How Dynamic Policy-Making Helped India In Managing Coal Supplies

The last two years were tumultuous for the world economy. Every country suffered. However, India’s policy response and the overall outcome remained better than most.

The credit goes to dynamic policy-making. The recent invoking and revoking of mandatory coal import orders for power generation, were perfect examples of this new approach.

In May this year, the Union Power Ministry invoked section 11 of the Electricity Act, 2003, making it mandatory for domestic coal-based generation companies to blend 10 per cent imported fuel.

Imported coal-based plants were offered the cost pass-through due to a spike in global prices.

The sharp reaction was necessary to bridge a mammoth supply gap of imported fuel that was building up since the second half of the financial year 2021-22 (FY22), in the face of rising global prices and a depreciating rupee. The trend consolidated after the Ukraine crisis.

Indian power sector imported barely 27 million tonnes (mt) of fuel in FY22, down from 69 mt in the pre-covid year of FY20. Overseas supplies suffered vis-à-vis 8 per cent rise in generation in FY22.

Domestic producers fired from all cylinders to mitigate the gap. Coal India (CIL), Singareni Collieries (SCCL) and captive sources together ramped up supply by 19 per cent to approximately 813 mt in FY22.

The government paid focused attention to ensuring the electricity supply. Between FY22 and FY20, fuel supplies to the power sector increased by 19 per cent. In comparison, captive power (paper, aluminum etc) and steel received 33 per cent and 24 per cent less coal.

However, the gap persisted. Coal stock at domestic fuel-based power plants was only 39 per cent of the normative requirement on 1 April 2022. This was mostly due to the near-complete abandoning of imports by states.

The situation was critical in states in southern and western India, which disregarded power purchase agreements with imported fuel-based gencos due to cost considerations. The pressure was built on the Centre to supply domestic fuel.

Considering the inelastic nature of rail logistics, no government in the world could meet this demand. Naturally, they suffered power cuts and ran low on coal stock.

As of 1 April, the state genco of Andhra Pradesh had 7 per cent of requisite fuel, Karnataka 8 per cent, Tamil Nadu 12 per cent and Maharashtra 17 per cent. At ransom were India’s growth opportunities, as these states were also top industrial destinations.

And, that had put the Centre in a tight spot. The government was working overtime since 2020 to take advantage of global uncertainty to attract investments in India. Any chaos was potent to damage the optics.

Though domestic supplies looked comfortable to tide over the summer demand, Delhi was wary of the long monsoon season when the nature god can play truant. Repeated alerts, beginning end of FY22, didn’t elicit a due response from the state governments.

During April-May 2022, power plants received a little over 5 mt of imported fuel. Annualised the flow was slightly above FY22. Only the central public sectors stepped up gas on imports. NTPC awarded 10-11 mt import contracts between October-March 2022.

It was at this juncture that the Centre made 10 per cent import blending mandatory. To help everyone to source coal from the global market at a competitive price, CIL was asked to play the role of canalizing agency.

Based on indents placed by over two dozen gencos; CIL entered a preliminary agreement with the least cost supplier for the import of upto 12 mt fuel during FY23. The actual import will be need-based and will depend on firm commitments by the gencos.

The framework was set in mid-July. A fortnight later, the Ministry of Power revoked the mandatory blending norm order and, for valid reasons.

First and foremost, the objective was to safeguard the nation from any potential energy crisis in the first half of FY23, when production suffers seasonal vagaries.

With domestic production up by 26.5 per cent during April-July 2022, India now has a strong inventory of 76 mt of fuel (including pithead stock of CIL, plant-end stock and coal in transit). This is equivalent to 42 days of supply.

Available estimates suggest that roughly 17 mt of fuel was imported for blending purposes alone, during April-July 2022. Another 10-12 mt fuel will arrive in August and September. It means the imports in April-September FY23 may be comparable to the total imports in FY22.

This has helped ease the overall supply scenario. Stock at domestic fuel-based plants is 54 per cent of the requirement. Though a lot is yet to be done, supplies to industrial consumers are improving.

The imminent crisis is mitigated. The political resistance of states to import is broken. Arrangements are in place to meet their import demand on tap. It is time to move ahead and step into the busy season with new enthusiasm.

Also Read: New Rail Link In Jharkhand To Ramp Up Coal Evacuation Capacity