Flush with coal, power sector refuses supplies

Temperatures soared to record highs in April. To keep up with the rising demand, electricity generation was 9.5 per cent higher than the monthly target and 20 per cent more than during the same period last year.

And yet, Coal India sold 7 per cent less fuel to power stations. This was because power plants were flush with coal, and took the opportunity to dilute stocks to a more manageable level of 23 days, from a high of 26 days at the beginning of the month.

The inventory is still higher than the normative requirement of 21 days and 15 per cent higher than last year. Not a single plant in the country is suffering from critical coal stocks. In other words, CIL will continue to face sluggish demand this summer.

It’s all a far cry from the same period in 2014, when power plants had less than 10 days’ supply on an average, with many reporting critical (less than seven days) and super critical (less than three days) stock positions.

If the country is blessed with a good monsoon, as predicted, part of the incremental production will just lie at the pithead, unless CIL decides to revise its production growth targets or industrial demand picks up dramatically.

Prudence demands that CIL regulate production substantially to clear a good part of the stock. Coal left in the open in extreme heat will catch fire and be reduced to ashes.

With industrial growth remaining sluggish, CIL did regulate production in April. Output declined by 1.06 million tonnes compared to last year. This helped dilute inventory by 2.36 mt to 55.31 mt or 10 per cent of last year’s production.

But, the government is not comfortable with the idea as it will expose the stuttering economic growth. Instead, it is pushing for 12 per cent production growth this year.

“The outlook is far from optimistic,” admits a coal official. The miner is trying to stay afloat by supplying more coal to non-regulated sectors such as metals, cement and others who operate in the open market and pay at least 40 per cent more for fuel than the power sector.

Traditionally, CIL directed 20-25 per cent of its supplies to this sector. But the last couple of years saw it pushing nearly 90 per cent of production to power, under government directives.

The loss was mutual. While the non-regulated sector depended on imports, CIL sacrificed earning potential.

In a shift, the government now allows CIL to offer 25 per cent of the incremental production (of the previous year) to the non-regulated sector through linkages. This is over and above the existing 25 mt linkage to the sector.

But there are worries about whether the non-regulated sector will show interest in linkages or will prefer a plain vanilla forward auction.

In the recently concluded forward auction of 3.5 mt of coal, CIL allowed participation of large captive power producers along with generating companies.

The auction was completed in two days, courtesy the participation of top aluminium makers Balco, Sterlite and NALCO, among others.