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Coal supply eases but calm may be short-lived

CIL forced to cut output as power utilities renege on commitments

Sudheer Pal Singh  |  New Delhi 

A slump in power demand from financially-stressed distribution companies might have made India's coal crisis appear a thing of the past. However, the calm could be short-lived; state-owned Coal India Ltd (CIL) has been forced to shut operations at five of its large mines, ahead of a likely revival in power demand during the general elections.

The world's largest coal miner has had to slash production and offtake targets across coalfields, as power stations are flush with coal and utilities are reneging on commitments. With the environment ministry sitting on applications to increase the environment clearance (EC) limit, work has come to a halt at mines, impacting output of around 15 million tonnes (mt).

However, the worst might still be waiting to come, as a delay in capacity expansion approval will hit production and CIL will be left with limited supply of incremental coal amid a demand revival with the likely economic growth pick-up next financial year. "For the first time, we are facing this strange problem. Production plans are going awry as those were based on commitments from utilities, which now are reluctant to lift coal. We might end up missing offtake targets - for no fault of our own," said a senior CIL executive.

Slide in offtake against output
The company's concern is reflected in data for month-wise production and offtake growth this financial year. Until September, offtake growth had exceeded production growth every month (see chart). But since September, the balance has tilted in favour of production as offtake has taken a beating.

The shift could dent the financial performance of CIL, already grappling with a drop in realisation in e-auction sales, which pulled down its profits 11 per cent to Rs 3,894 crore in the December quarter.

The company is forced to curtail supplies even as increasing production leads to a build-up of stocks. At the end of February, Coal India had pit-head stocks of over 40 mt piled up at its mines. "We want to supply this coal but lack of demand has tied our hands," the executive said.

More states demand cut in supplies
Haryana has joined the league of states requesting the coal miner to lower supplies because what until recently was a problem of shortfall seems to have become a problem of plenty, at least for now. "We have just received a letter from Haryana Power Generation Corp (HPGCL) asking to stop supplies. HPGCL did not lift any coal from CIL in January and February," another CIL executive said. Haryana's letter follows similar requests from West Bengal, Rajasthan and Gujarat.

Mines shut on environmental issues
A decline in demand for coal and power might cost CIL a few hundred crores of rupees in revenue but it comes as a blessing in disguise. A lowered offtake would help the miner tide over the output crunch it is facing due to the environment ministry's delay in processing applications for renewal of EC limit at crucial mines. The company sees 15-20 mt knocked off from the current year's output target of 482 mt.

The affected projects include subsidiary Mahanadi Coalfields Ltd's (MCL's) Lakhanpur mine in Odisha. The mine will produce four mt less than expected in the current financial year which will lead to a revenue loss of Rs 320 crore. "Overburden (layer of earth over deposit) has been removed and coal is lying exposed there. But we cannot mine as EC has not been renewed," a CIL executive said. Also, mining activities had been stopped in Bina, Krishnapila and Block B mines of Northern Coalfields since February 21. This led to a production loss of over two mt. Production was being cut at MCL's Bhubaneshwari mine. The subsidiary's Rajkura mine had also been closed for five days for want of a 'consent to operate'. Similarly, MCL's Kaniha mine had suffered a 1.8 mt production loss due to evacuation issues, the executive said.

First Published: Mon, March 24 2014. 08:55 IST