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Risk of supply failures: Govt may put a break on coal import substitution plan to avert risk of supply failures

The government is considering to keep aside its import substitution plan for coal unless the country comes close to producing 1 billion tonnes, including productions from Coal India Ltd (CIL), Singareni Collieries Company Ltd (SCCL) and captive and commercial miners, a coal ministry official said.

India’s demand for coal has been continuously on an up swing except for slump in the Covid period. The country’s miners have been scaling up production to match the demand but the sudden decision to lower imports considering high and volatile international coal prices has hit power generation to a large extent with five out of country’s 15 imported coal-based power plants forced shut. The other 10 with an installed capacity of 14,355 MW are running at an average 26-28% plant load factor (PLF).

The pressure has shifted to CIL which has to supply excess coal to domestic coal-based power plants that have to generate more to fill the power production gap due to closure of 15 imported coal-based power plants. Apart from this, 8 domestic coal-based power plants with a total generation capacity of 3,041 MW have shut down for want of coal and the country’s 31 gas power plants, with installed capacity of 24,000 MW, are either closed or under-utilised.

In such a situation India’s overall coal import has been estimated to decline 11% to 186 million tonnes during the current fiscal from 208.93 MTs in FY- 22. According to coal ministry statistics thermal coal imports were 151.77 MTs in FY 22 against which the imports targets have been kept at 130 MTs, down by above 14%. Lowering imports might suddenly bring about a crunch in coal supplies since the present power generation was mainly resting on the daily supplies of 2.12 MTs, of which CIL supplied 1.8 MTs. While this has not been enabling faster stock building, a slippage in the quantum of daily supplies may plunge the country into darkness, according to analysts.

India’s thermal coal imports have been declining over the last five years from 161.25 MTs in FY 18 to 151.77 MTs in FY 22. Coal production, on the other hand, has witnessed a rise by 101.91 MTs or 13% over the last five years from 675.40 MTs in FY 18 to 777.31 MTs in FY 22. CIL was the main contributor to the growth taking up production to 622 MTs in FY22 from a level of 567 MTs in FY 18.

Production from other sources like SCCL have been hovering at more or less the same level at 62-65 MTs between FY18 and FY22, though captive miners’ throughput have gone up from a level of 46 MTs in FY 18 to 85 MTs in FY 22, according to the coal ministry data.

The maximum growth of 38.5% came from the captive mines in the last one year when production jumped from 69.29 MTs in FY 21 to 85 MTs in FY22. This captive coal production came from 34 coal blocks mainly backed by the coal ministry’s liberlisation policy allowing captive miners to sell 50% of their produce in the open market.

While the ministry has allocated 106 coal blocks up to April this year for commercial mining with permission granted to operationalise 47 coal blocks, it is expected that by 2023 end 60 blocks will have permissions for operations. The blocks already having permission for operations have been estimated to produce in excess of 140 MTs during the current fiscal, inching towards 1 billion tonne of total production. CIL has a target of producing 700 MTs in FY 23, which according to the company is achievable.

But according to ICRA, India’s coal demand has crossed the 1 billion-tonnes mark in FY 22 itself growing by a healthy 12-13% year-on-year and it is set to increase further by 5-6% Y-O-Y in FY 23, which means demand can be matched only if required imports are made.

As CIL has already floated tenders to build up stocks, many state-owned firms have also issued import tenders to source the dry fuel.

NTPC’s 16-MT import plan this fiscal, according to an NTPC official, would be its highest import in eight years despite record coal prices. NTPC is likely to source most of its foreign coal from Indonesia at a little premium over the bench marked price to restrict high volatility of prices, the official said. The government’s direction to all utilities to cumulatively source at least 33.5 MTs for blending would be the highest in the last six years. This is being viewed as a passive push by the government to increase imports, though this could put an upward pressure on global coal prices, especially in the context of the Russia-Ukarine war. India is the world’s second largest coal importer with Indonesia, Australia and South Africa as its major suppliers and Indian imports often become a deterrent to prices, said Ashok Ghosh, an analyst.

He said the crisis or risk of supply shortage of coal roots in the closure and under utilisation of the imported coal-based power plants whose gap in generation has to be filled in by domestic coal-based power plants thereby prompting CIL to divert more coal to those plants.

At least importing coal for regular power generation from 15 imported coal-based power plants was imperative, which would largely eliminate the possibilities of a supply crunch of domestic coal. While NTPC seems to have got some control over Indonesian coal prices, Australia’s increase in exports following dry weather conditions also seems to have a cooling effect on prices, the analyst said.

Adani has already increased shipments from its Carmichael thermal coal mines through Queensland Port of Abbot Point with plans to ship 11-12 MTs to India in FY 23, according to a report by UK’s Argus Media.