Union Minister Pralhad Joshi recently said that the import of thermal or non-coking coal, used in power generation, would be stopped by 2024-25. Over the last decade, this is the third call by the Indian government and second by the Narendra Modi government to cut the import of dry fuel.
The import of metallurgical coal and limited quantities of high-quality thermal coal are irreplaceable due to the paucity of domestic resources. Metallurgical or coking coal is used in steelmaking. High-value thermal coal is blended with low-ash domestic fuel to meet emission norms.
Considering that the country has hit a high growth curve and over one-sixth of the 878 million tonne (mt) thermal coal requirement was met through imports in the fiscal year 2021-22, the minister’s promise might sound a little optimistic.
However, when compared to the previous two attempts, this time India is better poised to reduce import dependence. Strong rebound in captive production and operationalising of private commercial mines are crucial factors behind this optimism.
The remarkable performance by Coal India Limited (CIL) for two consecutive years is a significant confidence booster. On a global scale, the company was an exception in the Delta-hit FY22, to mitigate wide volatility in demand. It is firing from all cylinders in FY23.
CIL was handed out a steep target to mine 78 mt (12 per cent) more fuel this fiscal. They completed two-thirds of the target in seven months. Overburden removal – which indicates readiness for future production – is up by roughly 16 per cent.
This sets the stage for restricting imports, not only to reduce the current account deficit, which is ruling above three percent of GDP, but also to ensure the energy security of the nation and help the Indian industry remain competitive in a tough global export market.
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Energy security at stake
India gave its first call to cut coal imports during UPA-II when global energy prices were zooming following the Fukushima disaster of 2011. And the current account deficit reached as high as 6.7 per cent of GDP in October-December 2012.
There was no way India could reduce import dependence on oil. The domestic production of crude remained stagnant for over two decades. There were some upward movements during the interim phase, but the trend didn’t last long.
On the other hand, failure to convert vast resources into producing assets kept India import-dependent on coal. The first major boast on the production side came during the first term of the Modi government when the Centre paced up clearances and started investing in logistics.
However, the wiping out of a major chunk of the captive production following the deallocation vide 2014 Supreme Court verdict with effect from 31 March 2015 created a fresh gap in the system. A meltdown in global commodity prices helped India tide over the crisis through easy imports.
The net result is: India’s non-coking coal imports rose by nearly 80 per cent from 110 mt in FY13 to approximately 197 mt in 2019-20. In comparison, coking coal imports increased by 46 per cent.
The government initiatives didn’t go all in vain. Focused attention by the government to keep electricity prices affordable, helped generation utilities cut the use of imported coal, dramatically. On the flip side, industrial consumers remained dependent on imports.
With this background, India faced the prevailing global scenario. Between FY20 and FY22, India’s thermal coal imports were down by 23 per cent but and the import bill was up by 37 per cent due to the unprecedented rise in global prices. The situation deteriorated in FY23.
According to the Ministry of Commerce and Industry, in the first half of this fiscal, India imported $29 billion worth of coal (coking and non-coking) as against $30 billion in the full year of FY22 and $15 billion in FY21. The share of coal to total imports increased from 3.9 per cent in FY21, 4.9 per cent in FY22 to 7.7 per cent in FY23.
Thankfully, global energy prices are now cooling down. But uncertainties prevail. Indian industry is the worst sufferer of this phase as the government directed the CIL to import coal for power utilities, sacrificing the interests of other consumers.
As the demand from the electricity sector subsided, coal supply was resumed to others. However, data available with the coal ministry suggests that the captive power sector received 19 per cent less fuel till October. Smaller customers suffered the most due to rationing in open market sales.
Things could have been worse, had the captive coal production not increased by 37-38 per cent year-on-year for the last 19 months. Private commercial mining was allowed in 2019. During April-October 2022, production from these mines reached 2.5 metric tonnes.
Together, these two sources should replace a good part of the import requirement by industry in the next few years. Private commercial mining, in particular, has huge upside potential as the government increased coal block offerings to this segment, three years after opening commercial coal mining for the private sector.
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Lessons learnt
With renewables (without large hydro) contributing over 10 per cent of the electricity generation, the gas grid is connecting the East and Northeast, and the focus of electrification shifting from quantity to quality; the energy sector in the country is undergoing a sea of change.
Coal has to play the anchor role in this transition. The pandemic and the Ukraine conflict together brought new growth opportunities both for the Indian fuel industry and the coal mining sector. With private mines starting to come up, the production side is looking more diversified and secure than ever.
A marketplace in India with limited interference from the government is still a far cry.
Over the last decade, the central government has twice forced CIL to leave industrial consumers in the cold for the power sector. This doesn’t evoke confidence. Unless uncertainties about domestic supplies are removed, the industry might keep the import option open.
While there is clear upside potential in coal production, availability might suffer in the mid-term due to inadequacies in railway logistics. Over the last decade, Indian railways invested heavily in enhancing track capacities. But the crisis exposed gaps in rolling stock availability.
As of October 2022, three (South Eastern Coalfields, Mahanadi Coalfields and Central Coalfields) of the top four mining arms of CIL are witnessing a lower supply of rakes than last year. The total supplies are eight percent lower than last year. This with mining going on in full swing will translate into piling up of pitheads of stocks and artificial shortages in the market.
That doesn’t help the cause of import replacement.
Nita K is former Regional Director of Confederation of Indian Industry ( east and north east).
(Edited by Ratan Priya)