Why Coal Availability has become Scare in Domestic Market?

A lot has been heard about the ongoing coal shortage that has grasp the domestic coal market, CoalMint has came up with an brief analysis of the factors that have eventually led to the current situation.

It all had started towards the end of the last fiscal year , when CIL was making desperate efforts to achieve its yearly coal production of 598.61 MnT for FY17.

CIL monthly coal production had hit record high of 66.07 MnT in Mar’17. However despite the enormous growth, the company fell short of its production target by 44.48 MnT, as total production was 554.13 MnT in FY17. While the Overall Dispatch was 543.16 MnT in FY17, against the set target of 598.61 MnT.

Beginning of new Fiscal: CIL cut down monthly coal production to clear off excess coal stock

At the beginning of the new fiscal FY18, CIL monthly production was just 38.44 MnT in Apr’17. Officials from CIL had lowered monthly coal production because of the low demand from power sector. This also provides CIL to an opportunity to clear off the excess stock available at the mines.

The production cut down was continued till Jul’17 as CIL was looking to clear their stock. In turn, monthly coal offtake was higher during the same period.

In the period of low demand many power producers were also lifting off lesser coal of their share of allotment.

CIL’s Coal Production and Offtake during Apr’17-Jul’17

Source: CIL
Quantity in MnT

Increase in Power Demand:
According to the data provided by Ministry of Power, total coal stock available at Indian power stations was 16.899 MnT as on 31 Jul’17, sufficient enough for 12 days of power generation. Only 2 plants were having critical stock of less than 7 days at that time.

Then came Aug’17, when power demand had increased. Indian conventional power generation had rose 8% Y-o-Y to 102.711 BU (Billion Units) in Aug’17, compared with 95.261 BU in Aug’16.

Lower monsoon in the country had resulted in Hydro power generation declining by 12% Y-o-Y to 15.529 BU; also Nuclear power generation had dropped 35% Y-o-Y to 2.272 BU in Aug’17, because of the closure of Kudankulam Nuclear power plant in Tamilnadu.

Thermal power generation had rose 15% Y-o-Y to 83.855 BU, in order to cater country’s growing power demand in the wake of lower generation from Hydro and Nuclear sources.

During the period of higher power generation, PLF (Plant Load Factor) of thermal plants had rose to 58% in Aug’17, which was 51.59% in Aug’16. Nuclear power plants’ PLF dropped from 82.18% in Aug’16 to 45.04% in Aug’17.

Source: Power Ministry
Quantity in BU

Consequence of Increased power generation from Thermal Plants:
As a result of the increased power generation from Thermal sources, the normative coal stock available in Indian coal fired plants had fell to 11.868 MnT on 31 Aug’17, sufficient for 9 days of power generation.

The same stock as on 31 Aug’16 was 28.423 MnT, sufficient for 21 days of power generation.

Many coal fired plants which had not maintained sufficient coal stock at their pit head, started facing shortage of coal at their plants and had to close their power units.

Given the robust power generation, coal stock at the power plants continued to deplete, as CIL was struggling to cater their coal demand in the period of low coal production. This created a situation of coal shortage across the country, where many state utilities of the like of Maharashtra, Karnataka state government had started asking for more coal for their coal plants.

Growth in Coal Imports: To meet their coal demands, Indian Non-Coking coal imports had rose 22% M-o-M to 12.20 MnT in Sep’17, which had been earlier falling continuously because of the higher domestic coal production.

Other Factors Promoting Coal Shortage at Plants:
1. Power Plants not maintaining sufficient Stock: Many power plants did not follow CEA (Central Electricity Authority) instruction to maintain normative coal stock of 15-20 days. Power plants were not lifting their quota of coal supply, and were facing shortage when coal burning at plants increased due to growth in power demand.

2. CIL’s failure to open new mines and commission of new railways sidings for seamlessly transporting the power plants.

3. Dhanbad-Chadrapur Rail line Closure: The Dhanbad-Chandrapur line is being closed from 15 Jun’17, on account of underground mine fire. Since no new rail sidings (where coal is loaded in rack) have been developed, it affected coal supply to thermal power station.

Closure of the line affected about 75% of the production of Bharat Coking Coal (BCCL), 8-10 rakes of BCCL’s daily supplies were shifted to CCL, which had already witnessed a 20% shortfall in production during April-July due to rains.

Private sector plants were badly affected during the coal supply crunch, as CCL pruned supplies to private power producers following government instructions to give priority to state-run NTPC.

Government’s Effort to Combat Coal Shortage:
1.Coal supply regulation to Non-power sector: In the wake of Coal shortages, Coal Ministry instructed CIL to regulate coal supplies to Non-power sector, in order to augment coal supplies to power sector.

MCL Supply Cut: CIL’s subsidiary MCL had decided to cut out coal supply to Non power sector, by asking them to lift off only 80% of their monthly scheduled coal quantity during Oct’17 and Nov’17.

3. Increased Coal Production: CIL also had increased its coal production to meet the coal shortage and now is registering regular growth in monthly production.

4. Growth in Coal Dispatch to Power Sector: The growth in coal dispatch to power sector in August, September and October of the current Fiscal has been 20%, 21% and 18% respectively as compared to the same period in the previous fiscal year. This has helped coal based power plants in meeting the spurt in demand of festive and paddy season, despite the drop in generation from hydro, nuclear as well as imported coal based plants.

5. CIL instruction for fast coal movement: CIL in a move to rush more coal to power stations, coal supplies to plants located in shorter distances have been offered through road mode from available pithead stock. As a result, power plants located within 50 Kms to 60 Kms from the mines may take as much coal from the nearest mines as they can.

Outcome of Governments Initiative:
Coal Ministry had been continuous monitoring coal rake movement to power plant. In a recent development, CIL in collaboration with Railways had achieved 250 coal rake movement on Nov’17, out of which 233 rakes were exclusively loaded for thermal power plants across the country.

CIL and Railways are now jointly working on a strategy to enhance loading target to 266 coal rakes per-day which will further help both power and non-power sector in meeting their demands for coal.

At the end of Oct’17, when normative coal stock at power plants had reached 7.866 MnT as on 31 Oct’17, sufficient for 6 days of power generation. Improved coal supplies by CIL have resulted in growing stock at power plants.

Current stock available at the power plant was 10.249 MnT as on 30 Nov’17, sufficient for 7 days of power generation with only 15 plants having coal stock of less than 7 days available to them.

Future Outlook:
Despite CIL’s continuous effort to increase coal production, the stock at power plants still remains close to record-low levels, at 10 MnT or 6-7 days of supply.

The need for coal restocking by power plants will keep domestic coal market tight as hydro power generation is also likely to fall after monsoon.The coal supply regulation for Non-power sector would also result in aggressive buying thus yielding higher auction prices.