Faced with declining sales after contracted buyers from the power sector refused to take delivery of fuel, Coal India is set to offload an estimated additional 20 million tonnes of fuel in the open market this year with flexible offtake options.
At a recent board meeting, the miner decided to do away with a ceiling imposed by a 2007 policy, under which CIL was restricted from selling more than 10 per cent fuel in the spot market. To tap smaller consumers, spot e-auction norms will be relaxed to allow traders to participate.
But August and September were devastating, with offtake down by 9.6 per cent and over 4 per cent, respectively, relative to last year. Taken together with a mere 0.2 per cent sales growth between April and August, the first six months are likely to record negative sales growth.
Normally, CIL witnesses a pick-up in sales from September as electricity generation units start storing coal to meet the festival-season demand.
But this year has been different, owing to sluggish industrial demand, distress sale of electricity by IPPs burdened with idle capacities and supply of cheap hydro-electricity in the market. Overall, it makes for a dismal scene. While the Central Electricity Authority records 7 per cent growth in coal-based electricity generation from April to September 21, CIL is witnessing decline in sales compared to last year.
Complex dynamics The problem has its roots in CIL’s excessive dependence on contracted buyers, most of which are in the state sector.
During the fuel crisis, the government forced the company to overlook the demands of all other customers and enter into fuel supply agreements with power producers, who now account for over 90 per cent of CIL’s sales. Such supplies are effected only if the generator has a firm power supply agreement with discoms. But discoms are not very interested in entering into such agreements as coal is available in the open market at half the cost, since beleaguered IPPs have resorted to distress sales.
Alarmed by the 25,000-30,000 MW idle power assets in the country, the government allowed CIL to sell fuel to such utilities through mechanisms such as forward e-auction, beginning 2015. The mechanism has been popular as stressed power plants consumed 35 million tonnes of fuel this year against 14 mt last year. On the flip side, most of them are dumping electricity in the open market merely at the recovery-of-operation cost.
Moreover, given the meltdown in global prices, imported coal-based units have also started dumping electricity at throwaway prices. There is little method in this madness except that it dragged the average tariff down to ₹2.5 in the open market. Increased hydro-electricity supplies added to the trouble. The net result is that States like Rajasthan, UP, West Bengal, Punjab, Karnataka and others preferred to shut down their own utilities and meet demand through open-market purchases. Some States such as Bihar found it profitable to turn down Central supplies by paying fixed costs and resorting to open-market buying. The State is among the top five buyers at the IEX for the past month.
Market opportunities CIL sources see this as an opportunity to create a domestic market for fuel. According to sources, too much of regulation has spoilt CIL’s market opportunities. While CIL faces a lack of demand, the country imported 2 mt more petroleum coke till September. The petroleum product having higher energy value replaces double amount of coal demand. Moreover, pet coke does not attract ₹400 a tonne clean energy cess. Thermal coal import stands at a considerable 63 mt.
Customer satisfaction To survive the onslaught, CIL is trying to focus on customer satisfaction. Issues with grade slippage reduced. More improvement is expected from October as third-party sampling will be mandatory for the power sector. With time, this norm will be applicable to all consumers. There is some consideration to follow the footsteps of the mining sector in giving suppliers credit to boost demand.