Chronic poor planning has precipitated the coal shortage
India’s post-pandemic recovery could literally face a blackout thanks to poor planning by state-owned Coal India Ltd (CIL), the largest supplier to thermal power plants. As a result of its inability to keep track of rising demand for electricity — which topped 2019 consumption in August — 106 thermal power plants with an installed capacity of 131.8 Gw, or 65 per cent of the installed capacity, have either zero stocks or at most for seven days; 27 plants representing 33.8 Gw of capacity have just one day’s stock against a government-recommended norm of 14 days. Coal accounts for 55 per cent of the economy’s energy consumption, and CIL accounts for 83 per cent of that demand. The current crisis is, in fact, a reflection of age-old deficiencies that plagued the economy in the 1990s and early 2000s as economic growth picked up, and created crises in 2013 and 2016 as well.
It reflects chronic short- and long-term deficiencies in coal-supply logistics, which have yet to be solved. First, growth in CIL’s production has been slowing — the compound annual growth rate over the decade has been just 3.6 per cent — but the economic slowdown after 2016 temporarily masked the supply problems. The unexpected surge in electricity demand after the second wave of the pandemic, however, caught CIL unawares, and the shortage was worsened by the long-standing problem of insufficient railway rakes to transport coal from pitheads to power plants. Add to that the usual monsoon lull when production halts at CIL’s underground and open-cast mines, but no provision is made for this annual disruption. A report from consultancy Deloitte had recommended large-scale automated first-mile connectivity points at major mining clusters, including silos and rapid loading systems at some 36 points. So far, however, less than 10 of these points are operational, plagued by the usual problems of land acquisition and placing investment orders.
Domestic supply constraints have, in fact, resulted in a surge in coal imports, which brings with it fresh problems. A global supply shortage has pushed benchmark prices of thermal coal to three times its end-2019 prices. Much of this shortage is driven by China, the world’s largest coal consumer, which allowed stocks to dwindle in pursuit of its renewable energy targets and following the suspension of supplies from Australia after a diplomatic row. India has a specific problem; prices of coal from Indonesia, which accounts for 60 per cent of India’s imports, have soared because of heavy rain in Kalimantan, the principal producing area. Rising input costs would logically mean a rise in electricity prices for consumers. This would be difficult for economic reasons — since it would play into already high inflation. Given that electricity prices are still administered, the prospect of rising prices is unlikely, given the multiple elections due early next year. Thus, power distributors would be forced — yet again — to absorb the higher costs without passing them on to consumers, compounding the grave financial crisis in the sector. The transition to renewable power and gas may solve the problem in the long term. But the immediate crisis in two sectors dominated by state ownership points to the persistently anachronistic structure of the Indian economy in the third decade of the 21st century.