India must step up coal imports to avoid a repeat of last year's crisis

The year has hardly dawned but tussles over supply and transport of coal have alre­ady erupted, perhaps pointing to another volatile year of fuel supp­lies to generators from state-run Coal India (CIL), and a feeling of deja vu for generators — which are still nursing their way out of low stocks. Clashes between generators and CIL and the Indian Railways doesn’t bode well for an economy looking to grow at over 8 per cent because coal-fired generation is the key to lubricating India’s growth for the next few years.

In short, India must step up coal imports and fix unreliable logistics if it seeks to speed up growth this year and next, and stave off a recurrence of the 2021 coal crisis when inventories at electricity generators plunged.

Last year, India was the second biggest contributor to global coal de­mand after China. Estimated coal use growth of 13 per cent in In­dia and 4 per cent in China in calendar 2021 pushed coal power generation to record levels in both countries, boosting global dem­and for coal by 6 per cent, according to the Paris-based Inter­national Ener­gy Agency (IEA). The country consumed 1.05 billion tonnes of the fuel, including coking coal used in steel plants, exceeding the 2019 levels — despite a debilitating Delta virus slowing down economic act­ivity. Consumption contracted in 2020 by 8 per cent to 931 mill­ion to­nnes (mt) while coal-fired po­w­er, the biggest contributor to Ind­ia’s generation, dropped 3.5 per cent.

“Global coal trends will be shaped largely by China and India, who account for two-thirds of global coal consumption, despite their efforts to increase renewables,’’ the IEA said. In India, stronger economic growth and increasing electrification are forecast to drive coal demand growth of 4 per cent annually between 2022 and 2024, four times China’s growth rate.

Demand for non-coking coal may rise 2-3 per cent this year to 975 mt, to fire a 4 per cent growth in generation as end-use sectors recover post-pandemic, said Hetal Gandhi, director, research, at S&P unit Crisil. Coal usage will revert to pre-Covid levels this year as the economy grows rapidly but utilities will try to secure cheap do­m­estic supplies, add­ed Ritabrata Ghosh, a coal analyst at ICRA, who expects CIL to increase production by 8 per cent to around 650 mt next fiscal while anticipating im­ports to trail pre-pandemic levels.

Crisil expects thermal coal imp­orts to grow as much as 15 per cent this year from 2021 at 180-190 mt, but record international prices will bite cash-strapped Indian utilities. India’s imports of thermal coal sur­ged 14 per cent in 2019 to 204 mt before declining to 160 mt in cale­ndar 2021 because of shutdowns and high prices, according to ind­ustry data. The scramble for cheap, domestic coal amid high global rat­es can be gauged by the 90 per cent premiums offered by non-power plant cu­s­tomers for the fuel offered via CIL au­ctions, Ghosh said.

The government needs to conjure up a mellifluous bala­nce between domestic production, stocks, shipments and imports to prevent the discord of the 2021 coal crisis when coal stocks plunged to multi-year lows, threatening blackouts. Stocks at CIL in December were less than a third of March levels and with exp­ectations of a fast economic recovery, there is a temporary mismatch between supply and demand because of a low buffer, Ghosh said. CIL’s stocks are inadequate to meet any adverse swings in demand or weather-related events this year — unlike last year when nearly 100 mt of stocks at the mines in March helped the miner avert major black­outs as seen in China. That means CIL must ramp up output from an average 45 mt a month in the April-December period, which is insufficient to avert a crisis.

“We expect the situation to not be as acute in fiscal 2023,’’ Gandhi said, citing revised Central Elect­r­i­city Authority stocking norms req­uiring inventories of 26 days at non-pit head stations from Febru­ary to June to tide over lower shipments during monsoons. The government has also mandated 10 per cent imports by state-run generator NTPC for blending with local coal.

But logistics continue to be the bugbear for India’s generators. Un­like China or Indonesia, India does not use its extensive waterways to transport coal, making facilities reliant on expensive, time-consuming road and rail transport, said U L Sridhar, a Singapore-based coal consultant. Unreliable domestic dispatches prompt customers to either pay more for imports or stop operations. The first impacts the plant’s finances, the second hurts the economy.

Generators are already grumbling over lower shipments of fuel in January. Mahagenco had to shut some units at the Chandrapur po­wer plant, Maharashtra’s largest, ow­ing to supply shortages. The state utility, which has sought off­ers for imported coal, claims to rec­eive less than 120,000 tonnes of its daily fuel need from CIL while it should get more to build stocks. Against a 26-day stock requirem­ent, Nashik and Chandrapur facilities carry a little over a day’s worth. CIL said it is supplying contracted volumes but did not comment on the shutdown. Priv­ate sector Amra­vati Power in Mah­a­rashtra had to close a unit for insufficient allotment of rakes. Other private sector plants in Punjab are facing similar issues with rakes after the Railways prioritised shipments to pit-head-based generators, citing non-availability of rakes to far-flung units.

The coal ministry’s tendency to follow the Aatmanirbhar Bharat initiative has also hurt India’s coal imports and contributed to last year’s stock crisis. Last November, the ministry advertised its success in reducing coal imports by 16 per cent in April-August 2021 over 2019-20, oblivious to low stocks with generators. Then, the ministry failed to assure adequate and continuous supplies of domestic coal, resulting in multi-year low inventories in September and October at generators.

A chastened Delhi has now asked power plants to import coal to avoid a repeat of last year’s crisis. NTPC, India’s biggest generator, plans to import 16 mt in 2022-23 from an estimated 3 mt last year. State utilities and independent power producers were asked to import 4 per cent of needs for blending even if that means paying much more for Indonesia supplies.