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During the two terms of Modi-led NDA government one sector that has been on fire literally is coal.
The government’s performance in the coal and lignite sector during the last 10 years has been mixed with production surpassing a billion tonnes (bt) being the key achievement. The government also made notable progress in increasing output from captive and commercial mines as well as steps to increase mechanisation in production and despatch, which is critical for optimising costs and travel time.
However, the government’s efforts are yet to bear fruits in terms of evacuation of the critical commodity, which accounts for over 70 per cent of India’s power generation.
The Coal Ministry doubled down on increasing logistics infrastructure in the last few years with the creation of the PM Gatishakti National Master Plan (NMP), the result of these efforts are becoming visible, but overall impact is yet to be seen.
Another area that requires more work is on increasing private sector participation, expanding coal gasification and production of Coal Bed Methane (CBM).
Higher production
Deloitte India Partner Consulting Rakesh Surana said annual coal production almost doubled from 565.77 million tonnes (mt) in FY14 to 997.4 mt in FY24, aiding in checking imports.
“The CAGR of coal production from 2008-09 to 2013-14 was 2.8 per cent. Had this trend continued then coal production in 2022-23 would have been only 725.39 mt,” he added.
Similarly, S&P Global Commodity Insights’ Head of Global Coal Pricing Deepak Kannan said: “In the last 10 years, domestic coal production has increased over 55 per cent and much of it has come over the last 5 years.”
However, S&P Global Commodity Insights Senior Analyst (Global Power and Renewables) Khoo Pat See points out that production was always short of target in 2014-19 and 2020-24. It nearly hit a billion tonnes in FY24; the target originally set for FY20.
Enhancing coal production is critical as India’s power demand is growing at 6-7 per cent annually driven by higher industrial and household consumption. Besides, the Ministry also aspires to reduce imports by the power sector to 2 per cent in FY25 and eventually zero a year later.
India aims to achieve a production of 1.5 bt by FY30 as the country’s power demand is likely to double by the end of the current decade from around 1,600-1,700 billion units currently. Surana said the government focused on reducing coal imports with an import substitution mission through steps such as single window clearance, asset monetisation, introduction of mine developer and operator (MDO) model, commercial mine auctions and 100 per cent FDI.
However, Kannan opined that curbing imports substantially is not an easy task currently, as while domestic production is increasing Y-o-Y, simultaneously population growth, rise in income levels and standard of living are leading to higher power demand. Also, coal exporting regions are in close proximity making imports economically viable.
“According to our market sources, India’s coal imports may either stay flat or decline marginally over the next 3-5 years. Renewables are making big inroads into India’s power sector, but coal is still dominant in energy mix and may remain so in the near to medium term,” he explained.
Pat See said domestic coal is not sufficient and inland logistics cost is uncompetitive against imported coal for coastal power plants and non-power sectors in both phases.
“The target to stop thermal coal imports by 2024-25 was postponed to 2025-26. Even this new target is ambitious given the current coal supply situation and uncertainty surrounding extreme weather conditions (summer heatwave and monsoon rains) in India which poses potential power crunch during peak demand period,” he added.
The push for commercial mining has helped grow domestic supply from 2022-24. Captive & Others coal output used to account for around 8.6 per cent of total coal output in FY20 and by FY24 its share has grown to almost 15 per cent, Pat See said.
Logistics
An area where improvement needs to be done is logistics, particularly from mines to power plants located in the coastal belt which has been a challenge due to insufficient railway rakes availability, said Kannan.
In FY23, around 55 per cent of coal was evacuated via rail network, which is expected to increase to 75 per cent by FY30. Out of the 55 per cent rail transportation in FY23, about 4.6 per cent was evacuated through coastal shipping (rail-sea-rail route).
Surana pointed out that efforts are being made to ease transportation and logistics, including developing mechanised conveyor systems and computerised loading into railway rakes to reduce road transportation.
“Coal Logistics Plan and Policy, 2024, aims to modernise coal transportation in India. It aims for a 4 per cent reduction in rail logistic costs and an annual cost saving of ₹21,000 crore,” he added.
Diversification
The Government has taken steps to diversify the sector, including allowing coal companies to extract natural gas and CBM from its coal seams, without requiring separate licences. It is also actively advocating for Underground Coal Gasification (UCG) and surface coal gasification to produce gas and other products from coal, Surana said.
“Other advanced geographies have adopted technologies for coal gasification, coal-to-liquid, CCUS, etc. The Government is also working to implement these technologies and further push is needed to develop indigenous technology capabilities,” he suggested.
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