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The Coal-Power Struggle

In my previous posts on coal and power I mentioned that poor coal production is also one of the reasons for moderate growth in power generation during the current fiscal. Taking cognisance of the coal-power relationship, a look at coal despatches to power sector gives a clearer picture of the situation.

During the past three years, coal despatches to power utilities by Coal India – India‘s largest coal producer — have been 101%, 102% and 96% of target in 2007-08, 2008-09 and 2009-10, respectively. However, in FY11, up to June 2010, despatches stood at 87%.

While good monsoon in mining areas is one of the reasons, frequent law and order problem in some areas have also hit despatches. Wagon shortage, in comparison to indents in certain coal fields, and poor offtake through private washery operators engaged by power utilities also aggravated the problem.

The pace of coal receipts to power plants have slowed down. The probable reasons include:

  • Lack of adequate infrastructure for transporting coal from mines to the plant locations
  • Slower pace of power capacity addition vis-à-vis addition of industrial production capacity
  • Poor coal offtake by power plants due to a slower growth in demand for power by industries—the largest consumers of power

The latest GDP numbers released for the April-June 2010 quarter indicate a sharp 12% average growth in manufacturing activity during the period, though industrial growth in the month of June was slowest in the past 13 months.

As per the appended table, it is evident that transportation infrastructure has been a hurdle, as 1.87 million tonnes of coal are lying at the Indian ports.

Steps taken by Coal India to increase production in its command area, which in turn enhances supply to power sector, is as under:

  • CIL has identified 142 new projects during the 11th plan period. The final capacity will be 380.22 million tonnes. Of 142 identified projects, 76 have been approved so far, and expected contribution from these projects will be 110.95 million tonnes in the terminal year of the plan (2011-12).
  • Six high-capacity underground mines identified for development and operation through latest technology.
  • Restart mining in 18 abandoned mines belonging to three of its subsidiaries — namely ECL, BCCL and CCL — using appro-priate technology through JVs with reputed mining companies.
  • Import coal by acquisition of mining stake abroad through SPV/Coal Videsh.
  • Upgrade of equipment size, matching bench height and stripping ratio, are being introduced. For dumper, upgrades are as follows: from 35/50 tonnes to 60tonnes, 85tonnes to 100 tonnes, 120 tonnes to 150 tonnes and other sizes.
  • Use of high-capacity hydraulic shovels will find increased acceptability. High capacity dozers of sizes up-to 850hp will com-pliment higher capacity excavators.

In addition, the government has also allotted 208 coal blocks to private public companies to enhance coal production in the coun-try.

However, all the measures mentioned above look likely to reap results only in the medium-long term. Hence, to fill the short-term demand-supply gap, the only likely option is increase in imports. However, there are hurdles as well. Boilers of Indian power plants are designed in such a way that they can either function with fully domestic coal or imported coal, blended with domestic coal at 15:85 ratio.

So, even if a power producer is capable of importing coal, its boiler design will not permit it and pressure remains on Indian coal companies to meet the demand.

Also, if power producers can afford the cost of imported coal, then why should CIL sell coal at discounted rates, as it is under pressure to do? The answer perhaps lies in political circles.

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