The government has decided to put its import substitution plan for coal on the back-burner till domestic production of the fuel touches a 1-billion-tonne mark. The move is in view of the surge in demand for the fuel amid fast-increasing electricity consumption in an economy struggling to come out of a slump.
India’s coal production stood at 777 million tonne (MT) in FY22, up 8.6% on year. State-run Coal India made up for 80% of the domestic output even in the last financial year. A series of steps taken by the government over the last two years to populate the sector with more players, and rope in the private sector, is only beginning to show results.
The country’s miners have been scaling up production to match the rising demand but the sudden decision to lower imports considering the volatility of international coal prices and threat of a widening of the current account deficit, have hit power generation.
Five out of India’s 15 imported coal-based power plants with aggregate capacity of 2,99 mega watt (MW) have shut down partly due to the import curbs. The other 10 units with combined installed capacity of 14,355 MW are running at an average plant load factor of 26-28%. This has led to an undue pressure on domestic miners, particularly state-run Coal India and Singareni Collieries Company.
The recent crisis of power outages and low coal stocks with power plants has forced the Union power ministry to ask not only gencos but also Coal India to scale up imports. Coal India and its arms also boosted production to 160 MT in Q1FY23, up 29% on year.
There is a mounting pressure on CIL to increase supplies to domestic coal-based power plants, which has to generate more to bridge the power production gap of the 15 imported coal-based power plants. Besides 8 domestic coal-based power plants with a total generation capacity of 3,041 MW are completely shut down for want of coal and the country’s 31 gas power plants with installed capacity of 24,000 MW are either closed or under-utilised.
Before the start of the current financial year, the coal ministry had estimated that coal imports in the year would be 186 MT, down 11% on year. However, with the power crisis forcing the government to jack up imports, the shipments could be higher.
The country’s coal-based power generation relies on daily coal supplies of 2.12 MT, of which CIL supplies are 1.8 MT. While this has not been enabling faster stock building, a slippage in the quantum of daily supplies may plunge the country into darkness, according to analysts.
India’s thermal coal imports have been declining over the last five years from 161.25 MT in FY18 to 151.77 MT in FY22. Coal production, on the other hand, has witnessed a rise (see chart).
Production from other sources like SCCL has been hovering at more or less the same level at 62-65 MTs between FY18 and FY22, though captive miners’ throughput has gone up from a level of 46 MTs in FY18 to 85 MTs in FY 22, according to the coal ministry data.
The maximum growth of 38.5% came from the captive mines in the last one year when production jumped from 69.29 MT in FY21 to 85 MT in FY22. Captive coal production came from 34 coal blocks thanks to the policy allowing captive miners to sell 50% of their produce in the open market.
While the ministry has allocated 106 coal blocks up to April this year for commercial mining with permission granted to operationalise 47 coal blocks, it is expected that by 2023-end, 60 blocks will have permissions for operations. The blocks already having permission for operations have been estimated to produce in excess of 140 MT during the current fiscal. CIL has a target of producing 700 MT in FY23, which according to the company is achievable.
But according to Icra, India’s coal demand has crossed the 1-billion-tonne mark in FY22 itself growing by 12-13% annually and it is set to increase further by 5-6% in FY23, which means demands can be matched only if required imports are made.
As CIL has already floated tenders to build up stocks, many state-owned firms have also issued import tenders to source the dry fuel.
NTPC’s plan to import 16 MT of coal this fiscal, according to a company official, would be its highest imports of the fuel in eight years despite record coal prices. NTPC is likely to source most of its foreign coal from Indonesia at a small premium over the benchmarked price, the official said.
The government’s direction to all utilities to cumulatively source at least 33.5 MT of coal for blending would be the highest in the last six years. This is being viewed as a push by the government to increase imports, though this could put an upward pressure on global coal prices, especially in the context of the Russia- Ukarine war.
India is the world’s second-largest coal importer with Indonesia, Australia and South Africa being its major suppliers and Indian imports often push up prices, Ashok Ghoah, an energy analyst, said.
He said the crisis or risk of supply shortage of coal roots in the closure and under utilisation of the imported coal by power plants whose gap in generation has to be filled in by domestic coal-based power plants, thereby, prompting CIL to divert more coal to those plants. At least importing coal for regular power generation from 15 imported coal-based power plants was imperative, which would largely eliminate the possibilities of a supply crunch of domestic coal.
While NTPC may get to import Indonesian coal at competitive prices, Australia’s increase in exports following dry weather conditions also seems to have a cooling effect on prices, the analyst said
Adani has already increased imports from its Carmichael thermal coal mines in Australia with plans to ship 11-12 MT to India in FY23, according to a report by UK’s Argus Media.