*CIL’s supplies to non-power sector fall by 7% y-o-y in FY’22
*Allocations fall sharply in single window auctions in April
*Supply situation remains constrained during summer season
India relies majorly on coal to cater its ever-increasing power demand and has an annual consumption of around 850 million tonnes (mnt) of non-coking coal. Apart from bulk usage in thermal power plants, coal also finds wide application in manufacturing of cement, sponge iron and other thermal processes.
State-run miner Coal India Ltd. (CIL) accounts for the major chunk of almost 80% of the country’s total production. The remaining output comes from the Singareni Collieries Company Ltd. (SCCL) in Telangana and a mixed bag of small-scale captive and merchant miners.
On its part, CIL accords top priority for coal supply to the power stations via Fuel Supply Agreements (FSA) which are of long-term nature providing coal at a fixed price. The provision is also in place for several non-power units which require uninterrupted coal supply.
The remaining end-users largely depend on regular e-auctions conducted by CIL’s subsidiaries to meet their domestic supplies.
Electricity is a vital growth indicator for an economy and to ensure its uninterrupted supply the government wants to make an all-out effort to provide sufficient coal supplies to power plants.
The situation this year has been critical on the low inventory position at plants which has started to decline at a faster rate at the beginning of summer. Hence, the coal companies are curtailing supplies to the non-power sector in order to avoid a fresh round of shortage at the power plants similar to the one seen last year.
Strong power demand
CIL attained highest-ever production and dispatches in FY’22, but it failed to replicate this performance in catering to the non-power sector’s coal supply.
Driven by unprecedented rise in power demand, the company’s coal dispatches to the power sector soared to a record 540.14 mnt in FY’22, up 22% y-o-y compared to 443.01 mnt in FY’21.
However, in doing so, its supplies to the non-power sector fell by 7% y-o-y to 121.75 mnt during this period.
Indian power demand amid the pandemic has significantly affected CIL’s supply pattern. As a result of the Covid outbreak in FY’21, power demand had fallen drastically. That was the time when CIL had stepped up coal supplies to the non-power users due to muted demand from the power sector. Besides, the end-user segment had opted to lift higher volumes as e-auction sales were capped at the notified price in the first half of the fiscal.
However, with the gradual easing of lockdowns, the country saw an unprecedented surge in power generation during FY’22. Consequently, there was an abrupt rise in coal demand from power plants which forced CIL to curtail its supply to the non-power sector.
Demand for power is still going strong buoyed by soaring temperatures in peak summer. Notably, power consumption during the first 16 days of Apr’22 increased to 4.41 billion units (BU) against 4.20 BU in the corresponding period of Mar. The present consumption rate is also 11% higher than the levels seen in Apr’21, as per data provided by Power System Operation Corporation Ltd. (POSOCO).
In addition, the power sector is currently facing operational hurdles due to record-high imported coal and gas prices. As a result, several state governments have imposed power cuts to make up for the deficit.
Evidently, the shortfall in power supply has widened to 884 million units (MU) during 1-16 Apr’22, recording a five-fold jump compared to 174 MU in the corresponding period of Mar.
Single window: Little on offer
Disparity in coal supply resulted in a critical situation for the non-power sector at a time when imported prices were also rising. As a result, buyers were seen rushing to procure coal in auctions at higher bid prices. The introduction of the single window policy in Mar’22 helped CIL to generate higher revenue.
The provision of single window was initiated by merging various sector-specific auctions on a common platform. This also meant no separate auction for the power and non-power sectors.
Earlier, there were five separate auction schemes in place for coal sales, namely spot, exclusive, special forward, special spot and special spot for coal importers. These were used to cater the requirements of different sets of customers. Ultimately, the spot scheme, which was already in place catering to a gamut of coal consumers, including traders, became the preferred choice for sale under the single window.
Sales under the single window began on a strong note as the entire volume was booked at a premium of 290% over the notified price during Mar’22. The premium was recorded at a mere 14% for the series of auctions held in Apr’21.
Despite firm demand there have been few auctions recently, with Bharat Coking Coal (BCCL) and Eastern Coalfields (ECL) being the only subsidiaries showing interest. These two have together offered a nominal volume of 0.28 mnt of coal in auctions till 18 Apr.
In sharp contrast, the offered volume was 6.89 mnt in the similar time-frame in Mar, with the all the subsidiaries participating in the auctions.
Logistics – a challenge
At present, CIL has ample coal availability with inventory at its pit-head mines assessed at 60.71 mnt as on 31 Mar’22. However, challenges with regard to logistics imply that there is a limit in raising coal supply which calls for substantial development in the existing infrastructure.
With the onset of summer, coal inventory at plants has started to decline. As on 17 Apr’22, the stock level was assessed at 22.79 mnt as against 25 mnt seen over the past three months.
Notwithstanding the demand, these plants have been put in a hand-to-mouth situation by being supplied coal at an average of 2.16 mnt per day during 1-17 Apr’22, which is lower than the consumption rate of 2.29 mnt per day.
Outlook
The Ministry of Power has recently advised state governments to ensure that imported coal-based plants are fully operationalized and also laid emphasis on coal imports for blending purposes.
However, with international coal prices at elevated levels any significant increase in imports is limited as the power producers would find it difficult to pass on the elevated costs. Besides, the auction route also seems an unlikely avenue for these buyers as the non-power segment would possibly acquire a majority of the allocation at higher bid prices.
In such a situation, the power sector would continue to rely on CIL for supplies via FSA, thereby depriving the non-power sector of its share. The present situation has put the non-power sector in a tight spot as it has to plan for their fuel requirement well in advance and any sudden change in supply from domestic sources creates a huge impact in operations.
This situation is likely to continue until adequate stock levels are maintained at the power plants before the onset of monsoon, as coal supply gets affected during the rainy season.
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