Domestic coal supplies likely to be comfortable this fiscal

Slower growth in coal demand by the power sector and higher level of supplies may keep domestic coal availability comfortable this fiscal.

According to sources, the slowing demand is due to the tardy implementation of power projects.

Delay on the part of State distribution utilities (discoms) in signing power purchase agreements (PPA) through tariff bidding, following the phase-out of the negotiated PPA regime in January 2011 has also played its part.

Tall projections

As part of the Presidential Directive issued in April 2012, the Government presented a list of 132 power stations with a combined capacity of 60,600 MW scheduled to be operational from April 2009 to March 2015.

CIL was asked to enter into fuel supply agreements (FSA) with these power stations, requiring approximately 300 million tonne (mt) of fuel.

With supplies falling far below the projected demand, CIL agreed to enter into FSAs promising 65 per cent of domestic supplies to new capacities.

However, contrary to its own estimates, the coal major managed to supply nearly 80 per cent of the fuel requirement of the new power stations in 2012-13.

Overall, the power sector was supplied with 91 per cent of the required coal — at least 5-6 percentage points higher than the original estimates. This despite CIL missing the coal despatch targets (470 mt) by 5 mt.

Thanks to robust supplies, the country’s power sector was flush with nearly 15 days coal stock in March.

Lower demand

The reason, sources point out, is the slow growth in project implementation. As against 32,000 MW of new capacities scheduled to be operational till 2012-13, CIL could confirm only about 25,000 MW.

Moreover, many producers could not operationalise FSAs in the absence of power purchase agreements.

The tariff based (case-I and case-II) PPA model suffered a jolt following demands for revision in the terms and conditions of PPAs from such key producers as Tata Power (Mundra ultra-mega power project) and Adani Power (Mundra).

According to CIL, some companies, such as Lanco (Anpara), did not procure supplies in February as it had run up nearly Rs 600 crore coal dues. The weak financials of discoms have also forced at least seven State government-run utilities to go slow on coal procurement.

While West Bengal has formally communicated this to CIL, citing inadequate storage space, Haryana, Uttar Pradesh, Gujarat, Rajasthan, Madhya Pradesh and Punjab have informally requested Coal India to slow down despatches.

Comfortable stock

Interestingly, if demand grew as per projections, India would have faced its worst domestic coal shortage in 2013-14.

According to a CIL internal assessment, with the scheduled addition of 10,845 MW capacities during the year, the miner could have defaulted on its supply commitment to new capacities (post-2009).

On the contrary, the aggregate coal stock with power producers has moved up by 2-3 more days stock as of April. The improvement in coal availability has been confirmed by the power sector.

“CIL’s focus on increasing offtake by liquidating pithead stocks has made a major difference in the supply scenario,” says an official in a state-run power sector in West Bengal.

While the evolving scenario has made CIL confident of predicting adequate availability of domestic coal to the power sector this fiscal, the miner is concerned about the fate of its offtake target in 2013-14.

Having increased supplies by 32 mt (7.4 per cent) in 2012-13, CIL plans to increase offtake by another 27 mt this fiscal.

The concern is not limited to CIL. The Railways too, is concerned about lower than projected growth in freight earnings.