THE gargantuan appetite of power plants for coal appears to have eased significantly in recent months, resulting in an abundance of the commodity in India. And looking at the large quantities of unsold coal lying with state-owned miner Coal India Ltd (CIL), the federal government is urging states to stop importing the commodity.

Coal secretary Anil Swarup last week appealed to state governments to stop imports as CIL had enough coal to meet the power generation needs. While the government is not planning to impose a blanket ban on imports, it is hoping that the downward trend would continue over the rest of the year.

“Coal imports will continue to come down with increased availability domestically,” said Swarup. “Last fiscal, we saved Rs240bn in imports and this year we aim to save about Rs400bn.”

Imports have also been declining this fiscal. In April, imports fell by 15pc and in May by nearly 20pc.

India faced an acute shortage of coal a few years ago and even last year many power plants had just a few days stock of the commodity. But today the situation has reversed and many state-owned utilities are urging CIL to stop supplies temporarily.

About a dozen power plants in states including Maharashtra, Uttar Pradesh and West Bengal have written to the state-owned behemoth, asking it to stop supplies as demand for power is declining. In Maharashtra, most parts of which have been reeling under the impact of a severe drought, the acute scarcity of water has resulted in the shutting down of some power plants.

GMR, an infrastructure major and an independent power producer, has had to shut down its plant in the state in April after the authorities stopped supplying water to the power facility.

Even the National Thermal Power Corporation, a public sector undertaking, has asked CIL to stop supplies to some of its plants in West Bengal and Uttar Pradesh as they have more than adequate quantities of coal.

There has been a dramatic improvement on the coal and electricity fronts in India over the past two years. The average availability of coal at power plants has gone up to a record high of 28 days, while the peak deficit in power demand and supply is expected to come down from 4.2pc last year to 2.1pc.

CIL, however, has been ramping up production. Last fiscal, it produced 538m tonnes (more than 40m tonnes higher than in the previous year), but could sell only 534m tonnes. In the current fiscal, CIL is expected to produce nearly 600m tonnes of coal.

Unfortunately for the state-owned giant, cash-strapped power utilities in different states have not been able to clear its bills. There has been a nearly 20pc growth in dues owed by state government-owned utilities to CIL, which have now risen to about Rs120bn.

“I don’t want Coal India, which is one of the finest companies in the country and is endeavouring to become one of the finest in the world, to become a sick company on account of non-payment,” warned Swaroop. “For Coal India to survive and thrive it would be essential for states to make payments.”

Despite several attempt by the central government to rescue state government-owned generation and distribution companies, most have failed to reform. The latest move by the centre is the Ujwal Discom Assurance Yojana (Uday), which was launched last year.

State governments are expected to take over 75pc of the debts of distribution companies and banks are to convert the remaining debt into bonds. About 10 states have signed up for the scheme, which also aims to ensure financial turnaround and revival of power distribution companies.

DESPITE the current slowdown in the off-take of coal, the government has set ambitious production goals for CIL. “The target before the Coal Ministry and CIL is very challenging,” Piyush Goyal, the union minister of state for coal and power (independent charge), said last week. “The aim is to attain 1bn tonnes of coal production.”

A report released last week by PwC and the Indian Chamber of Commerce — Bridging the gap: Increasing coal production and sector augmentation — notes that with the Indian economy expected to grow at between 8-10pc annually, coal demand is expected to rise to 1.2-1.5bn tonnes by fiscal 2020.

Though the government committed to enhance generation of power through renewable sources of energy — including solar, nuclear and wind — demand for coal is expected to continue to surge over the next few years.

“India has set an ambitious target of 1.5bn tonnes of domestic coal production by FY 2020 and will need huge investments adding up to more than Rs10trn in coal mining and its allied sectors like power, steel, cement, infrastructure for logistics, and coal washeries for achieving this goal,” said the report.

It urged the government to take steps to ensure smooth land acquisition, adequate availability of water and improving the infrastructure for logistics. India, which is the world’s third-largest coal producer, has more than 300bn tonnes of coal reserves.

About two years ago, the government modified the coal mining policy, allowing private miners. However, the response was lukewarm and the government had to cancel the last round of coal block auctions because of the poor response.

It has now decided to allot 16 mines to different states; eight would be allotted to the states that have the mines and the remaining to those states that do not have any mines. The state governments can rope in partners — including international companies — to develop and operate the mines.

CIL is also looking at overseas acquisition of mines, especially in South Africa. Most of India’s coal imports are from Indonesia — from where it sources lower calorific value coal — but there is a gradual trend towards importing higher calorific value coal from countries including South Africa and Russia.

Published in Dawn, Business & Finance weekly, June 27th, 2016