Indian coal industry underwent a rather distressful year which was jolted by the national wide lock-down imposed to curb the spread of COVID-19.
In the unlikely event, Coal India Ltd (CIL) missed its production target for FY ’20 which was quite ascertain, however, despite posting a steep recovery of late, the miner could not prevent its output level falling y-o-y, as it dropped 0.8% to 602.11 mn t in FY ‘20 compared with 606.89 mn t in FY ’19.
Power sector, which is the largest coal consumer in the country, was majorly impacted by the sluggish industrial activities resulting from the economic slowdown.
Towards the beginning of this year, power generation had shown sign of recovery during Jan-Feb ’20 on account of early arrival of summer, after witnessing a continuous decline Y-o-Y for the past four months. However, any sign of further correction was constrained by the nation-wide lock-down imposed towards the end of Mar ’20.
Although, the government had permitted power utilities to continue uninterrupted operations during the lock-down period to ensure proper power supply, but, the demand was further brought down by lack of activity across the industrial hubs.
In order to relief the customers from financial hardships; CIL had introduced series of measures to ensure that they continue to lift coal in the difficult period.
Removal of upper cap on coal prices which meant that reserve price of coal in auctions for both power and non-power sector kept same as notified price in various auction for the first half year period of FY ’21, was an important decision taken in this regard.
However, despite the relaxation, tepid response was seen in these auctions wherein price realization for coal sales dropped nearly 26% y-o-y to INR 1598.14/t during the first quarter of FY ’21 (Apr-Jun ’20) against INR 2155.26/t in the same period of FY ’20.
Coal allocation via FSA (Fuel Supply Agreement) route has been a cheaper mode of coal supply comparable to the auctions, but due to the prevailing discount, the gap in terms of price realization for these two routes reduced to its lowest level since Q2 FY ’17, assessed at INR 25/t in the second quarter.
With gradual uptick in demand, CIL has restored the upper cap on auction from Oct ’20, whilst from Nov’20 onward, it has agreed upon the earlier practice of vesting the power to individual subsidiaries to keep the reserve price as per market conditions.
As a consequence of healthy coal stock available at the power plants, CIL’s dispatch to power sector was down 5% y-o-y to 277.46 mn t during the first 8 months of FY ’21 (Apr-Nov ’20) compared with 253.76 mn t in the year-ago period.
In turn, emphasis was given to the non-power sector as their coal supplies were increased 12% y-o-y to 79.7 mn t in the 8 month period compared with 70.98 mn t in the year-ago period.
Towards the end of the year, Indian government successfully carried out the first-ever commercial coal mining auctions wherein bulk of 19 coal blocks were sold. The privatization of coal sector is not only expected to improve domestic coal availability and reduce costlier imports but also would provide stern challenge to CIL.
Outlook for 2021:
Record high inventories assessed at mines, industrial facilities, ports and power plants would take some time to run down, and will have significant impact country’s coal production in the short term. Consequently, CIL is expected to slash down its planned production target of 710 mn t for the FY ’21.
Further enhancing the domestic coal availability, Coal Ministry has said that it would carry out next tranches of commercial coal auction in CY ’21. Notably, bids have already been invited for sale of remaining 4 blocks tentatively scheduled in Jan ’21, which had received single bid in the previous auction.
Talking about power demand in the country, as economic recovery takes root and returns on the growth path, consumption is also expected to rise, aided by the 100% household electrification and revival in industrial activities.
Moreover, production-linked incentive scheme and relief packages announced for steel sector would also require higher power consumption, as the government aims to speed-up development of various infrastructure projects.
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