Coal and Mining Sector

The coal crisis and role of CIL in mitigation

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Coal Mines Nationalisation Act (CMNA)

Mains level : Paper 3- Coal crisis

Context

In India, coal-based power plants have witnessed rapid depletion of coal stocks from a comfortable 28 days at the end of March to a precarious level of four days by the end of September. Coal India Ltd (CIL) has been unfairly attacked, even as it gears up to play a crucial role in fighting the power crisis.

Reasons for crisis

  • The reasons for the crisis are structural as well as operational.
  • The Coal Mines Nationalisation Act (CMNA) in 1993 enabled the government to take away 200 coal blocks of 28 billion tons from CIL and allocate them to end-users for the captive mining of coal.
  • These end-users, mostly in the private sector, failed to produce any significant quantity of coal.
  • The cancellation of 214 blocks by the Supreme Court added to the problem.
  • Commensurate to the captive mines allocated to the end-user industries, the coal production today should have been at least 500 million tonnes per annum (mtpa).
  • In reality, this has never exceeded 60 mtpa.
  • On the operational side, power plants are required by the Central Electricity Authority (CEA) to maintain a minimum stock of 15 to 30 days of normative coal consumption.
  • The compliance with this directive by power plants has been severely lacking.
  • This enhances the vulnerability of power plants.
  • The persistent non-payment of coal sale dues by power plants to coal companies has created a serious strain on their working capital position.
  • A spurt in imported coal prices, mainly due to a major increase in coal imports by China, acted as a brake on imports of coal.
  • This escalated the demand for domestic coal.
  • The spurt in demand for coal is being linked to the post-Covid economic recovery.

CIL’s role in mitigating the shortage crisis

  • Growth in production in short duration: Despite many constraining factors, it is to the credit of CIL that it has achieved a growth of 14 million tonnes (mt) or 5.8 per cent in coal production during the first half of 2021-22.
  • Yet, the offtake was higher than the preceding year by 52 mt or 20.6 per cent.
  • This was possible by drawing down on the opening inventory of coal from 100 mt to 42 mt during April to September.
  • With the monsoons behind us and the onset of a good productive season, CIL has already stepped up coal offtake to more than 1.5 mt per day.
  • With efforts on the part of the railways in moving the coal, the crisis should dissipate in the near future, at least for power plants that pay timely for coal supplies.
  • Besides meeting the growing coal demand of power plants, CIL has been able to significantly replace the import of highly expensive thermal coal.
  • Cheaper coal: Even after bearing the highest tax and transport cost globally, the landed cost of CIL coal continues to be much cheaper than imported coal at almost all destinations.
  • Saving of foreign exchange: The resultant benefits are savings of foreign exchange, and generation of power at affordable tariffs.
  • The coal price charged by CIL, expressed in energy units, is at a deep discount of 60-70 per cent of imported coal.

Conclusion

In brief, CIL has been unfairly blamed for the coal crisis. It has played a stellar role, standing like a solid rock between light and darkness. It is striving to build comfortable stocks at the power plants, not in default of payment.

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