An old tale with a new twist

Coal shortage in India had followed an annual cyclical pattern. This year that pattern has not played out

Over two-thirds of the mines of Coal India Ltd (CIL) are run by private operators. A normative cap set by the CIL, of 50 per cent to be run by mine development operators as they are called, has been breached a long time ago. One would have thought with such aggressive private sector participation, India’s coal crisis would be history. But as aluminium, paper and cement and other producers will tell, 2018 has become one of the worst years for coal shortage, and it shows no sign of abating.

So four years after the auction of coal mines, the rules for commercial coal mining are still in the works. Monopoly miner CIL lives by handing out most of its production to others but offers the highest wage increase in the public sector to its employees and producers of coal-based products choke with worsening supplies of the fuel. 

For years, coal shortages in India had followed an annual cyclical pattern. The shortages peaked in the monsoons as the mines and their evacuation areas got flooded with rain water, the crisis abated once the waters receded. Often the Durga puja season in eastern India acted as the time keeper for the switch from the deficit to the surplus pattern. This year that pattern has not played out. Shortages have mounted. 

The shortages are linked with the pace of revival in the economy. To put things in perspective, a 1 per cent rise in electricity production for all coal-based power stations in the country demands a 14 million tonne rise in coal production. Electricity demand has risen as manufacturing has picked up speed in the economy. NTPC, India’s largest power producer, has seen its production go up 7.45 per cent in the first quarter of FY19, year on year. Others have followed suit. In just five months, the total production of electricity in the country (CEA data) has crossed the 45 per cent mark of last year. 

To fuel that level of growth, coal production has not kept pace. It has risen by only 25 million tonnes in six months. Coal production nightmares has consequently come back with vigour. 

In the queue for coal allocation, captive power producers, that is, plants with their own installed power units, stand at almost the last position. At the head of the list are the central- and state government-run power plants, followed by independent power producers. The demand for coal from the manufacturers of aluminium, cement and paper is met only after that. Their estimated demand for coal is about 188 MT, or about 30 per cent of the total domestic coal production. Their data shows they are receiving only a third of their requirement from the coal mines and the situation has got worse since FY16.

Of course, there was a leeway. These companies could have imported coal from Indonesia, Australia or Mozambique. But they got it wrong, fooled by the easy conditions of the domestic coal market in FY15 and FY16. As the growth rate of GDP eased up, the average plant load factor for coal-based power plants that was 65.6 per cent in FY14 begun to slip and reached 59.9 per cent in FY15. Most companies with captive coal-based power plants ran to cancel their contracts with suppliers abroad as they figured that domestic coal will be available in plenty and at cheaper prices than what they could procure from abroad. CIL is after all the world’s cheapest producer of coal.

They could have also met some of their supply from the e-auction market that the coal ministry runs. But as coal prices have risen by at least 70 per cent over the last year, these companies have baulked. They want to depend on the comfort of long-term coal linkage CIL offers them. Coal prices are much lower when bought through those linkages. In a representation to the Prime Ministers’ Office, the Indian Captive Power Producers Association has complained that “rake loading for non-power sector (companies) has been substantially low for FY 2017-18, with only 12.1 per cent of total rakes allocated for CPPs. This low materialisation trend has continued in H1 FY18-19”. 

Their complaint is, whatever coal is being produced the bulk is being shipped to the power stations. It is an old story which former Prime Minister Manmohan Singh can relate to. Sadly the contours of it has become worse.