Centre extends mandate on coal import; blending to continue till March 2024

The Centre has extended two mandates, which are aimed at increasing coal imports into the country.

In two separate notices, the Union power ministry has directed imported coal-based (ICB) units to run till June 2024 and all power generating companies to import coal up to 6 per cent of their requirements till March 2024. The ministry has cited rising power demand and lack of optimum domestic coal supply as the reasons for this.

The ministry has invoked Section 11 of the Electricity Act, 2003, again to direct all the ICBs with a cumulative capacity of 17 Gigawatt (Gw) to operate and generate power to their full capacity.

The ministry had originally issued this mandate in February 2023 and it was extended to June and later to October.

“To ensure availability of electricity to meet the anticipated demand, the generation from ICB power plants needs to be increased. Accordingly, in larger public interest, for ensuring optimum generation from ICB plants, directions are issued under Section 11 of the Electricity Act, 2003, that all ICB power plants will operate and generate power to their full capacity,” said the original order.

In the latest order, the power ministry has cited surge in electricity demand, inadequate supply of domestic coal and reduced availability of hydro generation as reasons for extension till June 2024.

In a separate notice, the power ministry has asked all gencos to import coal and blend up to 6 per cent of their coal requirements. Last year, the gencos were mandated to blend 10 per cent of their coal requirement. It was later made voluntary for any genco, which faces a domestic coal shortfall.

In January this year, the mandate was back with 6 per cent blending. On September 1, it was reduced to 4 per cent.

Following a steep reduction in domestic coal availability due to the extended summer in large parts of the country and festival demand, the ministry has again increased the threshold to 6 per cent.

The notice by the Union power ministry stated that there is a consistent rising trend in power demand in the country coupled with inadequate supply of domestic coal. This has resulted in rapid depletion of coal stocks at domestic coal-based plants across the country.

“The gap between receipt of domestic coal and consumption of coal (domestic + equivalent domestic of imported coal) during September 1 to October 9 was 12 million tonnes,” it said.

It further said there has been an 11 per cent fall in hydro power generation in H1FY24 compared to the corresponding period of FY23 due to variable rains.

“Approximately, 2 Gw of hydro capacity is out because of the recent floods in Sikkim. The reservoir levels in northern, eastern and southern regions are less compared to the previous year as on October 9. This has resulted in lower reservoir energy content at the pan Indian level. This has put additional burden on coal-based thermal generation,” it said.

The mandates to import coal come at a time when the price of imported coal is feared to go up, following the Israel war and the geopolitical tensions impacting global trade. During the last two quarters, the price of Indonesian coal (India’s major supplier) had softened compared to the same period last financial year. However, during the last month, it has started inching closer to the rates of last year, said a market analyst.

Asian Markets Securities, in its latest report, cited the last spot price of Indonesian coal on October 6 and said it has increased by 10.28 per cent compared to Q2FY24.

Compared to Q4FY23, the price of coal in Q2FY24 had declined by 24 per cent. Overall, the price of Indonesia’s coal has gone up since 2022 as the new royalty rates announced by the country’s government kicked in.