Ten industry associations wrote to Prime Minister Narendra Modi last week, claiming that the ongoing coal supply situation has forced these industries to procure power from the exchange, stoking an unwarranted increase in power demand and leading to an avoidable inflationary impact on economic stakeholders.

The non-regulated sector (NRS) consumers have been forced to procure coal from the open market due to prolonged shortage, often at a premium of up to four times the normal rates. For instance, in March, coal commanded a premium of 300 per cent over the floor price, indicating a severe demand-supply mismatch.

“Since September 2021, several restrictions have been imposed on supply of coal to industries, including curtailment in coal supply via rail mode from all Coal India subsidiaries (leading to over 4,000 pending rakes allotted to the industries) and longer intervals between coal auctions being conducted for industries, offering less quantity under Exclusive and Spot Auctions and supply of linkage coal as per trigger level (75 per cent of Monthly Scheduled Quantity), instead of the scheduled quantity,” they claimed in the letter, which was seen by BusinessLine.

The associations include Aluminium Association of India, Coal Consumer Association of India, Confederation of Indian Textile Industry, Indian Captive Power Producers Association, Indian Paper Manufacturers Association, Sponge Iron Manufacturers Association, Tea Association of India, Fertiliser Association of India, and Vidarbha Industries Association.

The NPS received a brief respite from the situation in November 2021, but this was short-lived, and supplies to NRS customers via rail mode plunged once again, as preference was given to the power sector. Curbs were also placed on road supplies to the NRS sector, adding to their woes. Surprisingly, these restrictions have been imposed despite Coal India achieving a record-breaking production of 622.6 million tonnes (MT) in FY22, while its official coal off- take figures have also been commendable at 661.90 MT during the same period.

Inflationary trend

The associations claim that sourcing costly power from open market is leading to an inflationary impact. Besides, it reduces the availability of power for domestic consumption, as State discoms find it difficult to source large volumes at excessively high prices. This has affected smaller industries such as fertiliser manufacturers and tea producers.

“Further, keeping Captive Power Plants (CPPs) idle and compelling CPP integrated industries to buy power from market is creating overall system inefficiency in the form of unnecessary coal transportation, high AT&C losses and higher specific consumption in CPP units, due to low capacity utilisation. All these factors are causing higher cost of production of finished goods from different industries,” said the associations.

Fertiliser industry being in regulated sector is also suffering immensely due to supply crunch from indigenous sources. The tea sector, despite being the fourth-largest exporter in the world, is struggling to procure coal by paying a hefty premium to the tune of ₹18,000-20,000 per tonne from the open market, against the normal rate of ₹9,000 a tonne, they rued.

In comparison to the pre-Covid period (FY20), despatch of coal to sectors such as CPP, steel, cement and sponge iron in the ongoing fiscal has reduced by more than 32 per cent, 27 per cent and 20 per cent, respectively, while it should have grown year-on-year under normal circumstances.

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