Coal Output on a High But Demand Dries UP

Debt-ridden state power utilities lower purchase of coal and power

Just three years after India's power sector faced a fuel crisis, the domestic coal availability at thermal power plants has reached an all-time high. However, this is unlikely to translate into equivalent power availability, given that the country's power distribution companies are suffering heavy losses.

The average coal availability at power stations in September has been at a record stock of 23 days. Coal India Ltd's (CIL's) production achievement in August stood at 96 per cent, while India's coal imports in July declined 19 per cent from a year ago to 19.3 million tonnes. Thermal coal imports were down 11 per cent on a year-on-year basis.

In July, however, the national average plant load factor (PLF), or thermal power plants' per-unit output, also declined to 58.36 per cent - the lowest in three years.

Senior CIL officials say states have started asking its subsidiaries to stop coal supply, as they cannot clear their past dues and pay for more coal. Rajasthan and Madhya Pradesh, for instance, have said they cannot lift any more coal, given their past dues, low power demand, and weak purchasing power.

Simply put, this implies there is enough coal, and a power-generation capacity of 275,000 Mw, but there is no demand for surplus power. The poor financial health of power distribution companies (discoms) is now hurting the whole supply chain.

Weighed down by losses to the tune of Rs 2 lakh crore, power distribution companies (discoms) across the country are facing a subdued demand. The national peak power deficit in July 2015 was 2.6 per cent, against 3.5 per cent in the same month last year. The annual peak deficit for 2014-15 is expected to be between 2.1 per cent and 2.5 per cent, a huge drop from the 4.5 per cent for 2013-14.

"This is a disastrous trend reversal. There is enough coal now, but states don't have the purchasing power. They face a precarious situation; they cannot pay their cost or buy more coal to produce more power," says a senior CIL executive who does not wish to be named.

The Narendra Modi-led government at the Centre scaled up its coal production plan in the past year. CIL estimated the country's total coal demand to be 900 million tonnes this year. Of this, the company hopes to add 500 million tonnes during the current financial year.

Earlier, India's import of coal had risen sharply - from 81 million tonnes in 2010 to 142 million tonnes in 2013. But imports have declined lately on the back of an increase in domestic production. Market experts see enhanced domestic production easing the coal shortage that the country faced in 2012-13, and further reducing the import requirement.

"There will be an increase in demand for coal from both power and non-power sectors. The production has increased in the past year but is not yet close to meeting the annual demand of 900 million tonnes. At the coal ministry, we believe the more we produce, the better off we will be," says Anil Swarup, secretary in the coal ministry.

The government is also auctioning coal blocks to private companies. The 45 operational coal blocks that it has so far allotted to the private sector will start production by next year. Another 160 mines are listed to be auctioned, and so are long-term coal linkages.

But if the state utilities are not able to buy power, the interim arrangement of dues to be paid to power producers will be put off. "As a power supplier, NTPC will ask for more money to produce power. But the discoms are in no position to pay," said a Delhi-based power-sector analyst.

"In the short term, unfortunately, that is the situation with state utilities, which are in a bad financial health. It will take time, given the country's fiscal health and its ability to support the electricity utilities. India has seen low economic growth over the past two-three years," says Sambitosh Mohapatra, partner (Power & Utilities), PwC India.

But Swarup is confident that the current scenario is just a fleeting phase. "There are some states from where the demand is low, but a temporary situation cannot be seen as a long-term issue. There are all compelling reasons to increase production," says Swarup. Mohapatra agrees that there will be an increase in demand, as the government is working on a restructuring plan for discoms. "The government is pushing for a clean-up of balance sheets of state-owned utilities, which have accumulated huge losses. And then, under the 'Make in India' programme, village electrification and 24x7 power to all households will stimulate demand soon," he says. He, however, warns that unless these measures take place and start making an impact cumulatively, other efforts might not be sustainable.

Reference - http://www.business-standard.com/article/economy-policy/coal-output-on-a-high-but-demand-dries-up-115090700035_1.html