Indian coal demand has been jolted by the national wide lock-down imposed to curb the spread of COVID-19.
Lack of industrial activity has drastically lowered coal dispatch to the consumers given stock at CIL pit-head mines have reached unprecedented levels.
While, adequate measures have been kept in place to ensure that customers are relieved from financial hardships and they continue to lift during the difficult period. It is foremost important to analyze these efforts, at a time when the government is encouraging participation of private players in coal sector via commercial mining.
Immediate measures:
With the sudden announcement of lock-down, the country came to a standstill. Hence, CIL and its subsidiaries had taken following actions in order to expedite lifting of coal.
(a) Extension of RDO validity.
(b) Extension of time limit for payment against coal value.
(c) No restrictive action against default in payment.
(d) Usance LC (Irrevocable Revolving Letter of Credit) as a mode of payment for supplies under FSA/linkages.
Medium-term measures:
With the purpose of further releasing part of the financial burden on coal consumers, these measures were taken by CIL board and implemented across the subsidiaries.
(a) Removal of upper cap on coal prices for auction: CIL announced that reserve price of coal for both power and non-power sector would be kept same as notified price in various auction for the first half year period of FY21.
(b) Waiver of Performance Incentive: In view of the sluggish market condition, the applicability of performance incentive under all power FSAs (Fuel Supply Agreement) have been waived off towards the dispatches for the first half year period of FY21.
(c) Increase in trigger level of coal supplies: CIL has decided to raise the trigger level for penalty to 80% of ACQ (annual contracted quantity) for the power plants in FY21, whose present trigger level in existing FSA is 75% of ACQ.
The consumers have been urged to avail this opportunity to ensure increase in the level of assured supply.
Additionally, CIL subsidiary, BCCL, has cut the prices of high volatile medium coking (HVMC) coal by 10%, across three grades lying in the lower end of the specification table, in order to envisage higher buying.
Long-term measures:
While the above measures are taken on a temporary basis, which would be reviewed when the situation is brought back to normalcy. CIL has also implemented remedies to ensure that consumers shift their focus on domestic coal instead of imports.
(a) Application for import substitution: CIL has requested the power plants to submit their demand for FY21, who are desirous of procuring domestic coal as substitution for the imported grade.
The objective of this provision is to bring down imports at a time when CIL has sufficient availability of coal suitable for power plants.
(b) Provision of Linkage Rationalization: CIL has said that it would carry-out another round of linkage rationalization for the power plants, although the last date of EoI submission has been extended due to lock-down.
The exercise is aimed to transfer coal linkage of a thermal plant from one coal company to another in order to reduce the landed cost of coal.
Privatization of coal sector to provide stern challenge for CIL:
Though most of the medium and long term measures were taken to support power plants, no concrete action has been planned to assist the non-power sector regarding coal supplies.
However, adequate stock available at the power plants indicate that CIL would repeat the performance of FY19 by augmenting coal supplies to the non-power sector.
The privatization of coal sector would only improve the self-dependence of consumers specifically of the non-power sector, where the government has brought policy reforms through:
(a) revenue sharing mechanism instead of regime of fixed INR/MT, wherein production earlier than schedule would be incentivized though rebate in revenue-share.
(b) Open participation: any party can bid for coal block and sell coal in open market. Earlier, only captive consumers with end-use ownership could bid.
(c) Liberalized entry norms: no eligibility condition, only upfront amount required.
(b) Exploration-cum-production regime: Against earlier provision of auction of fully explored blocks, now even partially explored blocks would be auctioned. Besides, it would allow private sector participation in exploration.
Nonetheless, at this moment of time, it is safe to say that demand slump faced by CIL is far greater concern than commercial mining.
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