Coal will be the backbone of energy generation in India for at least the next 20 years. Even though the renewable capacity addition is gradually picking up and has attained a level of 162 GW, with a plan to add 225 GW to meet peak demand, the thermal-based electricity generation would remain the most dependable source until 2032.
India is having installed generation capacity of 406 GW, out of which coal- and lignite-based capacity is around 210 GW. The projected electrical energy requirement and peak electricity demand on all-India basis are estimated at 1,874 billion units (BU) and 272 GW for the year 2026-27 and 2,538 BU and 363 GW by the year 2031-32.
Based on the average demand of around 200 GW in India in the current year, about 550 million tonnes (mnt) of coal will be needed by the power sector, which will further increase in the future resulting in immense load on the Indian Railways. Even though energy generation through renewable energy is saving 600,000-700,000 t of coal consumption in India, around 80% of all of Indian Railways rakes are being used for coal transportation at the moment.
It has been seen that all estimates of consumption and coal movement requirements are mainly based on power generation in the country, while coal movement assessment for the Non-Regulated Sector, which includes steel, DRI, cement, captive power producers (CPPs), and other sub-sectors, are apparently ignored. It is important to include the logistic requirement for the NRS industries which are also contributing to the country’s GDP and in future will grow exponentially triggering power requirement and, in turn, coal movement.
Coal logistics policy
As per the Draft Policy on Coal Logistics published by Ministry of Coal in August 2022, the volume of coal handled by rail, road, MGR and conveyor belts for the year 2021-22 stood at 415.658 mnt, 235.826 mnt, 116.602 mnt, and 50.911 mnt respectively. Domestic coal production capacity is estimated at 1,500 mnt/year by 2030, which may continue up to 2040 or beyond. Creating transport infrastructure and managing logistics to transport targeted coal produced from point of origin to consumption centres are major challenges for the sustainable development of coal in the country.
To achieve the target of ‘Atmanirbhar Bharat’, a robust coal evacuation infrastructure is needed. Given the dynamic situation in the world coal market, globalisation, and rapid developments in the Indian coal sector, coal logistics is set to play a pivotal role in the economic development of the country.
As per ‘Coal Vision 2030’ commissioned by Coal India Ltd. (CIL) in 2017, domestic coal demand is estimated to reach 1,300-1,900 mnt/year by 2030. Transportation of such high volumes and creating necessary evacuation capacity are challenging; the bulk of the coal has to be transported to power utility and other user industries. As per the Draft Policy, the identified challenges in coal evacuation are:
a. Lack of investment in logistics infrastructure
b. Higher coal logistics costs owing to inherent characteristics
c. Non-availability of wagons and congestion on the rail network
d. Limited coal transportation by alternate transportation models
e. Limited logistics planning in multi-modal transport
While the Draft Coal Logistics Policy 2022 tries to address the need to develop a trusted, sustainable and robust coal evacuation infrastructure in the country to transport coal effectively to all identified consumption points, it is important to keep a balance among various sectors or consumption points so as to ensure accelerated and inclusive growth of each sector.
Coal supplies to non-regulated sector
NRS consumers include aluminium, cement, sponge iron, paper, ceramics, tea, textile and CPPs.
As per definition given in the Draft Policy, ‘coal logistics’ means the transport or carriage of coal from origin to destination through a single mode or multimodal mode of transportation and includes storage, loading, or unloading of coal for the purpose of delivery to the power plants, steel manufacturing, cement sector, washeries and various other non-regulated sectors.
Contrary to the above, it has been observed that coal supplies to the non-power sector is expected to drop by 23% in FY23, despite PSU miner CIL achieving 24.3% increase in production and 10.6 % increase in offtake. While CIL’s total daily despatch of rakes during July this year increased to 261 from 244.5 rakes during the same month last year, daily despatches of rakes to the NRS consumers decreased to 12.7 from 33.9 during the same month a year before.
June was an even worse month for NRS consumers, when supplies to them went down to 10.8 rakes per day against 41 rakes during June last year. Total rake despatches increased to an average of 288.5 a day during June this year against 262.8 rakes a day during the same month last year, according to Coal Ministry data, but the non-power sector struggled to get coal through rakes.
Coal supplies to industries including CPPs were restricted to 75% of the Annual Contracted Quantity (ACQ) since October 2021 to achieve enhanced supplies to the power sector. The daily despatches to the industries were limited to 200,000 t against the requirement of 500,000 t a day. Supplies to the CPPs alone shrunk by 31.7% y-o-y so far, the Coal Ministry data shows.
According to sources in the industry, notwithstanding the Cabinet Committee of Economic Affairs’ guideline that the targeted allocation to the NRS consumers should be at least 25% of total CIL production, despatches to NRS consumers have been 14% of total despatches so far. As per the CCEA guidelines, the proportion of coal allocation between the power and the non-power sectors should be kept at the same level as the average proportion in the last five years, i.e. 75:25. But the actual supply ratio to the NRS has been much lower during the last six months.
In such a situation, the fertiliser industry has been suffering immensely. The tea industry, the country’s fourth largest exporter, is paying a hefty premium to the tune of INR 18,000-20,000/t to source coal.
The majority of the industry, which is highly power intensive, has set up their own captive power plants having coal linkages with CIL subsidiaries by rail and road. These plants have been designed to run with domestic coal and require a minimum 80% domestic coal to mix with 20% imported material. Due to design constraints, it is difficult to operate these plants on 100% imported coal. Also, with a view to reduce the quantity of imported coal, which puts additional burden on the exchequer by way of precious foreign exchange outflow especially when India is having abundant coal resources, it is always recommended to rely more on domestic coal.
It is important to note that most of these industries are located in the vicinity of coalfields in India which do not necessitate long distance coal transportation with a much better turnaround of rakes unlike for many power stations which are >500 km to 2,000 km.
Recently, the difficulties for the industry have further aggravated as CIL made non-power rakes almost zero during an apprehended power crunch situation, which used to be 4-6 rakes/day. CPPs are either kept idle or industries linked to CPPs are forced to buy power from the market, leading to system inefficiency in the form of high A&TC losses and higher specific consumption of power while running at low capacities.
Continuous process plants are compelled to purchase from power exchanges, leading to increase in power demand and inflated exchange rates. This is resulting in lower availability of power for domestic consumption, making it impossible for the State-Discoms to source power from exchanges in large volumes and higher rates.
Considering the above, it is highly recommended to augment coal supplies to non-power sector and this can be achieved easily in the coming months, as there is a momentary drop in power demand and power utilities and IPPs have about 15-20 days of coal stocks at plant head.
(To be continued… This article is the first in a three-part series on logistical constraints besetting India’s coal sector)
By KAPIL DHAGAT
The author is Executive Vice President and Head BU Coal Jindal Steel & Power Limited (JSPL)
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