Coal India, the fall guy for power crisis

Syllabus: General studies Paper 3

Context:

• The post-Covid economic recovery has led to a major increase in the demand for power, both in India and globally.

Background

• In India, coal-based power plants have witnessed rapid depletion of coal stocks from a comfortable 28 days at the end of March to a precarious level of four days by the end of September.
• The country is struggling to understand how the crisis is likely to pan out in the near future.
• Coal India Ltd (CIL) has been unfairly attacked, even as it gears up to play a crucial role in fighting the power crisis.

Reasons for the crisis

• Structural: A government-appointed committee in the early 1990s concluded that CIL “cannot be expected to meet the demand of the power sector, in case the pace of capacity addition accelerates.”
  • This led to an amendment in the Coal Mines Nationalisation Act (CMNA)in 1993 that enabled the government to take away 200 coal blocks of 28 billion tons from CIL and allocate them to end-users for the captive mining of coal.
    • These end-users, mostly in the private sector, failed to produce any significant quantity of coal to meet the rapidly rising power capacity between 2007 and 2016.
    • The cancellation of 214 blocks by the Supreme Court added to the problem.
  • Commensurate with the captive mines allocated to the end-user industries, the coal production today should have been at least 500 million tonnes per annum (mtpa). In reality, this has never exceeded 60 mtpa.
  • CIL, with denuded reserves, is called to meet the rising gap in coal supplies. These structural factors fuelled not just over-expectations from CIL, they also kept the company in a constant state of stress.
• On the operational side, power plants are required by the Central Electricity Authority (CEA) to maintain a minimum stock of 15 to 30 days of normative coal consumption, depending upon the distance of the plant from the source of coal.
  • The compliance with this directive by power plants has been severely lacking. This enhances the vulnerability of power plants, particularly those at longer distances, to supply constraints on account of the coal producer or transporter.
  • The persistent non-payment of coal sale dues by power plants to coal companies has created a serious strain on their working capital position.
  • Some companies were forced to borrow from banks to meet the operational expenses, including disbursement of salaries.
  • According to reports, Rs 18,000 crore is currently due to coal producers.

Impacts of shortage of coal

• The persistent shortage of coal production by the privatised and captive mines forced India to import around 200 million tonnes (mt) of coal.
• Of this, more than 40 percent goes to meet the demands of power plants.
• A spurt in imported coal prices, mainly due to a major increase in coal imports by China, acted as a brake on imports of coal.
  • This escalated the demand for domestic coal.
• Simultaneously, from recent months, the demand for thermal power witnessed a sudden rise after stagnating for over three years.
• The spurt in demand for coal is being linked to the post-Covid economic recovery.
• In the short run, the coal production by CIL has faced severe headwinds in the first quarter due to the second wave of the pandemic.
  • Thousands of workers and officers were infected and hospitalised and more than 250 CIL employees lost their lives.
  • The extended monsoon severely affected open-cast mining. These added to supply disruptions and aggravated the crisis.
• Despite so many constraining factors, it is to the credit of CIL that it has achieved a growth of 14 million tonnes (mt) or 5.8 per cent in coal production during the first half of 2021-22.
  • Yet, the offtake was higher than the preceding year by 52 mt or 20.6 per cent. This was possible by drawing down on the opening inventory of coal from 100 mt to 42 mt during April to September.

Conclusion

• Besides meeting the growing coal demand of power plants, CIL has been able to significantly replace the import of highly expensive thermal coal.
• Even after bearing the highest tax and transport cost globally, the landed cost of CIL coal continues to be much cheaper than imported coal at almost all destinations.
• The resultant benefits are savings of foreign exchange, and generation of power at affordable tariffs.
• The coal price charged by CIL, expressed in energy units, is at a deep discount of 60-70 percent of imported coal.
• In brief, CIL has been unfairly blamed for the coal crisis.
• It has played a stellar role, standing like a solid rock between light and darkness.
• It is striving to build comfortable stocks at the power plants, not in default of payment.
• The company has ramped up coal production despite the 1990s policy that took away coal blocks of 28 billion tonnes of reserves. It is time that the country recognises the critical role of CIL. It needs bouquets rather than brickbats.

The Indian Express Link:

https://indianexpress.com/article/opinion/columns/coal-india-the-fall-guy-for-power-crisis-7576985/

Question- Giving out the reasons for current shortage in coal supply, give remedial measures needed to ensure a consistent and dependable supply chain.