The government has put the ball in the court of power plants facing stress due to shortage of fuel and lack of linkages. It has advised them to move quickly and negotiate import deals as the coal shortages could worsen further by September.

Government sources privy to the development said by August-end the gain in generation from wind and hydro power plants will drop drastically putting further pressure on coal-based plants to generate more to meet the demand.

“This could mean increased coal demand from plants that are already facing shortages. The situation will be particularly bad for private sector plants without long-term coal linkages.  Thus import would be the only option to bridge the deficit quickly and allow stressed power plants to generate some revenue,” the source quoted earlier said.

Higher volume of imports would also impact financial health of discoms as they would be forced to pay higher tariff for power supplied using expensive coal from countries such as Indonesia. Price of low grade Indonesian coal (4,200 kilo calaorie) has shot by over 20 per cent in the last year taking it up to over $55 a tonne now. At this price, power tariff based on higher variable cost could rise by over 50 paisa per unit.

The situation is even worse for private sector plants, which won captive coal blocks in auctions conducted in 2015-16. Saddled with heavy debt burden amidst worsening business cycle, several of these plants have not started work or have slowed work on their captive stagnating output to just around 35 million tonnes.

As per coal ministry data, coal production by the private sector has increased by a mere 2.20 million tonnes (mt) from 32.55 mt in 2015-16 to 34.75 mt in 2017-18 and there share in overall coal production remains static at around 5 per cent.

“It is amusing that while Coal India (CIL) is sitting on inventory of over 55 mt, power plants are facing coal shortages. The blame also goes to private power producers who have refrained from investments in their captive blocks. Moreover, CIL has given only up to 75 per cent of the contracted quantity of coal to plants. Imports thus looks the only quick fix alternative in this scenario,” said a power sector expert not willing to be named.

CIL, which accounts for 80 per cent of the fuel output in India, has showed signs of slowing down with its production dropping by 14 per cent in June and by 9 per cent in the April-June quarter.

Shortage of coal has been identified as one the important reasons for problems in the power sector where as per government estimates about 34 power plants worth about 40,000 MW and having an estimated debt of Rs 1.8 lakh crore have become stressed and are unable to service their debt. Though government is working on scheme to rehabilitate these projects, several of them could face insolvency if quick action is not taken to address the problem.

Though coal imports have constantly reduced from 217.78 mt in 2014-15 to 190.95 mt in 2016-17, it has again increased to 208.27 mt in 2017-18 due to increase in demand by the consuming sectors putting pressure on increased domestic production. India’s top 12 major ports have reported a 19.32 per cent rise in inbound shipments of thermal coal at 28.28 million tonnes in April-June of FY19.