Business Today

Sweat it out

K.R. Balasubramanyam        Print Edition: June 26, 2011

Three years ago, the Karnataka government had planned a 1,600 MW project in the coal-rich state of Chhattisgarh, and two separate stations with a combined output of 2,400 MW in its own Raichur district. But the coal ministry has not allotted coal-mining blocks and the projects remain on paper. "We need them badly as we have promised quality power supply to all new projects that were signed at last year's global investors' meet," says Shobha Karandlaje, Karnataka's Energy Minister.

Delays in allotment of coal blocks casts shadow on the already bleak power situation. Industry bodies blame Coal India Ltd ,or CIL, the state-owned coal giant, for the shortage. CIL says it has 64 million tonnes, or m tonnes, of coal waiting at the pitheads, and blames Indian Railways for not supplying the rakes required to move the coal to the power plants.

India's power generation fell short of target by 43.2 billion units last year, according to Central Electricity Authority, or CEA. The coal shortage and project delays accounted for about a third each of the shortfall.

 Precarious position
Overall situation at the 100 coalbased power stations on random days in the last three summers.

In April, the country's 100-odd coal-fired thermal stations got a total of 32m tonnes of coal, 4m tonnes short of what they needed. At April end, 28 power stations had stocks for less than a week and 10 of them for fewer than four days. In January, the situation was worse: of 32 plants with stocks of less than a week, 18 had enough for just four days.

Feeding a thermal power plant is not a just-in-time operation: stocks of three weeks are considered safe. For example, the Raichur Thermal Power Station in Karnataka has eight 210 MW units and each unit burns around 3,600 tonnes of coal a day. Indian Railways has to deploy a rake - 59 wagons carrying a total of 3,850 tonnes - to feed just one such boiler.

Ideally, eight rakes loaded with coal should reach the plant every day to keep all the units going. In May, the power station, owned by the Karnataka Power Corporation, was getting four to five rakes a day. It was worse two years ago, at about the same time of year: the daily arrivals had dropped to two rakes.

India is the world's third-largest producer of coal, with three-fourths of production going into thermal power generation. The CEA fears that thermal plants will face a shortfall of 54m tonnes this year, and has advised power companies to import 35m tonnes of coal. (Imported coal has more of useful heat value, or UHV, than Indian coal, so smaller quantities yield the same energy.) The CEA has forecast overall coal availability this year at 554 m tonnes, against a demand of 696m tonnes.

CIL faces other glitches that affect supplies. Production drops during the summer's searing heat in the mining belt. Localised disturbances often disrupt coal movement. But its biggest worry is the shortage of wagons. Under a memorandum of understanding with the coal ministry, CIL has to produce 452m tonnes of coal this year, and ensure that it reaches consumers. CIL has agreed - on condition it gets the 175 rakes it needs every day at its mining subsidiaries.

Mine workers push a coal cart inside a mine in Dhanbad, Jharkhand
Mine workers push a coal cart inside a mine in Dhanbad, Jharkhand
Last year, the daily average availability of rakes was 161. "In peak season, our requirement goes up to 190 to 200 rakes a day, which we are not getting," says H.K. Vaidya, CIL's Chief General Manager, Sales and Marketing.

Indian Railways says wagons are not a problem. "Coal India talks of pithead stocks, but we pick up coal from rail-heads, which are often 10 to 40 km away from pitheads," says the Railway Board spokesperson. "It is Coal India's job to reach the coal to the rail head."

Analysts at equity broking firm Angel Broking also say the environment ministry's go-and-no-go demarcations of coal mining areas, as well as its insistence that mining areas remain within specified limits of the comprehensive environment and pollution index are hampering production volume growth. The brokerage notes: "Lower availability of railway rakes for the supply of coal remains a concern for CIL."

CIL, however, dismisses industry allegations that it diverts coal meant for power stations to the more lucrative e-auctions, Internet-based bidding systems that allow it to bypass the notified prices for a 10 per cent slice of its production.

"If we don't auction our stocks, they only keep piling up,'' says Vaidya. CIL has sold 6m tonnes through e-auctions since April 1 this year, getting a 60 per cent markup on the notified prices.

CIL has also entered into fuel supply agreements with all big buyers under which both sides face penalties for reneging - CIL for supplying less than the contracted amount, and the buyer for not lifting stocks it had committed to purchase. Apart from land acquisition, CIL and other players that have their own mines face tougher challenges in getting environmental clearances. For example, NTPC, the power giant whose installed thermal capacity accounts for a fifth of India's total, received Stage II clearance for its first coal mine block at Pakri Barwadih in Jharkhand last year, four years after it applied. Its hurdles are not over, it must now acquire 9,206 acres of government, private and forest land. Till the beginning of the year, NTPC had been able to acquire just 58 acres.

  • Acquiring land for coal mining from locals
  • Getting clearances from Ministry of Environment and Forests
  • Shortage of rail rakes
Way Forward
  • Attractive relief & rehabilitation packages in return for mining land
  • Commercial mining of coal
  • Acquiring coal mines overseas
To meet the coal shortfall, the government has been encouraging companies to acquire coal blocks abroad and use more of imported coal. But thermal power plants in India have boilers designed to burn Indian coal, which contains 40 to 50 per cent of ash or minerals that do not burn to yield energy. These boilers cannot handle a blend in which more than 15 per cent comprises the lower-ash imports.

If domestic coal production has to keep pace with demand, it must grow at about nine per cent annually. To reach the target, the coal ministry is also now considering commercial mining, with pricing linked to demand. Coal minister Sriprakash Jaiswal, at a recent event, hoped that the initiative would let the sector develop, spur competition and result in better pricing of coal.

Will the solutions work? Summer of 2012 will tell.

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