The recent prescription issued by the Prime Minister’s Office (PMO) to rid mining major Coal India (CIL) of its many ailments has missed diagnosing a crucial affliction --logistics.
Under pressure from power producers, who were severely hit last year by non-availability of the fuel, the PMO last month had asked CIL to supply to power plants at a higher, 80 per cent commitment level, creating sudden and huge delivery pressure on the miner. CIL will require 123 million tonnes (mt) of additional coal for the next financial year, ending March 2013, to successfully sail through the changed demand scenario. Production in 2010-11 was flat, at 431 mt, and pithead stockpiles at the end of the last calender year about 50 mt.
While production and import targets can be met, the challenge is in transporting the coal from pitheads and ports to the power plants. As late last year, when a combination of production woes and logistic issues brought a third of India’s 81 power plants, with a total capacity of 87,000 Mw, to the brink of closure. With the majority of coal being transported through rail, the coal ministry had identified two chief reasons for the recent crunch at power stations -- lack of adequate rail connectivity to major coalfields and unavailability of rakes. Given that production is expected to rise, alongside an increase in imports, there is likely to be additional pressure on the rail network to deliver.
| TRADING BLOWS Railways and CIL need to coordinate to create vital infrastructure to transport coal, but a blame game is on |
| * Coal India requires an average of 200 rakes daily for offtake but availability is less than 180 |
| * Coal ministry says lack of adequate rail connectivity to major coalfields is also an issue |
| * The shortage causes daily loss of 50,000 tonnes, creating fuel crunch for power stations and pushing up stockpiles |
| * The railways blames CIL for not transporting coal to rail sidings; also criticises the miner's road transportation network |
| * 180 rakes were available daily between August and October but CIL loaded only 130 rakes, says the rail ministry |
“Not much has happened in coal transport infrastructure recently. The connectivity points to bring coal to the main railway network are missing, and there is not enough scope on the main line itself. Also, port-to-plant linkages haven’t sufficiently expanded. There is a major bottleneck in terms of this infrastructure,” said Prakash Sharma, a coal analyst with Wood Mackenzie.
CIL officials are also concerned about the congestion on main railway routes, but their larger worry is that vital transport links into new mining areas are yet to be established. “We practically depend on the railways for transporting coal, and we are willing to give them money to build links. Money is not a constraint. But we cannot go forward without them,” an official said.
Barclays Capital analyst Shiyang Wang said: "India's coal transport infrastructure will not improve any time soon. India is experiencing the same issue as China, where the coal production regions in the east are far away from the consuming regions in the south and the southwest. Railway and rail wagon additions are likely to develop but will lag the production of coal, even though coal production is already so far behind due to delays in environmental and forest clearance approvals. Port additions are also lagging the target; therefore, imports are not expected to bridge the gap between supply and demand."
In particular, CIL officials have identified three projects — the Tori-Shivpur rail link in North Karanpura (Jharkhand), Gopalpur-Jharsuguda in the Ib Valley (Orissa) and Baroud-Bijuri in Mand-Raigad (Chhattisgarh) — that could enable the movement of up to 140 mt to end-users. The current domestic shortage is 86 mt.
Railways officials in charge of freight transportation say clearances are delaying these lines. “For the Tori-Shivpur rail link, the (Union) ministry of environment and forests (MoEF) gave us permission to set-up a 50-km line,with no stations en route and no night trains, which doesn’t make sense. We have decided to approach them again. As for the other two projects, CIL is yet to complete their own studies and finalise funding,” an official said.
The mid-to-long term risk from the lack of infrastructure is significant, agree both CIL and the railways, are undertaking third line works to help evacuate extra traffic, and some other sanctioned works, such as loops and signalling, are being completed, which will help the network. We are also running long-haul trains, basically two trains joined, that will allow us to carry more freight,” a rail official said.
It is also pushing to provide more rakes to CIL, which has often complained that the lack of rake capacity dampens its offtake. Compared to the average of 180 rakes per day that the railways offered to CIL last year, it was able to supply 198 rakes this January and hopes to take it beyond 200 during February.
At the same time, Indian Railways holds CIL responsible for not being able to manage loading with available rakes. According to IR, a key factor retarding transportation of coal from CIL sources by rail has been the inability of coal companies to transport from pithead to rail sidings, due to lack of transportation infrastructure insikde the mine areas.
But with the prospect of increased coal imports (73 mt of this increased demand will be brought in from abroad), the dismal coal handling capacity of all major ports in India, currently at 54 mt, will be troublesome for the sector. Analysts predict the utilisation rates of coal handling terminals at Indian ports will continue to remain high, at over 90 per cent, while the ideal average is around 75 per cent.
“Import infrastructure in India is certainly not to the tune of projected demand for imported coal,” said Dipesh Dipu, director at accounting and consultancy firm Deloitte Touche Tohmatsu. “The lack of a coordinated approach in India is likely to have an impact on coal imports, which are also likely on the exporting countries’ side. However, acquisitions in these countries are being planned with simultaneous investments in inland transport and port facilities.”
To add to the problem, cargo growth at Indian ports over the next five years through 2017 is likely to outpace growth of port handling capacity. While growth of cargo will grow at a compounded annual rate of eight per cent, from 570 mt this year to 899 mt by 2017, capacity is likely to grow at six per cent to 947 mt over the same period.
The PMO’s current strategy may prevent CIL from sliding into further illness, but unless it addresses the problem of logistics, the world’s largest coal miner may never be fully cured.
