Coal crisis points to failure of planning

India is once again staring at an acute shortage of power, caused by a severe shortage of coal with thermal power plants. While a shortage of coal in the immediate post-monsoon period has by now become an annual phenomenon, this time around, a combination of global and local factors has precipitated a crisis which threatens to derail the strong economic recovery seen over the past quarter. Once again, the principal culprit is the public sector Coal India Limited (CIL), which accounts for 80 per cent of India’s coal production and almost all of the domesticallymined coal sold in the local market (the balance is largely captive production of private metal and cement producers). Heavy rains in its pithead areas have hampered output, even as the revival in demand has been stronger than expected. CIL’s output in the current financial year up to September-end was 250 million tonnes, which was marginally higher than the output during the same period last year, when economic activity had been severely hit by Covid-induced lockdowns. However during the same period (April to September), coal offtake has surged to over 307 million tonnes. The shortfall has been met from pithead stocks, but these have now almost run out. In fact, stocks with coalfired thermal power plants have also been depleted to alarmingly low levels, leading to the very real possibility of massive power cuts across the country. According to data available with the power ministry, India has around 135 active coal-fired power plants. Of this, 16 have reported nearzero stocks, while 27 have just one day’s reserves. The balance have less than a week’s stock on average, against the recommended norm of on-site stocks equal to 14 days’ worth of consumption. With the daily shortfall of supply to power plants ranging up to 80,000 tonnes per day, it is only a question of time before the lights start winking out.

For those following the sector’s woes, a strong sense of déjà vu is inescapable. A sharp drop in output from CIL in the end to immediate post-monsoon months due to late season heavy rains and flooding of mines has become a regular feature as climate change has altered the pattern and intensity of the monsoons. In fact, massive supply shortages had precipitated acute power crises in 2013 and 2016 as well. This time, the unexpected surge in energy demand, combined with the impact on production, has led to a rapid depletion of stocks at both the production and the consumption ends. To add to the problem, there has been an exceptional surge in energy prices globally, leading to surging prices of inputs like coal. The problem has been made worse by output being hit badly by heavy rains in Indonesia, a key source of coal imports for India. This has combined with a rapid increase in shipping costs, combining to make coal imports a costly and largely unaffordable proposition. This in turn has led to power plants running on imported coal cutting back on production, which in turn has increased the demand on thermal plants using domestic coal, leading to faster than usual usage of coal stocks, while supplies were hit by rains and shortage of rakes.

This is a crisis which had been foretold. CIL had warned the Central Electricity Authority (CEA) that it was “evident that a crisis is arising” unless immediate action was taken to increase supply to power plants as far back as February this year, according to a Reuters report. CIL was worried that while electricity output was rising sharply as demand picked up, thermal plants were using up existing stocks rather than replenishing them at an adequate rate. However, no action appears to have been taken, either by the government, or the power producers, to address this, even though a post-monsoon shortage was anticipated. In fact, this crisis highlights the deeper rot within the power sector. On the one hand, state-run power distribution utilities are unable to pass on rising costs to consumers, since power tariffs continue to be largely administered. At the same time, their finances are in a shambles, leading to delays and missed payments to suppliers – including coal – which has worsened the problem. According to media reports, nonpayment of coal dues by Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Madhya Pradesh among others has resulted in inadequate supplies.

While India is making a long-term effort to switch to more renewable power, in the short term, coal continues to be the backbone of India’s energy sector. India is the world’s second largest coal producer and consumer and has the fourth largest reserves in the world. But rather than being a global supplier, it has become the world’s second largest importer of coal after China, thanks to domestic inefficiencies. Unless the root causes of inefficiencies in mining and the financial weakness of power producers is addressed, such crises are bound to repeat in the future.