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HomeBusinessGovt nudges states to step up coal imports

Govt nudges states to step up coal imports


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At present, coal imports from Thailand, Australia and South Africa are up to three-four times costlier compared with domestic coal.

In a tacit acknowledgment of the grave crisis being faced by the country’s power sector owing to paucity of coal, the Centre has asked the state governments to step up imports of the key fuel for thermal power, notwithstanding its elevated prices in the global markets. It is unclear how quickly imports could be contracted but use of imported fuel could definitely inflate the cost of power to discoms; whether the consumers would feel the pinch depends on whether and how much of the extra cost the discoms could be allowed to pass on to different categories of consumers. Of course, industrial and commercial consumers will be the first to be subjected to any tariff increase.

At present, coal imports from Thailand, Australia and South Africa are up to three-four times costlier compared with domestic coal.

Meanwhile, coal stocks are fast depleting at several power plants — stocks at as much as 140 gigawatt (GW) capacity (67% of total coal-based power) had fallen below the ‘critical’ threshold as on Sunday and is believed to have not improved since.

Power plants were asked to “expedite the process of importing coal for blending (with domestic coal) to meet the requirements”, an official source said. In a recent meeting between Union power secretary Alok Kumar and generating companies (gencos), it was decided that power plants could use up to 10% of their fuel requirement through imported coal, which would be blended with domestic coal.

At the current high international rates of around Rs 12,000 per tonne, even 10% blending of imported coal is seen to increase electricity generation cost by Rs 0.50-0.75 per unit, which is 13-19% of the average power purchase costs paid by power distribution companies (discoms). If the cost is not passed through to end-consumers by adequate tariff revisions, it will add to the financial distress of discoms. Though the import directive has been given to power plants run by the Centre, states and private entities, it remains to be seen if the severely under-stocked power plants of the states could afford to procure coal at such high rates, analysts said.

As much as 5.5 gigawatt (GW) of state-genco plants in Uttar Pradesh, 5 GW in Andhra Pradesh and 3.4 GW in West Bengal are receiving lower coal supply because of their outstanding dues to Coal India (CIL). Supply was also regulated to 2.7 GW of state-run plants in Rajasthan because of payment issues. The gencos of these states had huge receivables from their respective discoms, which in turn, made it difficult for them to pay for coal.

The government recently said Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Madhya Pradesh have legacy issues of heavy dues of coal companies.

Out of the 209 GW of installed coal-based power plants, around 90 GW currently import coal for power generation. About 72 GW of this capacity import coal for blending with the local variant, while 18 GW are designed to run specifically on imported coal. The government, in April 2020, had asked thermal power plants to reduce coal imports and “make best efforts to replace their imports with domestic coal”. Before such restrictions, more than 160 GW used to import coal. Coal imports by power plants in April-August fell to 15.2 million tonnes (MT) in FY22 from 28.7 MT in FY20.

Higher coal usage in July-September, power plants not stocking enough before the monsoon and low alternative supply of coal have been cited as the reasons for the current level of low fuel stock levels, with 140 GW generating capacity having supplies for six days or less. Daily coal supply is just matching the requirement of 1.9 MT per day. Supply is slated to rise to 2 MT per day from October 21, contributing to stock build-up, and lower temperatures is also seen to improve inventories further.

The low coal stock situation has resulted in daily average power prices at the spot exchanges rising to prohibitively high levels of around `15 per unit. To control the rise in power prices in the spot market, the government recently allowed power plants can sell electricity in the exchanges if the discoms with which they have PPAs do not requisition power from the generating station 24-hours in advance.

The gains from selling power at higher rates in the exchanges will be shared between the power plant and the tied-up discoms on a 50:50 basis. The Union power ministry said on Tuesday that some states are selling electricity in the power exchanges at higher prices, while imposing load-sheddings on common users. Without naming the states, the ministry said “the unallocated power of such states shall be withdrawn and allocated to other needy states”. As per power allocation guidelines, 15% power from central government-owned power plants are kept under “unallocated power”, which can be allocated by the Centre to the states in need.

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