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Feature | May 2017

Coal demand will be fully met from domestic source in 5 yrs

Rajendra Prasad Ritolia, Independent Director, India Power Corporation Limited

How much of India's demand do you see being served by domestic v/s imported coal?
In order to meet the coal demand in next five years, Coal India Ltd, the main coal producer, has an ambitious plan of increasing its production to one billon tonnes by FY2019-20. CIL's production is showing an increasing trend, having gone up from 494 Mt in FY15 to 554 Mt in FY17. Even with this production, the pit head stocks of CIL are around 66 Mt and the cumulative stocks at power plants in the country is more than 35 Mt. This increase level of domestic production has already shown a decline in imports of coal which has reduced to 200 Mt level (incl-uding coking coal of about 53 Mt).

In addition to the availability through CIL, a number of state power utilities like NTPC, WBPDGCL, KPCL, CSPGCL, OPGCL, APGENCO etc., will be producing coal through the blocks allocated to them. And a majority of these said coal blocks will be fully operational in the next three-five years.

In addition to this, some private utilities are already operating captive coal mines, besides which GoI is also opening the coal sector for commercial mining.

All these measures will make the availability of coal more than sufficient to meet domestic demand. However, coastal plants will continue to import coal because of commercial reasons. Due to their location advantage, import of coal for these plants shall continue to be cheaper. The coking coal import however will increase as India do not have enough coking coal reserves in the country.

It is therefore anticipated that at the end of five years, the thermal coal demand will be fully met from domestic production. However, plants located in coastal areas may continue to import because of commercial reasons.

The total estimated imports at the end of five years shall be about 75 Mt of coking coal and 50 Mt of thermal coal - making a total of 125 Mt.

Therefore, while imports will not be completely eliminated due to use of imported coal by port based power plants, imports may continue to drop, and more and more domestic coal would be used. As such, the government is also considering stopping any import of coal by government power utilities.

GoI has said that domestic coal production will expand rapidly in the next 2-3 years, but this appears highly unlikely. What kind of regulatory reforms could be the answer here?
While opening of new mines is a challenge, because of various constraints such as land acquisition, RR, environment clearances, statutory clearance, etc., the fact is that CIL is increasing production on Y-o-Y basis. This includes increased production not only from existing mines, but also through opening up of a number of new projects on a regular basis.

In brief, the issues are not totally insurmountable. Having said this, it is essential that the government seriously considers creating a single window clearance system for mining projects. Mining being site specific activity, state governments would have to play major role in providing land to the mining industry and other necessary approvals and support. Online, time bound monitoring of project implementation is a welcome move in this regard.

What impact has fluctuation in coal prices had on your profit margins?
Fluctuations in coal prices in domestic and import markets has necessarily an adverse impact not only on the profit margins but at times on the financial viability of the plants because the increased fuel cost is not always allowed to 100 per cent pass through. The cases of Tata Power and Adani Power in Mundra are a burning example where in such big power producould seriously consider compensating such price fluctualtions which are beyond the control of the power producers. Otherwise the viability of the plants shall always be under threat.

Indian thermal plants have been unable to reach full PLF due to coal shortage/quality of coal, do you see this changing any time soon?
The low PLF of the Indian thermal plants is not necessarily on account of coal shortage or poor coal quality. However the main factor leading to low PLF is on account of the following.

Various discoms on account of high T&D losses are in a very poor financial health. As a result they are not able to pay the power producers, resulting in to reduced drawal of power. This in turn has put financial stress on the power producers. Coupled with this, Banks are also reluctant to adequately finance power producers to meet their financial commitments. All this has forced the power producers to generate sub-optimum power leading to low PLF.

The government is seized of this problem and that is why UDAY scheme has been launched. Successful implantation of UDAY will not only bail out discoms of their financial crisis but will also force them and the state governments to substantially improve their operational performance.

Along with this the 'Make in India' approach and growth in industrial activity will add to the demand side leading to improvement to PLF. If all stake holders including central and state governments are sincere to this cause, the situation can substantially improve within one to two years.

Even with the improved demand for power and improved PLF, sufficient coal will be available as detailed in answer to question no 1. So far the quality is concerned, a number of steps have already been taken by the government and CIL by engaging CIMFR, ISM, IIT etc., as independent quality monitoring institutions. Already there is a significant improvement on the quality front and it seems that this issue will be addressed to the complete satisfaction of consumers in the coming years.

How are renewables expected to affect the future of coal? What kind of fuel mix do you see by 2022 in India?
No doubt, because of the environmental considerations, there is lot of focus on solar and renewable energy sources. But, notwithstanding the recent focus on renewable and other cleaner sources of energy, coal will continue to remain the leading source of energy for India in the foreseeable future. Even GoI in COP21 at the Paris convention has committed that by 2030, renewable energy sources will contribute to 40 per cent of the total fuel mix in the country. Rest will be contributed from fossil fuels and other sources.

Whereas the target of renewable energy has been projected to grow to 175 GW by 2022 (which is a very ambitious target), simultaneously the coal production target has also been projected to be doubled from present level of around 700 Mt to more than 1,500 Mt. The overall power requirement will also grow significantly by 2022/2030. Therefore in any energy mix scenario depending upon the commercial viability, the share of coal will continue to remain not less than 50 per cent.

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