- What was the condition?
- Analysing the Factors affecting the coal sector in India presently
Untangling Coal and Power shortages
For IASToppers’ Editorial Simplified Archive, click here
GS (M) Paper-3: “Infrastructure: Energy”
- During the rupee panic of 2013, the current account deficit climbed to danger levels of 5% of gross domestic product, and the currency tumbled.
- This time was not only connected with India’s burgeoning imports of not just gold or Chinese telecom equipment, it was also connecting with India’s importing coal, iron ore, fertilizer and edible oil in very large quantities.
What was the condition?
- It was the awkward fact that the country with the world’s third largest coal reserves was forced to import one-fourth of its coal requirement, at record high prices.
- India imported 171 million tonnes in the fiscal year 2014, which was 15% higher than the previous year. The imports for the next fiscal year climbed to 215 million tonnes, possibly the highest in history.
- This was also partly a consequence of the Supreme Court’s September 2014 decision to cancel all coal block allocations to private coal miners, virtually stopping all captive coal production.
- One of first priorities was to swiftly move to a transparent auction-based mechanism (as implied by the Supreme Court verdict) for allocating coal mines and restarting them.
- An inadvertent fallout was that end-users due to coal shortages, bid aggressively in the mining auctions, taking domestic prices above global level.
- Meanwhile, the country’s coal consumption grew 12% during FY15, and then abruptly slowed down in 2016-17. This caused imports to also drop, and coal prices stabilized.
Analysing the Factors affecting the coal sector in India presently:
Power utility companies:
- Still there is talk of a coal shortage while the global prices have a rise of 40% in seven months.
- The power sector and the coal producer are engaged in a blame game.
- Maharashtra State Electricity Distribution Co. initiated load shedding, due to a shortfall of 2,000MW out of a total power demand of 18,000MW.
- The reason for the shortfall was shortage of coal at generation companies.
- Similar stories came from other states.
Coal India Ltd:
- Coal India Ltd (CIL) is the monopoly producer of coal in supply chain.
- CIL has been consistently increasing production and claimed that coal stock at its pithead had climbed to record 60 million tonnes.
- The pile was so high that it was creating a risk of flash fires in the summer heat.
- This situation was made worse by a steep fall in hydro and nuclear power output in 2017.
- So, coal-based power had an additional burden to bear.
- The power ministry asked utility companies and non-power sector players, to stock adequate coal in their premises, which they did not do.
- Heavy rains affected CIL production badly.
- Thus, it’s not coal shortage, but non-evacuated coal from their mines.
- In the middle of the supply chain is the railway network.
- The evacuation rate from the mines is also constrained by rail capacity, measured in terms of connectivity, rake length (number of wagons) and tonnage per wagon.
- But rake length is constrained by the state of the railway network, the safety at crossing points, the narrow and crumbling bridges or the number of free railway lines.
- Indian rakes can typically carry 4,000 tonnes, as against 10,000-20,000 tonnes in Australia, the US, Russia or China.
Supplying to others:
- Since the situation was turning into a crisis, rake movement had to be monitored daily, the coal was diverted to power producers as priority, denying other users.
- The promised coal to non-power users like metal producers through fuel-supply agreements (FSAs) has not been delivered.
- The shortfall on this “linkage coal” is as high as 80%. Who should be blamed for this breach of contract?
- The penalty for FSA shortfall is woefully small. Besides, it is a zero-sum game, since coal not given to FSA is given to power producers.
- Coal mining, power reforms and logistics management together make for a complex optimizing exercise.
- It is not decentralized enough, and monitoring or management by a central super computer in Delhi is not the solution.
- CIL has increased production steadily, but stranded coal pile at pitheads, or unavailability of rakes, or the reluctance of utilities to purchase and stock the coal and, finally, the inability of discoms to pay are some of the concerns.
- Allow more private players in coal mining or as mining operators.
- Allow private coal users to own or lease and run their own private rakes.
- Allow road movement of coal in addition to rail, at least in the monsoon months.
- Increase the penalty for FSA non-compliance.
- Make it mandatory for power companies to have a minimum inventory of, say, two weeks of coal at all times.
- Speed up completion of rail links from pitheads to nearby power users on high priority.
- Since electrons travel smoothly and without pollution, improve the national grid for electricity so that surplus power is never stranded, unlike surplus coal at pitheads.
- Improve the health of discoms, through initiatives like UDAY (Ujwal Discom Assurance Yojana).
- It should not be forgot that coal is an integral and large part of our energy for the foreseeable future.