Indian government has eased the burden on power producers by lowering their coal import targets meant for blending purpose.
The decision came as a major relief for several power producers who were already opposing coal imports due to elevated prices, leading to a considerable rise in power prices.
However, it is expected that the relaxation would impact the non-power sector whose domestic supplies are already going through a rough patch resulting from the prioritisation to the power sector.
As per revised guidelines, the state-run and private plants can decide on the blending percentage of their own after assessing the availability of domestic coal supplies. Besides, the central-run plants were directed to bring down the blending percentage to 5% and halt raising further import indents.
This contrasts sharply with the power ministry’s earlier directive instructing the plants to import 10% of their coal needs for blending with domestic coal, failing to which curtailment in domestic coal supply was proposed.
Contribution from imports
India caters almost 75% of its total coal requirement domestically. Nevertheless, imports played a crucial part in reviving the depleted inventory levels at power plants amid elevated power demand this year.
At the end of April 2022, coal inventory at plants fell to a low of 21.94 mnt driven by intense heat-waves. This has gradually improved to 29.85 mnt as on 31 July 2022.
Imported coal helped the power plants to build stock to the tune of 4.38 mnt, as their inventory grew from 2.14 mnt at April-end to 6.52 mnt in July-end. On the other hand, domestic coal added 3.53 mnt to the inventory in this period.
It is important to note that domestic coal-based plants have imported 9.21 mnt coal in the first quarter of FY23–the quantum of imports has already surpassed the total imports of 8.11 mnt recorded in FY22.
Non-power sector’s dilemma
The relaxation in import norms basically means the power sector would again dwell upon domestic supplies to meet the additional demand, which in turn, will further curtail supplies to the non-power sector.
At present, state-run miner Coal India Ltd (CIL) is supplying coal to the non-power sector at an average of 7-8 mnt on a monthly basis in FY23. This is comparatively lower against 11-12 mnt per month supplied in FY22.
Added to this, CIL deciding not to renew FSA contracts under linkage auctions would come as a fresh blow to the non-power sector as they now have to compete in the regular spot auctions which are fetching high bid premium amid supply tightness.
To mitigate the shortfall in supply monsoon, the government has already taken adequate measures to ensure ample availability to the power plants.
Consequently, CIL’s coal supply to the power sector increased 21% y-o-y to 199.49 mnt during April-July 2022, whereas, for non-power sector, it was down 29% y-o-y.
Any drastic surge in coal-based power generation as witnessed in August 2021 would worsen the situation in case the power plants limit coal procurement via imports.
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