Thermal sector grapples with coal stock management

Why in the News

Thermal power generators that hold adequate coal inventories are disadvantaged when limited domestic supply is redirected to plants that have fallen below their prescribed stock norms. Those norms are plant specific and have run under the Central Electricity Authority (CEA) framework that took effect on 6 December 2021. The revised Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) policy, approved by the Central Government in May 2025, streamlined coal linkage allocation into two windows. Emergency redistribution keeps a low stock plant running and protects grid reliability. Repeating it removes the reason for any generator to carry stock at or above its norm, since the surplus is what gets moved.

How is coal allocated to a thermal power plant?

1. The linkage: A coal linkage is a long term assurance of supply from a specified source to a specified plant.
2. The contract: A Fuel Supply Agreement (FSA) gives that linkage contractual form, fixing the quantity the coal company owes the generator.
3. Window I: Central government owned generating companies and State utilities receive linkages at notified prices.
4. Window II: Other eligible producers, including plants running on imported coal, procure coal through auctions at a premium over the notified price.

Why does redistribution penalise the generator that stocked adequately?

1. Compliance is measured plant by plant: The revised norms set a stocking level for each plant, so a generator is judged against its own requirement rather than a common one.
2. Scarce coal moves toward the shortfall: When domestic supply is limited, deliveries are redirected to plants below their norms, and the generator that planned surrenders tonnage it had secured.
3. The incentive runs backwards: Repeated redistribution removes any reason to carry stock above the norm, because the surplus is precisely what is taken.
4. The proposed correction: A former Managing Director of PTC India, earlier the Power Trading Corporation of India, argued that coal inventory should be recognised as a system reliability service. Generators holding adequate or higher than normative stocks would be incentivised, and repeated shortfalls without genuine external cause would carry consequences.

When is emergency redistribution justified?

1. Grid stability and consumer supply: Assistance to plants at critically low stocks is defensible where consumer interests and grid stability are at risk.
2. The distinction that decides it: Support must separate a genuine supply chain disruption from a persistent shortage caused by inventory mismanagement.
3. The causes that qualify: Mine side constraints, railway bottlenecks, force majeure events and unexpected spikes in electricity demand are the genuine disruptions for which redistribution is meant.
4. Where the framework came from: The Ministries of Coal, Power and Railways coordinate to monitor supplies and move coal, and the revised supply framework followed the COVID-19 pandemic, when all modes of transport came to a standstill.

Is the problem a shortage of coal or a failure of logistics?

1. Production has crossed a billion tonnes twice: Output reached 1,047.52 million tonnes in 2024-25 and 1,040.08 million tonnes in 2025-26.
2. The current year’s run rate: Cumulative production through July stood at 302.04 million tonnes, and dispatches rose about 6 percent year on year to 354.7 million tonnes.
3. Stock exists but sits in the wrong place: Thermal power plants held 34.55 million tonnes, with another 113 million tonnes at pitheads or in transit, a combined stock of about 148 million tonnes.
4. Availability at the mine is not availability at the plant: Fuel security depends on the whole chain of production, loading, railway availability, transit, unloading and stockyard management.
5. The binding constraint: The difficulty is how supplies are allocated, transported and converted into plant level inventories, not the national quantity of coal.

Challenges to coal stock management in the thermal sector

1. Rail capacity sets the replenishment ceiling: Coal moves mainly by rail, so rake availability decides how quickly a plant below its norm can be refilled. Eg. Passenger services were cancelled in 2022 to free rakes for coal movement to power stations.
   The Fix: Expand corridor capacity on the mine to plant routes and publish rake allocation in advance, so a generator can plan against a known schedule.
2. Distance from the pithead is not priced into the norm: A plant far from its linked mine carries a longer transit and needs a larger buffer to hold the same days of cover. Eg. Plants in the western and southern States drawing from the Talcher and Mahanadi coalfields run multi day rail transits.
   The Fix: Set stocking levels by transit distance rather than by a uniform days of cover, so a distant plant is not judged on a pithead plant’s buffer.
3. Grade slippage erodes the stock that is counted: A gap between the declared grade and the delivered grade means a tonne in the yard carries less heat than the norm assumes. Eg. Third party sampling of coal supplies was introduced after persistent grade slippage complaints from generators.
   The Fix: Express stocking norms in days of energy rather than days of tonnage, so quality shortfalls appear in the compliance number itself.
4. Imported coal blending is abandoned when landed costs rise: Plants designed to blend imported coal cut back when the rupee weakens, which increases their draw on domestic supply. Eg. Blending directions issued to State generators in 2022 were resisted on cost grounds.
   The Fix: Allow the incremental fuel cost of a directed import to pass through in tariff automatically, so a blending direction does not sit on the generator’s balance sheet.
5. Payment stress travels back up the chain: A generator owed money by distribution companies delays its own coal payments and cannot fund a larger inventory. Eg. Accumulated dues from State distribution companies prompted the Late Payment Surcharge Rules, 2022.
   The Fix: Enforce the existing payment security mechanism strictly, so working capital is not the reason a plant slips below its norm.

Conclusion

The dispute is not about how much coal the country digs out. It is about who absorbs the cost when a scarce delivery is moved from a plant that planned to one that did not. The tension is unresolved, because the authority that must keep a low stock plant running has no instrument to compensate the generator whose coal is diverted to it. Until a stocking norm carries a payment on one side and a consequence on the other, redistribution will keep shifting the cost of poor planning onto the generators that planned.

Back2Basics: Central Electricity Authority

1. What it is: The Central Electricity Authority is the technical advisory body of the Ministry of Power.
2. Statutory basis: It functions under the Electricity Act, 2003, continuing the body first constituted under the Electricity (Supply) Act, 1948.
3. Advisory role: It advises the Central Government on national electricity policy and prepares the National Electricity Plan.
4. Technical role: It sets technical standards for the construction and operation of electrical plants and lines, and monitors daily coal stock positions at thermal stations.

Matching Previous Year Question

“[2019] Consider the following statements: 1. Coal sector was nationalized by the Government of India under Indira Gandhi. 2. Now, coal blocks are allocated on lottery basis. 3. Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production. Which of the statements given above is/are correct? (a) 1 only (b) 2 and 3 only (c) 3 only (d) 1, 2 and 3 ANSWER: (a)”