Inside India’s coal industry, part 1: Transport woes continue to throttle supply as metal, power plants face shortages of the dry fuel
Maintaining a regular supply of coal is becoming difficult for private steel, power, and aluminium producers, as they face shortage of coal due to throttled production in mines and poor transportation facilities
Editor's note: Travelling across some of the coal belts in India, Shantanu Guha Ray, in a two-part series, looks at the insurmountable crisis facing the coal sector. This is the first part in the series.
Close to a forest in Chattisgarh where elephants roam freely on the highway in the night and tribals play enchanting flute after drinking liquor brewed from toxic flowers, India’s coal story lies idle like a prostrate disembowelled Gulliver.
The 2014 Supreme Court judgment on the coal scam and the subsequent decisions of de-allocation implemented by the Ministry of Coal have made both mining and acquisition of this mineral a sticky affair in India, the world’s third-largest producer of the dry fuel.
Before de-allocation, coal mines in India produced 53 million tonnes of coal every year, the figure now has fallen to 37 million tonnes this March.
Maintaining a regular supply of coal is not an easy game for private steel, power, and aluminium producers, who are now facing a shortage of the dry fuel in the plants after a gap of nearly three years forcing many to either shut or pare operations.
While officials at the Ministry of Coal in New Delhi claim that there is an adequate supply of coal in the market, in reality, supplies have come down drastically, thus idling and stranding capacities in various plants.
Every day, a senior official — joint secretary level — in the Ministry of Coal issues direction to Coal India (CIL) and Singareni Collieries Company (SCCL) regarding how many coal rakes are to be sent, and to which state. It is evident that India lacks an institutional mechanism to deal with such emergencies or to take crucial decisions on where the coal rakes will go.
"It is all dictated by political compulsions and the private sector is suffering very badly without any solution in sight,” says Ranjit Sinha, former Bihar minister and a JD(U) member.
The Ministry of Coal had claimed in 2015 that India will not need to import coal by 2017 but the statement has little meaning now.
Power, aluminium, and steel plants are battling a severe fuel crisis; the price of electricity in the spot market has temporarily soared above Rs 10 a unit faced with an overshooting demand. As of 17 October 2017, fuel stocks in nearly a quarter of the country’s coal-based power plants have depleted to critically low levels.
“This is a serious situation and will impact prices of steel and power,” said Niladri Bhattacharya, partner, KPMG.
Bhattacharya says that adequate evacuation is not happening from the mines and railway lines are facing capacity constraints while new rail links under construction are yet to be operational.
Availability of rakes and connectivity between the mines and the plants continue to be a perennial trouble zone as well, he informs.
"There are sufficient pit headstocks. India has a little over 40 million tonnes of coals ready for delivery — enough to sustain all plants for a little over a fortnight — but coal is just not reaching the plants," adds Bhattacharya. India consumes approximately 800 million tonnes of coal per year.
In June this year, Minister of Coal, Piyush Goyal, had told reporters in New Delhi that the government does not wish to import coal from anywhere in the world because there was sufficient coal capacity in India.
Determined to maintain the narrative of surplus coal availability, industry sources claim that the Ministry of Coal is even discouraging generators from importing coal to meet their fuel shortages.
Last year, India had imported close to 192 million tonnes of coal from global sources.
The ministry blames the ongoing coal crisis on the failure of private power companies to stock up on supplies before the onset of monsoon when production, as well as rake movement, seem to suffer. The coal ministry also says that 22 percent more coal was supplied to the power sector during September 2017, compared to the same period last year. Despite that, the power sector continues to reel under fuel shortage.
The current emergency has also been triggered by a precipitous generation fall in hydel and nuclear plants. Coal-fired generating stations, which were battling low electricity demands, are caught unaware by the sudden explosion of power demand.
Kolkata-based CIL, which accounts for 80 percent of the coal supply to the power industry, is struggling to meet the scaled down target of 600 million tonnes output in 2017-18. It produced just 232 million tonnes coal during April-September 2017 against the target of 266 million tonnes, reporting over 12 percent shortfall in targeted production.
With electricity demand shooting up due to the festive season and coal-fired plants constrained by fuel shortage to step up generation, price in the open power market has spiked. Since load shedding during the festive season was not feasible for power distribution companies (discoms), they had no option but to buy costly electricity from the free market.
“The discoms are heading for crisis. The lack of coal is now a troubling situation in India for power producers as well as producers of steel and aluminium,” says Harry Dhaul, head of the Independent Power Producers Association (IPPA).
At Tamnar near Rajgarh, coal production has been severely impacted for nearly six months now due to the closure of a key railway line, almost around the time when Coal India Ltd (CIL) was reducing pit headstocks by pulling back production. Central Coalfields Ltd (CCL), a subsidiary of CIL, has officially notified steel and power plants in the area that supplies were impacted due to unprecedented rains.t
“This is a crisis, (and) we do not have an answer,” claimed a senior official of the Jindal Power Plant that routinely imports coal from, abroad.
The Central Electricity Authority (CEA) says that two coal-fired plants in India had no fuel, five were operating with only a day's stock, and eight with two days' stock, whereas 13 were operating with three days stock as of September 2017. As per CEA norms, power plants with less than a week's stock are deemed “critical”, and stocks less than four days considered “super-critical” for non-pit-head units.
Earlier, power stations had drawn down their coal stockpiles by 50 percent to reduce inventory costs as timely supply had become the new normal. Muted power demand also acted as a disincentive to stock coal that would block working capital funds. Total stockpile at plants reached 39 million tonnes at the beginning of 2016-17, with several plants showing coal stock for 50-60 days, while the average stock exceeded 25 days. This average has dropped to 11 days now.
Private power producers said after the line's closure at Jharia coalfields, eight-ten rakes of daily supplies were shifted to CCL, which saw a 20 percent shortfall in production during April-July. With government instructions to give priority to state-run National Thermal Power Corporation (NTPC), CCL pruned supplies to private power producers. They said that when annual contract quantity (ACQ) under fuel supply agreements is not sufficient to meet the total requirement, regulating it further will only add to their woes.
The impact is being felt across Raigarh, the hub of the two world-class plants. Workers at the mine — now that it has shifted to CCL from Jindal — are out of work. Many laze at home, doing nothing while their wives sell deep fried brinjals and sliced potatoes laced in chickpea flour with rice to those arriving the village market to make a living.
Yamuna Singh, a tea stall owner, once used to buy 10 kilos of milk to meet demands. Now, he buys just 1 kilo because business has been at its lowest. “There is no work in the mines, who will drink tea?” he asks.
Supplies are important for the plants. The demand on coal-based plants is more as other plants do not operate at their full capacity. India lost more than 15 billion units of electricity due to non-availability of coal in the last two fiscal years. A FICCI study estimated that power problems in 2011-12 caused a loss of $64 billion to the economy or roughly 0.4 percent of the gross domestic product (GDP).
What is worrying is that the fuel crisis is worsening and there seems to be no short-term solution in sight. In 2008, power plants had coal stocks of 10 days on average at the beginning of each month. By 2016, the average had come down to two days.
A similar situation occurred in October 2017 when railway rakes were diverted to meet the sudden spurt in demand from independent power producers, leaving captive power producers, steel, aluminium, and cement plants starved of the much-needed coal. The Industry associations raised hue and cry throughout the course of October, but it yielded no result apart from an assurance from the government. The impact of this diversion of rakes will be evident in the third quarter of the financial year 2018. which incidentally also marks the commencement of the better half for domestic commodity players.
The Indian Steel Association that represents large steel producers of the country pegs the cumulative loss of production to around 1 million tonnes due to a shortage of coal.
An estimated 250 to 300 railway rakes were earlier deployed by the Indian Railways to ferry coal for the steel sector. With the availability of rakes reducing to around 200, movement of close to 1.35 lakh tonnes of raw material has been severely impacted, reducing steel production by 30,000 to 40,000 tonnes per day.
“This would create a short-term stress on the cash flows of steel producers, most of whom have been walking on a tightrope to wade through the NPA mess,” says a senior coal analyst from Kolkata.
"The Indian banks which got a Rs 2.11 lakh crore stimulus earlier this week from the Modi Government face an NPA pile of over Rs 9 lakh crore out of which close to Rs 4.5 lakh crore is estimated to be the share of power and steel producers alone," says the Kolkata-based analyst.
This is not a happy figure, especially for the Indian government’s ambitious Make In India programme and is one of the main causes of the twin balance sheet problem plaguing the economy, as flagged by the Chief Economic Adviser.
(Click here for second part of the series.)
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