIL.