No significant dip in India's thermal coal imports, business to continue as usual

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For the moment the writing on the wall is more or less clear. The country is likely to continue with its thermal coal imports as usual. More so when it will take years for Coal India (CIL) to solve the problem of logistical bottleneck that it is currently grappling with.

India has shown the green signal for private commercial mining and the country may stem the tide of imports significantly in future, but for now coal imports are likely to go on in a routine pace. This is so because it will take at least five years for the private sector mining companies to commence their operations after auction of coal blocks to them. For exploration, planning, design and other mining operations they have to face a cumbersome process such as land acquisition, rehabilitation of people, obtaining environmental clearances from agencies, and not to forget the huge investments to be made before the profits starts ticking in.

Sector analysts believe that while the government is all the more serious in its efforts in curbing imports, its claims for a substantial dip in imports will go awry and it will be business as usual for traders importing the material. Most of them believe in the April-started current fiscal year (FY 2019) the growth in thermal coal imports will be around 3-4%.

They think the demand for coal from power and other sectors that are currently on a recovery path will outstrip the domestic supply at least for another two to three years, or until the time when the new critical coal rail lines become operational. While CIL has been capable of producing much more than what it does now, logistical bottleneck has always defeated such initiatives. In the last financial year the company had to revise its initial production target of 630 Mt to 600 Mt because of this, while it ended up producing only 567 Mt.   

They also think the marginal decline in thermal imports to the country in recent months was on account of a shift in sourcing priorities. The upsurge in imports of high calorific value material from Australia is good enough to compensate for the slight dip in imports from Indonesia which was the favourite destination of India’s power sector consumers until now.

As per Directorate General of Commercial Intelligence & Statistics, during April-October 2017, 118.86 Mt of coal was imported as against 121.14 Mt in the corresponding period of 2016-17, recording a decline of 2% in imports.

“People who expected a significant fall in coal imports, especially thermal coal, will be proved wrong. Imports will come along well even if CIL production records a new high,” a trader who imports about 10 Mt of thermal coal for his power clients says.

“What would you do with the produce if you can’t ensure a seamless supply from the pit heads to the power stations? The government needs to fix its railway rakes problems first and then talk about stopping coal imports,” he added quickly.

India has a long coastal line. There are about 20 coastal power plants with an aggregate annual consumption of around 100 Mt. These coastal power plants procure fuel for their needs through imports as they have boilers suited for burning imported coal. Industry sources point out that these power plants are already in the buying mode with summer months expected to give rise to increased power consumption, especially in north India. The only difference this year around is that most of these plants now prefer good quality coal from Australia as one tonne of the material is equivalent to almost double of it from low grader Indonesian variety.  

The quantum of thermal import can only grow in near to mid-term as there are several new power plants being developed in Andhra Pradesh, Gujarat, Bihar and Chhattisgarh. Some of these such as Dr Narla Tata Rao Thermal Power Station, which is getting a 800 MW expansion; Gunipudi Power Station, a 1,320 MW clean technology/ultra-critical coal based power plant; Kineta Power, a 1,980 MW super-critical coal plant; Kakwara Ultra Mega Power, a 4,000 MW ultra-mega power project which is expected to be commissioned by next year; Bhatvadia Phase-III, a 3,960-megawatt coal-fired power station in Gujarat; and Atlas Power India, a 1,320 MW power project in Kadechur once commissioned will only push the demand up.

Recently, NTPC had complained to the power ministry on coal shortage in four of its power plants. In response the government assured that CIL over the next five years will acquire railway rakes for smoother transportation of coal to power plants. CIL needs to supply 513 Mt of coal and offer another 12 Mt through e-auction to the power sector during FY 2019. To ensure this CIL needs over 300 rakes per day while the average loading as of this February was only 264.

Speaking on the impact of CIL’s target a coal trader pointed out: “It is good. But we need to see that consumption has increased by about 30% during the recent years while domestic production might have increased by around 10%. Additionally, everything produced is not used since the quality of coal is not okay for the consumers.”

Last year the government with an aim to reduce the alarming pollution in Delhi and NCR had imposed a ban on petroleum coke. Although cement companies were allowed to use it for their production process, they are now switching to coal to avoid production delays: another reason that will keep the thermal coal imports a usual business for now.

Although with private mining in place India may bring down coal imports in the long-term but for now thermal imports’ coming down in near future is highly unlikely.