Why does India face a recurring power shortage despite enough coal stock?

India has the world’s fourth-largest coal reserve. It is the second-biggest producer of fossil fuel behind China and is home to the world’s biggest coal miner, Coal India, which accounts for 80% of the country’s domestic output.

The minable capacity of already allocated coal blocks is around 15% to 20% higher than the expected demand in 2030.

So why, year after year, India’s power plants face coal shortages that lead to widespread power outages leaving parts of the country in the dark and industries in a limbo. There are several factors. 

India has had a long-standing policy to minimise imports of coal. In February 2020, Coal Minister Pralhad Joshi had said that the country would stop importing thermal coal from 2023-24.

Joshi had said the Coal Ministry would coordinate with Railways and Shipping Ministry and enable Coal India, captive and commercial miners to evacuate more coal by 2030.

But despite efforts to increase the supply of domestic coal, there was a gap between the demand of coal and its supply. And the coal stocks at the generating stations are depleting at a worrisome rate. Now, Power Ministry is blaming declining coal imports for the current crisis. In 2018-19, 21.4 million tonnes of coal was imported for blending, 23.8 million tonnes in 2019-20 and in 2021-22, it fell to 8.3 million tonnes.

More From This Section

India's core sector output rises to six-month high of 8.4% in April

Centre's FY22 fiscal deficit at 6.7% vs revised estimates of 6.9%

India's farm sector clocks 4.1% growth in Q4 of FY22, shows data

India is better placed than others to face inflation, says CEA Nageswaran

Coal inventories at power plants have declined by about 13% since April to the lowest pre-summer levels in years. And for the first time since 2015, Coal India will import the fuel for use by state and private power generating companies. 

The power ministry said the decision was taken after nearly all states suggested that multiple coal import tenders by states would lead to confusion and sought centralised procurement through Coal India.

The Centre faced pushback from states as imported coal is five times costlier than the one mined domestically.

Recently, the government also stepped up pressure on utilities to increase imports to blend with local coal. 

It has even warned of cuts to the supply of domestically mined coal if power plants did not build up coal inventories through imports. But the power ministry on Saturday asked states to suspend tenders that are "under process"

Despite record production, Coal India’s supply has not been able to meet the demand. 

In April 2022, the company registered a growth of 27.64% by producing 53.47 million tonnes.

Former coal secretary Anil Swarup told Washington Post that Coal India’s production stagnated in the last few years because of a failure by the government to appoint senior management and fund mining expansions. 

Shreya Jai of Business Standard points a mismatch between coal, power and railway ministries. ower units did not stock up when Coal India had surplus coal. Imported coal-based power units not functioning for several years. Pressure of mining and supplying coal lies solely on Coal India.

Coal India’s output has grown slower than the captive mines, awarded over the last six years. During 2020-22, production from the captive mines jumped by 38.5% while CIL saw a tepid growth of 3.4%, according to government data.

These captive mines were awarded to private companies and state-owned utilities over the last five years after the Supreme Court in 2014 scrapped all coal block allocations made over the past two decades

Last year, three tranches of coal auctions were held after a hiatus of two years and nine blocks were successfully awarded

In September 2021, the Union ministry of coal issued a stern warning to captive coal block owners, saying their mines should ramp up production or face regulation in coal supply from CIL.

The ministry observed that production from these mines was below target.

Of the 43 operational coal mines awarded to private companies in the power, steel and metals sectors, not a single one is meeting its targeted annual production.

On May 6, Coal India said it will offer its 20 closed and discontinued underground coal mines to the private sector to reopen and bring into production on a revenue-sharing model. 

Shreya Jai says current power supply chain seems unprepared to handle high growth period, state discoms are unable to pay gencos, but electricity supply chain needs to be fixed starting with state discoms, she said.

Meanwhile, the Railways is grappling to balance demands from the thermal power industry for faster coal supplies with the demands of other industries. It has to keep rakes ready to meet the rising demand for just about every other bulk commodity, from cement and steel to sand and food grains.

The strained balance sheets of discoms have consistently triggered delayed payments to power producers, often affecting cash flows and disincentivising further investment in the electricity generation sector.

For the second time in two years, the Union Power Ministry notified a scheme for discoms to defer their dues towards the power generating companies. With the dues of the discoms touching a record high of Rs 1 trillion, the ministry has proposed a scheme to liquidate the discoms’ dues in 48 monthly instalments.

Strengthening the value chain of the power sector will ensure that coal supply-demand mismatch is resolved in the long term.