Reddy: seeking PM's intervention
R.K. Singh, Union power minister, may have dismissed Ramesh’s charge as an expression of the Congress party’s political bankruptcy but the fact remains that some private power producers did make a killing by selling electricity on the exchanges where rates had tripled. According to reports, some producers and even state transmission facilities sold power at Rs16-18 per unit against Rs4-6 a unit before the coal shortages surfaced.
The Modi government did not cover itself with glory in handling the crisis. After initially denying reports of nationwide coal shortage, the government said that the worst of India's coal crisis is over, acknowledging that the country indeed had come to the brink of power outages.
Modi steps in
As the opposition party-ruled states turned the heat on the Centre, the PMO stepped into the picture to regularly monitor the situation. Modi set up a ministerial panel headed by home minister Amit Shah to tie up the loose ends. Earlier, the Centre has termed any fear of disruption in power supply in the country due to coal shortages as “misplaced’ and said coal stocks at power plants would ‘gradually improve’ and were currently sufficient for 24 days. The coal ministry blamed extended monsoons for constraints in dispatches from mines.
Rising demand from a reviving economy was another factor, the ministry said. But this version glossed over the reality. Also, it was ironic that coal shortage at power plants was taking place in a year when the country produced record quantity of coal in the first half of the year. As per official details available, between April and September 2021, Coal India limited (CIL) produced 249.8 million tonnes of coal, almost 13.8 million tonnes more than in the same period last year. Clearly, bad planning was at the root of the problem.
In India, CIL is the primary producer of coal in the country and still contributes around 80 per cent of the production. The remaining 20 per cent is produced by Singareni Collieries Company Limited (SCCL) and a clutch of private producers who use the fuel for captive use. Though an attempt was made by the Modi government to auction coal mines, non-CIL/SCCL production has yet to pick up. Around 34 mines were auctioned by the Modi government to the private sector for captive consumption.
The coal crisis calls for rapid privatisation as the government is earning its chops in this sphere. It also underlines the need to enhance the push towards renewables. The government now needs to draw lessons from the recent crisis and work towards these outcomes.
More to the crisis
Data, facts and optics showed that there was clearly more to the crisis than met the official eye. According to the data, the power consumption of 3,900 MU on 8 October was the highest this month so far (from 1 to 9 October) which also became a cause of concern. The data of the Central Electricity Authority (CEA) showed that coal stocks at power plants on 7 October were not adequate as there were 16 plants with a cumulative capacity of 16,880 MW which had the dry fuel for zero days. Besides, as many as 30 plants with 37,345 MW capacity had coal for just one day and 18 plants with 23,450 MW capacity had coal for two days as of 7 October. There were 19 plants with 29,160 MW capacity which had coal for three days and nine plants with 7,864 MW capacity had coal for four days. Six plants with 6,730 MW capacity had coal stock for five days, while 10 plants with 11,540 MW capacity had coal for six days.
In Delhi, Tata Power arm Tata Power Delhi Distribution Ltd (DDL), which operates in North and Northwest Delhi, had sent phone messages to its consumers saying, "Due to limited coal availability in generation plants across the north, power supply scenario between 2-6 pm is at critical level. Kindly use electricity judiciously. Be a responsible citizen. Inconvenience caused is regretted – Tata Power-DDL.”
The power ministry has now called out thermal plants using imported coal that have stopped operations due to high international coal prices, saying it is “inexcusable” for a generator to not offer power as per power purchase agreements (PPAs). Most plants fueled by imported coal have stopped operations as a sharp hike in global coal prices has made supply of power at contracted rates unviable. But the ministry should have monitored the rising demand as well as the rising prices (both in the domestic open market and globally). It should have ensured that adequate coal stocks were stored by the power utilities. The utilities are supposed to maintain the necessary stock of coal as mandated.
Private producers’ woes
Private operators, dependant on imported coal, have cited issues of high global prices and inability to transfer the cost of higher coal to the procurers under existing PPAs. Minutes of a meeting held by power secretary Alok Kumar Jain, Union power secretary, on 7 October are revealing and underline how the government slept over the matter.
At the meeting, Tata Power reportedly said none of its units at the 4,000-MW Mundra power station had been operational since 18 September as supplying at rates agreed under existing PPAs would lead to under-recoveries of Rs2.5 per unit (kilowatt-hour), which is higher than losses of fixed costs at Rs0.90 per unit. The Gujarat government has since, however, agreed to accept supply from the Mundra plants at Rs4.5 per unit which is higher than mentioned in the PPA, according to state officials.
Essar Gujarat, which operates a 1,200-MW plant, and Adani Mundra, which operates a 4,650-MW plant, both running on imported coal, too cited issues of inability to pass on the rise in cost of imported coal. The price of Indonesian coal has jumped from about $60 per tonne in March to over $200 per tonne due to a coal shortage in China. The coal shortage has prompted the government to allow plants using domestic coal to use a 10 per cent blend of imported coal to augment coal stocks.
Role of states
This is where the role of the states has come under scrutiny. While Gujarat was open to revoking ceiling tariffs in PPAs, representatives of the Rajasthan and Maharashtra government did not give a final opinion on removing ceiling tariffs to allow pass-through of high coal prices. Rajasthan consumers faced power cuts as a result of the inability of thermal power plants to meet peak power demand. According to the Power System Operation Corporation, Rajasthan faced a shortfall of 17.89 million units of power on 13 October, the highest shortfall of any state in the country, followed by Haryana and Punjab, which faced power shortage of 8.73 million units and 5.25 million units, respectively.
Instead of calling a meeting of state power ministers and trying to resolve the situation, the Centre merrily passed the buck to the states to bring the errant generating companies to book. “Such conduct on the part of a seller should be immediately responded to by the procurer sternly by using all possible contractual and other available legal interventions at the level of state government,” the Union power secretary said at the 7 October meeting.
Swarup: CIL needs to be supported
In short, what brought the coal shortage crisis to such a pass was a combination of factors. More than politics, the situation in India was similar to what is happening across the world where energy supplies are under strain globally as prices surge and demand and supply chains are strained by the recovery of consumption following lockdowns to contain the pandemic.
In India too, post-Covid power demand has been shooting up over the last six months, as the economy opened up and factories ramped up their production. The demand touched 200 GW in August. In AP alone, for instance, the demand increased by 15 per cent in the last six months and by 20 per cent in the last one month alone. The government should have tried to ensure that coal production was commensurate with this demand or worked out a model of equitable distribution through grid management.
Another factor that led to this crisis was the three-four times hike in coal prices in the international markets and thus those plants, which normally import coal, plugged into the domestic supply. This aggravated the sudden increase in the demand for domestic coal. As a result, power plants, that used imported coal to generate electricity, either curtailed generation or completely stopped when they found domestic coal hard to come by. The spurt in international energy prices made it difficult for them to meet the commitments to states at a particular rate.
Climate change factor
Delayed monsoons also led to an increase in power demand. By then, however, Coal India Limited had reduced coal production during the rainy months. The mismatch snowballed to a crisis. Finally, unseasonal rains in October hit extraction and movement of the fuel from mines to power generation units by flooding the open mines, impacting electricity production in many states, including Gujarat, Punjab, Rajasthan, Delhi and Tamil Nadu. Climate change thus emerged as a devil.
Better planning and timely intervention would have helped to manage and perhaps even avert this perfect storm. During the peak power demand season of the summer, four states – Uttar Pradesh, Maharashtra, Tamil Nadu, and Rajasthan – defaulted on payments CIL for their state-owned power units. CIL in turn regulated the coal supply to these states. The mismatch became another trigger. According to official sources, states have to pay nearly Rs20,000 crore as dues to CIL.
States too are to be blamed as they are not mining enough. Jharkhand, Rajasthan and West Bengal have their coal mines but there was little or no mining. CIL can stock only up to a limit as overstocking can cause coal fire.
The present-day crisis is on account of both demand and supply-side management issues. Predictably CIL has emerged as a whipping boy. But CIL has been systematically downgraded by the Modi government for reasons which cannot be easily deciphered (See Box: CIL’s travails)
Privatisation is key
The tragedy is coal privatisation which was initiated by the Modi government is yet to deliver the dividends. Nor has it been carried forward in right earnest. Coal mining is a complex operation that requires a variety of clearances. An inter-ministerial Coal Project Monitoring Group (CPMG) was set up in 2015 that helped a number of clearances for both CIL mines as well as some private mines.
However, this group became dysfunctional after 2016. Besides, all the 40 mines given to the private sector were for captive consumption and they were not allowed the commercial sale of mined coal. Captive mines are operations that produce coal or minerals solely for the company that owns them and under normal conditions are not allowed to sell what they produce to other businesses. These mines still do not contribute substantially to coal production.
Tata Power: ‘inconvenience is regretted’
In any case, commercial mining was inordinately delayed by the Modi government. In 2015, there were reports that Modi was keen on going ahead with commercial mining and had even given a verbal go-ahead. However, for some reasons, the main being apprehensions of a trade unions’ backlash, the file was never put up for a formal decision of the Cabinet. Precious time was lost as the final decision on commercial mining was taken only after five years. Had Modi’s mood taken seriously and followed up, more private mines could have been producing now.
CIL now says that it has got over 40 MT of stocks which will last for 24 days, so there is no shortage at its level. As of 15 October, 20 lakh tonnes of coal is being supplied to power plants daily, of which 16.25 lakh tonnes is by CIL, 1.5 lakh tonnes by Singareni Collieries Company Limited (SCCL), and 2.5 lakh tonnes from different sources which are captive power plants. But sceptics wonder if the situation is really under control. What if there is another surge in demand for power if, say, exports keep shooting up incrementally?
Experts say that there are both short-term and long-term measures that can be taken. Anil Swarup, former coal secretary, believes that CIL needs to be supported. The Modi government should play the role of a facilitator and not a monitor. The CIL’s top team will have to be given the requisite freedom.
The expansion plans of CIL should be facilitated by the Modi government by allowing the organisation to plough back its accumulated reserves and profits for such expansion. The Centre will have to engage with the states for faster acquisition of land and processing of environment and forest clearance applications and then follow up with the Ministry of Environment and Forest at the Central level. This will have to be done for the private sector mines as well.
Second, there are issues with the Railways regarding the hauling of coal. The job of resolving issues with Railways has to be done by the government, as was done during 2014-2016, not by the CIL.
There are also coal supply management issues with regard to surplus coal with private sector entities that have captive mines. This coal can be diverted to shortage areas through an arrangement of replenishment, subsequently by the CIL.
If these measures are taken quickly, feels Swarup, the crisis can be managed. However, the overwhelming verdict from experts is that short-term fixes may help to get India through the current energy crunch but the country needs to work towards long-term alternatives to ensure its growing domestic power needs are met and India is to climb out of one of the worst recessions among the world's major economies.
Coal India: used as a milch cow?
Production levels by the Coal India Limited (CIL) are stagnating or even falling from 606 MT in 2018-2019 to 602 MT in 2019-2020 to 596 MT in 2020-2021.
Coal sector experts compare this to the increase in production during 2014-15 and 2015-16, when the Modi dispensation assumed office. Some attribute it to an extremely competent team then at the helm of CIL led by the then chairman and managing director Sutirtha Bhattacharya. As Anil Swarup, former Union coal secretary, points out, Bhattacharya’s tenure should have been extended but for some inexplicable reason, it wasn’t. What was worse was that after he completed his tenure in 2017, a regular CMD was not appointed by the Modi government for more than a year. A few directors were also not appointed. The momentum built was lost.
Second, the incremental growth in Coal India production is dependent on new mines that are taken up regularly. This expansion plan was put on the backburner once Bhattacharya left and CIL was asked to invest in three fertilizer plants instead!
Third, though Swachh Bharat Mission was a laudable initiative by the Modi government, CIL was told to focus its energies on it. Mine managers had to scout and focus on monitoring the setting up of toilets in schools. A subservient management of CIL had to change the tagline for CIL to: “We set up toilets. We also produce coal”.
Four, while most of the private entities plough back their profits to invest and increase their capital base, in the case of CIL (and many other Central PSUs), it was used as a milch cow by the government to seek dividends to balance its own budget. The CIL was obviously strapped for funds for its expansion plans. It had accumulated reserves and a surplus of around Rs35,000 crore in 2015. This should have been used for expansion plans. However, as the Modi government sucked out most of these funds through forced dividends and buybacks, CIL was left with only around Rs8,000 crore as reserves in 2019.
Lastly, most of the coal belts exist in states that are not ruled by the Bharatiya Janata Party like Chhattisgarh, Jharkhand, Odisha and Andhra Pradesh. There are a number of issues relating to land acquisition and environment and forest clearances that have to be sorted out with the states. During the past few years, the ongoing “war” between the Centre and the states has acted as a stumbling block in the resolution of these outstanding issues. Without the cooperation of the states, coal mining can’t happen smoothly. The Centre needs to take the initiative and hold meetings at the state level to bring the states on board so that coal producers, led by CIL, can put their best foot forward.