Coal crunch rattles India Inc

The dry fuel crisis deepens and forces industries across sectors to buy more imported coal while claim of surplus coal rings hollow

Indian industries spanning sectors are in the throes of the worst coal crisis in recent years. Coal supplies to units are tapering with stocks reaching critical levels. While the industries’ rant is on Coal India and its subsidiaries for falling supplies, the coal behemoth has passed the buck
on to the Railways for not meeting their rake supply commitments. In the blame game that has carried on for months, the end use industries have suffered and sulked but to no avail. Slump in coal supplies has bigger economic repercussionscompetitiveness of manufacturing industries, specially mentioning steel and aluminium is at stake, dealing a blow to the ‘Make in India’ campaign. ‘Power for All’ promised by the Government of India seems a liability when power producers do not get their
contracted quantity, and are forced to import, upsetting the cost equation. Coal India and NTPC, the
country’s biggest generating utility crossed swords recently. A 500 Mw unit of NTPC’s Simhadri super thermal power station went offline. NTPC took on Coal India, blaming it squarely for inadequate coal. The coal producer shot back in no time, alleging NTPC had diverted rakes to its
other thermal power stations, triggering the shutdown of the Simhadri unit in Andhra Pradesh.
The thermal power plants across states are reeling under coal shortage stress due to unavailability of railway rakes to transport coals from mines to power plants. The Government through schemes like “SHAKTI” and policies have been trying to highlight the need to cut on imported coal for power
generation by thermal plants. At the same time, inadequate infrastructure and lack of comprehensive planning has led to the schemes being unable to achieve the desired targets. Rajasthan, Maharashtra, Karnataka and Andhra radesh have been highly affected by the coal shortage.

Coal stock critically low
Data by the Central Electricity Authority (CEA) shows at the end of October, power plants with an aggregate capacity of 25,000 Mw are saddled with coal shortage with 14 plants facing super critical stock with less than four days of coal inventory. Another nine plants have less than seven days of coal stock and are categorised as ‘critical’. Coal shortage has been more glaring after August due to drop in hydro and nuclear power generation. Given the trend in coal shortage fuelled by inadequate rakes, coastal power plants may step up their imports, countering the downtrend in coal imports in the first half of this year. State run power plants have almost imported two million tonnes of coal
in 2017. The supply constraint has become a sore point among industries dependent on domestic coal. Aside from thermal power stations worst hit by the coal crunch, the Captive Power Plants (CPPs) owned by industries from steel to cement and aluminium to paper, are in the soup. Indian Captive Power Producers’ Association (ICCPA) has written to Coal India chairman, pointing to
the severe coal shortage faced by CPPs that are at risk of closure. Against the stipulated 75 per cent coal mandated in the Annual Contracted Quantity (ACQ), the CPPs are getting 15-50 per cent
coal. Coal ministry officials say the demand for thermal coal has suddenly surged because of the
drastic fall in hydro, nuclear and wind power generation. During September, nuclear power generation was 25 per cent lower than the planned output of 2671.45 Mw. Hydro power generation too, fell 17.16 per cent in September, shifting the demand to thermal power. In fact, the Plant Load
Factor (PLF) or the capacity utilisation at thermal power stations, improved to 60.54 per
cent in September, compared to 58.81 per cent anticipated for the month.

Rake shortage cause of concern
ICPPA has said that more than 800 rakes are pending for coal materialisation for CPP-based
industries affecting production. The association has also said that portbased/coastal power plants to should be fed on imported coal to make domestic fuel available for inland power plants, thereby
increasing rakes availability and de-congestion of Railway network. By September end, average coal
stocks at power plants were at a record low of five days. Last year, for the same month, it was 28 days. The number of rakes carrying coal for power sector was increased by the Railway ministry. But this led to other sectors such as steel, cement and captive power units complaining of diversion of their rakes for power plants.

As the situation stands now, the Ministry of coal has gone on record with the counter that it’s the power plants that should have kept a certain coal stock at their sites. Power plants, however, are alleging mismanagement by the ministries involved – coal, power, and railways. A lack of synchronised approach, they said, has led to this crisis. The CPPs are now looking at imports to overcome the coal deficit. Coal meant to be supplied to CPPs through railway rakes are pending since March this year. The woes of CPPs are compounded by a preferential treatment meted out
to the Independent Power Producers (IPPs), alleged an industry source. “Coal backlog is piling since the IPPs have always got preferential allotment. This has created a situation where the CPPs
have been kept waiting for months together as rakes are not available. Since rakes are not available for linkage and washery rejects, non-core sectors including CPPs are forced to buy more through e- auctions where prices have surged 50 per cent from Rs 3000 to Rs 4500 per tonne”, the source
added. For CPPs, importing costlier coal is not a viable or sustainable option.

“Despite several representations made to MCL and Railways, the coal supply position has not improved. Even after making timely payments against allotted quantities, coal delivery is still pending. This is not only blocking huge amount of our expensive working capital but has
forced us to import equivalent quantity of coal to sustain our operations”, said an official with a steel company. The coal crunch abetted by lack of adequate rakes has impacted CPP operations of Nalco, Vedanta, Bhushan Steel Ltd, Jindal Stainless Ltd (JSL), Arati Steel, Indian Metals & Ferro
Alloys Ltd (IMFA), Ferro Alloys Corporation (FACOR), Birla Tyres, Emami Paper, J K Paper and ACC Cement to name a few. More than 200 rakes are pending for allotment to industries like Nalco, JSL, Arati Steel, Bhushan Steel, J K Paper and others. For instance, Talcher Coalfields under
MCL’s command area needs 45 rakes each day for smooth evacuation of coal. Against this, only 30 rakes are made available. With IPPs getting precedence in coal supplies, the backlog for other categories of power consumers has built up.
Aluminium producers in quandary
The coal crisis is even more unsettling for aluminium making where power accounts for 40-45 per cent of the production cost. Aluminium smelter operations of key producers like Vedanta and Hindalco are at risk of turning economically unviable on mounting coal crunch. Coal materialization to the captive power plants (CPPs) owned by the two primary producers has been substantially low.
The committed coal supply quantity under linkage auctions is not being fulfilled. Given the sizeable weightage of power to aluminium making cost, the companies have installed CPPs of 8700 Mw to cater to their requirement. But, the aluminium industry is struggling to meet its coal requirement due to lower despatch of coal through rail mode and lack of enough rakes for the CPPs. As per Coal linkages auctions process and the terms & conditions listed in its Fuel Supply Agreements (FSAs), Coal India Ltd (CIL) is committed to supply 75 per cent of the annual contracted quantity (ACQ) below which penalty gets attracted on either side. Most of the aluminium smelters in the country are smarting under coal shortage for operating their CPPs and are battling critical stocks. Data by the Aluminium Association of India (AAI) goes on to reveal the coal crunch that has the aluminium makers in a bind. For Vedanta’s 3015 CPP capacity in Odisha, the coal shortfall against linkage is 57 per cent. Vedanta Group owned Bharat Aluminium Company (BALCO) is reeling under 21 per cent coal shortage. Coal supply woes are even bitter for Aditya Birla Group owned Hindalco where coal shortfall is 78 per cent for its combined CPP capacity of 3070 Mw. The combined backlog of sanctioned railway rakes for the three units stands at 315. The aluminium association has written to the Prime Minister’s office and Ministries of Coal & Railways too, on the glaring coal crisis.
“CIL should make coal available as per contractual commitment of FSAs signed with successful bidders in Tranche I & II of linkage auction and reinstate 100 per cent coal supply against auction linkage. Rakes allocation should be prioritised for CPPs for optimum materialisation of auctioned coal”, AAI suggested in the letter. The domestic aluminium industry has made huge investments
of Rs 1.2 lakh crore to enhance production capacity from two million tonnes to 4.1 million tonnes. These investments are holding a debt of Rs 70,000 crore. The aluminium makers have developed hundreds of SMEs (small & medium enterprises) in the downstream sector, employing 7.5 lakh people directly and indirectly. The employment of the people engaged in the aluminium industry is at risk amid the coal shortage scenario, AAI felt. According to ICCPA data, CPPs across industries have approximately 40,000 Mw capacity- this represents 15 per cent of the country’s installed power capacity. Almost all CPPs are coal fired, making the industry heavily dependent on coal for its
functioning and overall global competitiveness. Annually, the total coal requirement for CPPs hover
around 190 million tonnes mark. The booked quantity in Linkage Auction is being restricted to 75 per cent trigger level in South Eastern Coalfields (SECL) and 80 per cent in Mahanadi Coalfields (MCL) with effect from August this year. This has restricted the monthly eligibility quantity, creating an extra burden to fulfil coal requirements for the CPP based industries. While the coal supplies are restricted to trigger levels on coal availability grounds, the same mines are being offered for
new tranche of auction linkages. Due to the current shortage of coal, the offering of coal from same mines for subsequent tranches can limit supply to successful bidders of Tranche-I & II.
Presently, around 11500 Mw of thermal generation capacity from 36 power units is idling due to want of coal. These idle plants were supposed to receive coal from Coal India but supply bottlenecks have aggravated the crisis.

Transportation at the heart of the crisis
The problem is not with the coal stock there is ample inventory at the mine heads. The country has some 40 million tonnes of coal ready to be delivered- the stock enough to sustain all plants for over 15 days. But, there is lack of adequate transportation infrastructure to move coal through the
hinterland. Coal India which meets 80 per cent of the supplies to the power sector, is struggling to meet the revised target of 600 million tonnes for this financial year. During April-September, the coal monolith produced 232 million tonnes of coal against the target of 266 million tonnes, reporting
a shortfall of 12 per cent. 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). The enormity of coal crisis calls for no quick fixes but a calibrated, long-term solution. The Ministry of
Coal cannot be smug with the feeling that there are ample supplies in the market when the same has plunged drastically, leaving scores of power plants idle and stranded. The ministry needs an institutional mechanism to deal with such crises and take critical decisions when coal supply
commitments are not met. If the chorus for zero coal imports is growing louder, domestic producers
especially Coal India must ensure supplies for all categories of consumers. Constraints in movement of coal from mines to power stations have to be overcome. This can be done through de-bottlenecking transportation. This warrants rapid expansion of railway infrastructure and network and ensuring priority in availability of wagons for coal movement. It is vital that the wagons required for increased volume is available on a priority basis and railway lines are laid closer to the coal mines for cost and time efficient transportation of coal for the power producers.