Coal Shortage in India – Explained, pointwise

Introduction

Russia’s attack on Ukraine has led to sudden rise in global commodity prices. Russia is the largest exporter of natural gas, fertilizers and wheat. It’s the second largest exporter of oil after Saudi Arabia. In terms of coal, it is the third largest exporter globally. The supply of these commodities has been negatively impacted owing to the numerous sanctions imposed by the west on Russia. This includes coal with the prices going up big time. Countries dependent on coal imports will be impacted, including India, where coal shortage is becoming acute.

About Coal Reserves in India

It is the most important and abundant fossil fuel in India. It accounts for 55% of the country’s energy needs. The country’s industrial heritage was built upon indigenous coal. The Coal resources of India are mainly available in older Gondwana Formations of peninsular India and younger Tertiary formations of north-eastern region.

Coal is India’s most abundant fossil fuel. As of 1 April 2020, the total geological reserves of coal in India stood at a little over 344 billion tonnes.

Hard coal deposits spread over 27 major coalfields, are mainly confined to eastern and south central parts of the country. The lignite reserves stand at a level around 36 billion tonnes, of which 90 % occur in the southern State of Tamil Nadu.

What is the current status of coal stocks?

India is the 2nd largest producer and consumer of coal in the world after China. Coal stocks at power plants across the country are down in comparison to their normal levels. The insufficient stocks of coal are reflected in data released regularly by the National Power Portal (NPP), which tracks the coal stocks at thermal power plants across the country. 

As of April 21, the thermal power plants across the country had a total stock of 21.9 million tonnes (MT) of coal. The daily usage of coal at these plants stood at 2.7MT.

This means that the power plants have enough coal for eight days. This is much better than the stock of four to five days that these plants held in October but significantly lower than their long-term average in April which is 17 days. NPP data suggests that the stock levels in 108 out of the 173 power plants are at critical levels. As of 1 April, the stock levels at 80 power plants were in a critical situation. The stock level at a thermal power plant is deemed to be critical if coal stock is less than 25% of normative coal stock. India is thus facing an acute coal shortage.

How has the coal dynamics changed over the years?

Source: Mint

Chart 1 shows that over the years, both domestic coal production and imports have risen. Chart 2 on the other hand shows that imports have been rising as a proportion of total coal consumption in India.

More than two decades back in 2000-01, coal imports formed just 6.9% of the overall coal consumption. Over the years, they have increased to around one-fourth of the overall coal consumption, peaking in 2014-15 at 26.1%.  In 2021-22, for the period from April 2021 to February 2022, coal imports made up around 21.7% of the overall coal consumption during the period.

What are the reasons behind the rise in imports?

Increase in Coal Based Thermal Power plants:  As of March 2001, the total installed capacity of these plants had stood at 60,935 MW. By February 2022, this had gone up to 235,929 MW, an increase of close to 300%. The plants demanded more coal for electricity generation.

Demand from other sectors: Coal is also used for manufacturing steel and cement, among other things. The production of finished steel (alloy and non-alloy) has gone up from 29.3 MT in 2000-01 to 113.6 MT in 2021-22. The production of cement is also expected to go up to 379 MT in 2021-22.

Slow growth in Domestic Production: Since 2001, the coal production within the country has increased at the rate of 4.4% per year. However this increase was unable to meet the rising demand.

What are the reasons behind the current coal shortage in India?

Fall in Imports: The imports in 2021-22 (April 2021 to February 2022) have come down. They had stood at 198.9 MT during April 2020 to February 2021. They came down by 5% during April 2021 to February 2022 to 188.8 MT. This was primarily on account of coal prices going up dramatically, making coal imports unviable. The situation got even more troublesome post the onset of the Russia-Ukraine conflict.

Reduction in Domestic Supply: It has been disrupted due to the reduced availability of railway rakes to transport coal. Further, historical data between 2013 and 2021 tells us that on an average, Coal India produced 67.5 MT of coal in March. In April, the average production was 40.6 MT or only around three-fifths of the production level in March. 

Rising Demand: There has been an increase in the demand for electricity as the economy has recovered. Further, the early onset of summer has led to an increased usage of air conditioners, fans, coolers and refrigeration. 

During a period of 15 days ending 10 April, the demand for electricity went up by 9.5% in comparison to the same period in 2021.

What steps have already been taken to address coal shortage and augment supply?

Improved Auctioning Mechanism: Auction of commercial mining on Revenue Sharing Mechanism was launched in 2020. Further, in order to expedite the process for conducting auctions and to carry out more rounds of auction in a year, a mechanism of rolling auctions of coal mines has been planned.

Single Window Clearance:  It was launched in 2021 for the coal sector to speed up the operationalisation of coal mines. It is a unified platform that facilitates grant of clearances and approvals required for starting a coal mine in India.

Allowed sale of excess coal production: The government amended the Mines and Minerals (Development & Regulation) Act in 2021. The amendment paved the way for releasing of additional coal in the market by greater utilization of mining capacities of captive coal and lignite blocks. These were being only partly utilized owing to limited production of coal for meeting only their captive needs.

Coal India Ltd. has envisaged a coal production programme of one Billion Tonne from CIL mines by the year 2023-24. CIL has taken the following steps to achieve the target of augmentation of coal production capacity: (a) 15 Projects identified with a Capacity of about 160 MTPA (Million Tonnes per Annum) to be operated by Mine Developer cum Operator mode; (b) Capacity addition through special dispensation in Environment Clearance under clause 7(ii) of Environmental Impact Assessment (EIA) 2006; (c) CIL has taken steps to upgrade the mechanized coal transportation and loading system under ‘First Mile Connectivity’ projects.

What lies ahead?

First, the coal shortage might result in more power outages in summer and a diversion of coal away from non-power sectors (e.g., aluminium, cement, steel), weighing on industrial output and increasing electricity costs. 

Second, the coal shortage could become another stagflationary shock. The word stagflation is a combination of stagnation and inflation. It typically refers to an environment of high inflation and slow economic growth. Some of this shock can be lessened if railway rakes can be made available quickly.

Third, Coal fuelled power generation plants which are under the corporate insolvency resolution process can be allowed to commence operations immediately, regardless of the stage of the proceedings at NCLT. This will save the coal transport time and quantity limitations in coal transportation to non-pit head coal plants. 

Fourth, India can also enter into an agreement with Russia for buying coal at lower prices. It has already bought discounted oil from the nation amidst western sanctions. 

Fifth, in the long term focus should be placed on enhancing solar, wind and other renewable sources of power. This will reduce dependence on coal and improve pollution levels in the country. 

Conclusion

India needs to augment its domestic production capacity and enter into long term contracts with major coal producing nations for ensuring a steady supply of coal. The country must acknowledge its huge dependency on coal and gradually scale up its clean sources of power in the spirit of the UN’s sustainable development goals.

Source: Mint, PIB