Coal shortage sparks jitters in metals sector

Production in the metals sector has taken a hit as the captive power plants supplying power to the sector are forced to run at 50 per cent capacity due to coal shortage.

Indian captive power producers' association said that the state-owned Coal India was not honouring the fuel supply agreements (FSA) for supplying coal. 

Captive power plants (CPPs) have an installed capacity of about 40,000 MW and require 190 million tonnes of coal annually. As much as 3.6 million tonnes of coal is pending with the Coal India. The captive producers have said that they receiving 15-20 per cent less than the committed quantity of the raw material. 

They are getting average 50 per cent coal against secured linkages and Annual Contracted Quantity. Captive power industry that has a debt of $30 billion is only able to service 50-70 per cent of it. The coal dispatch to CPPs has been affected since April 2017. During this period, even though the coal was available, the captive units were not allotted rakes and the independent power producers (IPPs) were preferred on dispatches. 

The captive producers are suffering huge financial pressure because of the Coal India subsidiaries taking advance payment and bank guarantee against the allotment of coal but not dispatching as per allotment, blocking CPPs funds for six-nine months. 

"Most of the CPP based industries are facing severe coal shortage and struggling even to maintain critical stock level. Reduced power generation is rendering operations economically unviable with huge risk plant closure," Rahul Sharma, Chairman, Indian captive power producers' association said. 

The metals industry is currently relying on imported coal and spot power market to meet its electricity demand. For the aluminum industry energy cost comprises 40 per cent of the total cost of production, as a result of coal shortage the production expenditure has gone up by $300 per tonne.