Coal supply crunch may spoil govt's dream of $5-trillion economy by 2024

Coal supply could play a dampener both for the power sector and the industry at a time when the government is targeting double-digit growth and a $5-trillion economy.
 
While the power demand is rising with enhanced electricity connectivity and improving supply metrics, domestic coal supply continues to remain laggard as several states and power generators are depending on imported coal.
 
The 19th Electric Power Survey by the Central Electricity Authority projects peak power demand of 299 gigawatt (Gw) by 2026-27. Apart from the existing coal-based capacity, it takes into account 47.85 GW at various stages of construction. The total coal requirement 2021-22 and 2026-27 has been estimated as 735 million tonne (mt) and 877 mt, respectively, including imported coal of 50 mt.
 
Though the power demand is currently subdued, most states have started complaining again about a shortfall of coal supply from state-owned Coal India. In a recent presentation to the Union ministry of power, Gujarat said coal materialisation at its state-owned thermal plants reduced to 69 per cent in the first half of the current fiscal year. This was 80 per cent last year. “The power demand of the state has increased to 18,424 megawatt (MW) in 2019 and is likely to further increase due to agriculture load. In view of the anticipated high demand scenario, there may be coal shortage at these power plants,” it said.
 
Tamil Nadu also said the state received only 2.038 mt a day of coal during the July-September period, against the contracted allocation of 5.048 mt per day by Coal India, which translates to 40.4 per cent of the allocation. “The coal supply from Mahanadi Coalfields (MCL) was completely stopped from July 24 to August 6 due to strike and other issues. The supply from ML and ECL has still not improved to normal. As a result, we were not able to build stock level required at our plants to meet the generation demand,” the state said.

The Tamil government added that procurement of imported coal did help the state to a certain extent. “Due to inadequate supply of domestic coal, we are forced to import coal to meet the shortfall in domestic coal supply,” it said.
 
MCL, which is one of six subsidiaries of Coal India, has been facing a series of labour and political unrest for a year now. Its Talcher coal mine, which is Asia’s largest mine, faced shutdown in August, leading to a loss of Rs 200 crore to the company.
 
During the April-September period, Coal India produced 241 mt coal, which is 6 per cent lower than last year’s corresponding period. Coal despatch to the power sector was 7 per cent lesser than last year’s.  This is when India’s power demand touched a record high of 1.8 lakh Mw during the peak summer season (April-July) this year. Coal import during the same period was on a rise. Till August, the thermal coal import stood at 64,472 tonne. Last year, India imported 14 mt thermal coal.
 
“Given the trend in output of Coal India and the production of coal from captive mines, imports are expected to shoot up once the economy revives and electricity demand picks up. As such for even for many non-coastal plants, it’s making commercial sense to use imported coal than e-auction coal,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India.
 
Coal India is also battling weak financials, thereby hurting its expansion prospects. High labour cost, delay in supply chain process, and burgeoning cost of opening new mines due to surging rehabilitation expenses are threatening to put a dent on the profit of Coal India, Business Standard had reported.
 
Experts cited softening global coal prices could further create trouble for the company. “While Coal India prices are on the rise, even in spot auctions, coal in the international market is seeing a price downfall. Given India is the only market where demand of coal will not go down, cheaper imported coal will see a large influx,” said a sector executive.
 
The Centre had earlier set a target of 1 billion tonne coal production by Coal India by 2020. It, however, has been modified to India’s total coal production, including by privately owned mines. Coal India is aiming for 700 mt production this fiscal year. It slipped its target last year.