The Centre and States have recently been locking horns over the shortage of coal and power supply. The sudden surge in demand for power as the economy recovered from the pandemic, heavy rains in coal bearing areas, coupled with global supply crunch may have been the short-term reasons for the crisis, but there are structural problems with coal supply in the country that need to be addressed.
Despite the availability of adequate reserves, coal extraction has been declining in the larger coal producing States. Data from the Ministry of Coal presented to Lok Sabha in August this year reveal that the gap between demand and domestic supply of coal is widening. Also, coal production in two of the three major coal producing States has dipped in the last three years.
In 2018-19, the actual coal demand in India was 968.36 million tonnes while domestic supply was 733.01 million tonnes (a gap of 235.35 million tonnes). The gap further widened in 2019-20 by 248.53 million tonnes. The demand for power dipped in 2020-21 during the pandemic, so did the demand and supply of coal. But still, there was a gap of 214.99 million tonnes. For 2021-22, the actual demand for coal is pegged at 1,142 million tonnes and up to June 2021, about 195.17 million tonnes of domestic supply was available.
Two major contributors to the total energy supply in the country are coal and crude oil. Coal accounts for 64.19 per cent of the total supply while crude oil accounts for 27.99 per cent. The electricity sector is the biggest consumer of raw coal and lignite, accounting for as much as 64.86 per cent of the total consumption of coal and 85.96 per cent of the total consumption of lignite in India in 2019-20 (provisional).
Reserves and production
Of the total coal reserves in India, proven reserves — that is reserves available for extraction which are economically viable, feasible and at geological exploration level — account for almost 47 per cent. About 44 per cent coal reserves are indicated while 9 per cent are inferred according to the Energy Statistics India 2021 report published by the Government of India’s Ministry of Statistics and Programme Implementation.
The total estimated reserves of coal in 2020 were 344.02 billion tonnes. This is an addition of 17.53 billion tonnes over 2019 in the corresponding period. This translates to 161.68 billion tonnes of proven reserves available for extraction. So, less than 0.45 per cent of available reserves are being extracted annually, showing that paucity of reserves is not behind the lower supply of coal.
The top three States with the highest coal reserves — Jharkhand, Odisha, and Chhattisgarh — account for approximately 70 per cent of the total coal reserves in the country. Despite the availability of coal, actual production has gone down in the last three years.
The data show that, in Jharkhand, coal production stood at 134.666 million tonnes in 2018-19 which dropped to 131.763 million tonnes the next year and further came down to 119.296 million tonnes in 2020-21.
In Chhattisgarh, the production stood at 161.893 million tonnes in 2018-19 which dropped to 158.409 million tonnes in 2020-21.
Odisha, however, has reported a rise in coal production from 144.312 million tonnes in 2018-19 to 154.15 million tonnes in 2020-21. Overall, coal production dropped to 716.084 million tonnes in 2020-21 from 728.718 million tonnes in 2018-19.
The overall trend of coal production in the last ten years (2010-11 to 2019-20) shows an increase, with a CAGR of 3.58 per cent. India is one of the largest producers and consumers of coal in the world. There has been an upward trend in the consumption of coal in the country during the period 2010-11 to 2018-19. CAGR is 5.28 per cent from 2010-11 to 2019-20.
Not surprisingly, there has been an increasing trend in the import of coal in recent years. Over the last ten years, the net import of coal steadily increased from 68.92 million tonnes in 2010-11 to 212.1 million tonnes in 2014-15. This was followed by a marginal decline in the succeeding two years but the imports again started increasing, although the rise was much lower.
CIL and coal production
It’s obvious that the supply of coal has not kept pace with the increase in demand. The government may have taken its foot off the pedal in increasing coal supply due to the movement towards clean energy. But given the fact that dependence on coal for power is unlikely to go down rapidly, there is need to take measures to address this issue.
The Coal Ministry needs to walk the talk in increasing domestic production of coal through the allocation of more coal blocks, pursuing with States for assistance in land acquisition, and coordinated efforts with Railways for movement of coal.
The government also needs to move faster towards commercial mining to bring more coal into the market which will reduce the demand-supply gap and encourage market-determined prices. Auction of coal mines for the sale of coal is expected to encourage transparent pricing of coal, based on the market forces.
The onus finally falls upon the public sector behemoth, Coal India, to address the structural supply issue. It needs to get serious about increasing its output towards the annual target of one billion tonne from its mines. The target may not be achieved by 2023-24, as envisaged since the production target of CIL for the financial year 2021-22 is just 670 million tonnes. But efforts should be made to at least double its annual growth rate in output.
“CIL has mismanaged coal production and supply and has no coal stock. Private players have stopped the import of coal and hence there is power shortage,” alleged Maharashtra Energy Minister Nitin Raut who questioned CIL’s efficiency to handle coal production. While speculations are rife about the government’s move to privatise CIL, the Ministry of Coal, in March this year, has denied any such move.
Industry analyst Pratim Ranjan Bose says that there was never a situation of coal crisis in the last few months and CIL cannot be blamed for the non-existent crisis that some States are shouting about. “In monsoon, CIL had enough coal stock but it was not able to move it. It is very difficult and technically impossible to move coal in the monsoon. They (power plants) were supposed to be well-stocked for monsoon but they didn’t do because of finances and they didn’t expect the high demand of power in peak monsoon months,” he said.
Pratim Ranjan Bose added that the power situation in the last few months was the result of more than one development. There were also questions about the inter-ministerial coordination in mitigating the issues. This was not a simple case of demand-supply mismatch of either coal or power. At the centre of the controversy was the political economy of power sector, States resist distribution sector reforms, gap between average cost and supply keeps widening despite bail-outs like UDAY.
“The crisis is not about coal. Demand is not for power but cheap power. Nobody wants to buy costly power,” he said adding that CIL definitely lacks infrastructure but it comes as a legacy and cannot be addressed in one go.