*****A coal crisis that could have been avoided – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-opinion/a-coal-crisis-that-could-have-been-avoided/article65365117.ece

Coal supplies Growing uncertainty SHIV KUMAR PUSHPAKAR

Coal supplies Growing uncertainty SHIV KUMAR PUSHPAKAR | Photo Credit: SHIV KUMAR PUSHPAKAR

The coal PSUs cannot be blamed for the crisis. Timely imports of coal could have prevented the current situation

The world economy is passing through one of its worst phases in history. The Ukraine crisis has thrown the post-pandemic growth expectations out of gear. The Chinese economy is facing serious downward pressure due to its ‘Zero Covid’ policy.

In comparison, India has done reasonably well so far. Our vaccines proved effective against the mutating virus. Exports have boomed. The production-linked incentive scheme mopped up a huge $30 billion ( Rs. 2,34,000 crore) in manufacturing. And, the growth outlook, despite recent revisions, was brighter than most major economies.

As of today, there is one major downside risk to the India growth story in FY23). The country is facing challenges on the energy front, as is evident in low coal stocks and rampant power cuts this summer, in many States.

India can do little about the global oil crisis as it is heavily reliant on imports. But the ‘crisis’ in the availability of coal, that meets roughly 55 per cent of primary energy needs, could have been avoided with minimal and timely import support.

Historically, India’s state-sector dominated coal mining industry had always received the flak for fuel crisis. However, this time it is not fair to blame it.

According to the International Energy Agency, coal production grew by 3.7 per cent in India in 2021, as against stagnant output and rampant power cuts (during September-October) in China. Output grew by 3 and 3.7 per cent respectively, in the coal exporting nations of Indonesia and Australia.

Improved performance

The performance of the Indian coal industry improved as the growth momentum gained strength. In FY22, Coal India (CIL), Singareni Collieries (SCCL) and captive sources together ramped up supply by close to 128 million tonne (mt) or 19 per cent, to approximately 813 mt. Fuel supplies from CIL (662 mt) — which meet a little less than two-thirds of India’s consumption, including imports — increased by 15 per cent, SCCL (65 mt) by 35 per cent and captive (85 mt) by close to 37 per cent.

The growth in supplies was backed by a 61 mt (8.5 per cent) rise in total production to 777 mt. The gap between production and supply was met by the system inventory, largely the 99 mt pithead stock that CIL reported at the end of FY21.

With domestic supplies continuing to grow rapidly in April, there was no case for power cuts this summer; till the electricity sector created a system deficit by dramatically reducing fuel imports in FY22 as soon as the global prices started firming up. The generation of imported fuel-based plants was down by 50 per cent in the last fiscal. Their share in total coal-based generation reduced from over eight per cent to less than four per cent. Imported fuel is also used for blending purposes.

Overall, thermal coal import was down by approximately 38 mt in FY22. This was the same amount of stock that CIL liquidated during the year. The reduced buffer stock is coming back to haunt us in FY23 when global coal prices are rising.

With the economy on a high growth path and global energy prices heading north, some tightness in the domestic coal market was expected this year. However, the current level of stress, with nearly half of the power plants reporting less than five days of fuel stock, might hit growth.

Notably, the sudden drop in imports has impacted the system in more ways than one. The imported fuel-based plants, for example, are located in the coastal region and cater to half a dozen States which are far away (1000-1500 km) from the mining zone.

An increase in domestic fuel supplies to these States will impact rake availability nationwide. Indeed, the non-power coal consumers are suffering from low allotment of rakes. Some of these companies are now working out alternative options to take delivery of fuel. Energy-intensive industries — metals, cement — are the worst sufferers of the fuel fiasco. As per government policy, they are hugely dependent on imports, domestic purchase of fuel from the open market and captive sources.

A dramatic rise in demand for domestic fuel from the power sector choked the open market supply of coal in the second half of FY22 forcing these companies to depend more on imports in a highly volatile market. A sharp rebound in the captive production was the only silver lining for them.

India’s power sector suffers from many political-economic complexities and is a joint responsibility of both the Centre and States. It is necessary to take corrective measures. The Union government has been pushing the generation sector to increase imports for blending purposes for some time. The central government-run power sector units have already put their best foot forward. At least three States have started preparations for imports too.

In a recent decision, imported fuel-based IPPs were allowed to pass on the extra costs due to a spike in global energy prices. The window would remain open till December. This is a good short-term initiative. The government has a responsibility towards the stakeholders. Considering the overall low share of imported fuel in electricity generation, the inflationary impact will be limited, when compared to the oil economy.

To maintain the growth momentum, the government must ensure adequate power supply.

The writer is Past Regional Director, CII ( East & North-East)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s