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Coal shortage hurting non-power sectors still year after supply shift

In the past one year, the non-power sector has seen coal dispatch fall by 33 per cent

Topics
Coal  | Coal demand | coal industry

Shreya Jai & Dhruvaksh Saha  |  New Delhi 

Union power minister R K Singh has blamed the steep rise in the prices of imported coal on the Russia-Ukraine war.
The non-power sectors said there would be further curtailment in the availability of coal due to rains.

Since the start of a mismatch in the demand and supply of in August last year — and the government decision to prioritise power units for supply — the non-power sectors of steel, aluminium, iron, paper, cement, etc, have been suffering. Almost a year later, and despite an increase in production, the situation of these sectors has hardly improved, sector executives told Business Standard.

In the past year, the non-power sectors have seen a fall of 33 per cent in coal dispatches. At the start of the coal shortage in August 2021, the Centre had directed national miner Ltd (CIL) to prioritise the for and divert coal from other sectors if necessary.

“The situation has just deteriorated and we are scrambling for options. Bigger players are importing coal which is costlier, but smaller ones do not even have that capital. The rate of coal in e-auction by has also gone up due to increased dem­and,” said an executive of a steel company.

In a letter to the coal ministry, the consumers’ association said while they were not being supplied the allocated quantity of coal under their fuel-supply agreement (FSA), coal companies are conducting spot e-auctions, where spot prices have zoomed to record highs since March 2022.

“The average bid price for coal in a recently conducted spot e-auction by (MCL) rose more than 800 per cent above the notified price. It is evident that some of MCL’s valuable customers were compelled to procure coal at such abysmally high premiums only for sustenance of their respective plants while many industries had to stay out of this auction due to soaring bid prices,” said the association.

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Besides a decline in coal supply, the non-power sectors’ share of the total coal transported by the railways has also been reducing, the latest data suggests. In April, 96 rakes of coal were supplied to industries daily. The number reduced to 93.4 in May, and only 86 rakes have been supplied daily in the first half of June. Of this, two-thirds of the industrial has been of the more expensive imported coal. One rake typically has 58 wagons, with a carriage capacity of approximately 3,800 tonnes.

The national transporter believes that it’s purely market dynamics that has shaped the inverse relationship between the and industrial . “While it may seem at first glance that the railways is supplying more to the power sector, it is purely a function of demand and supply. from industry typically starts decreasing around this time – there's lower energy demand and other industrial usage of coal also goes down. We have enough rake supply to cater to both power and industrial coal needs," said a railway official who did not wish to be named.

With the onset of monsoon, the transportation of coal typically slows down as the rains could affect the weight and quality of coal during transit. According to railway estimates, nearly 300 rakes were stabled during this time due to a low demand for coal.

The non-power sectors said there would be further curtailment in the availability of coal due to rains.

Recently, 10 different industrial associations wrote to the Prime Minister’s Office, asking for the PM’s intervention and equitable supply of coal between the power and non-power sectors. They said the cost of coal for these sectors had doubled as they had to purchase costlier imported coal.

Cumulatively, the demand for non-power units is 500,000 tonnes of coal every day. Executives said they were getting 350,000 tonnes until March, but it was barely above 250,000 tonne now.

“Some of the captive power generation units are buying electricity from the spot market, where the rates have increased on account of enhanced demand. This is causing a higher cost of production for these key manufacturing sectors. Smaller players have either decided to reduce their capacity or shut down operations due to this persistent issue,” said a steel sector executive.

He said several MSMEs dependent on domestic coal had cut down their operations, thereby impacting the metal supply chain.

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First Published: Thu, June 23 2022. 18:45 IST
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