Context: 

• The Centre has asked States to lift their hydropower output in a bid to conserve scarce coal supplies, and stressing the need to build strategic reserves of imported coal and gas as was being done for petroleum products.

 

Rationale

• At least in the foreseeable 10 years or so, all the countries, especially major economies, will be dependent on fossil fuel supplies for base load and for grid balancing, the centre noted. 
• India will never be able to insulate ourselves from these supply shocks of imported fuel.

 

Background

• India’s coal reserve is of generally 28-30 days but due to disruption in supply chains induced by monsoons and inflated global prices, the reserve has fallen to 10-14 days.
• Such shortages invariably lead to outages, some of which are already being witnessed in some pockets of the country. Demand surges and disruption in supplies can exacerbate the issue.

 

Benefits strategic reserves

• Economies are able to adjust and tide over these supply shocks for about a month or so. 
• That will be a small cost vis-à-vis the cost of these disruptions.
• China, U.K., Europe and Singapore had faced supply challenges, high prices made energy security challenging. 
• India has 17,000 MW of power plants based on imported coal and 24,000 MW of gas-fired plants, which virtually go out of play when prices rise too high.
• Many countries have started keeping strategic reserves, because when it comes to a crunch, every country will meet its needs first. 
• Russia has curtailed gas supply to Europe because they want more gas to be consumed within their country. 
• South Asian countries to build up similar reserves.

 

Concerns

• A surge in power demand combined with a fall in imports due to high global coal prices have led to supply disruptions and power cuts lasting up to 14 hours a day despite record supplies from state-run Coal India. 
• Most of India’s 135 coal-fired power plants have fuel stocks of less than three days. Coal accounts for more than 70% of India’s power generation.
• India, the world’s second largest coal importer with the world’s fourth largest reserves, must also compete for supplies with China.
• High prices will make energy security very challenging if India doesn't have a well thought out strategy.

 

Government Steps to counter the crisis

• There is a need to diversify the energy basket to cope with the fossil fuels’ supply crunch, 
• Currently India is generating extra hydropower on off-peak days to conserve our coal. States have been asked that wherever they have water reservoirs, or higher water levels, generate more hydropower so that Country can save coal.

 

Reasons behind the shortage:

• On the supply side, because of low investment, coal cannot be mined more than the capacity which exists today. Hence, the increase in supplies will be gradual.
  • India has the world’s fifth-largest coal reserves. Theoretically, therefore, there is no physical shortage as we can mine as much as we want to.  
  • During the monsoon season, rains do not just stop the mining process but can also affect coal stocks.
• In terms of demand, producers should have taken action when stocks were getting depleted and not waited till the crisis to flag the issue. 
  • Ideally, if supplies were not available, provision for imports should have been made. Now, the government is asking companies to meet 10 percent of their requirement through imports.
  • The global coal crisis has led to higher prices. Here, too, a sudden resurgence in demand after the pandemic has exposed the supply limitations.
  • The international price has gone up by almost 40 per cent in the last month. China – a major producer and consumer – has also faced this problem as it has tried to save coal for the future and imposed restrictions on mining to go green. 
  • At the global level, as power companies are not getting coal easily, they have switched over to oil, pushing up the price of Brent.
• Atmanirbhar ideology has a big role to play in this crisis. In India, coal imports have been traditionally high. Under its atma nirbharta drive, the government has voiced concerns on this issue and asked generators to be more self-reliant. 
  • Coal dependency came down over time, which also coincided with a lower phase of economic growth. 
  • The same has happened in China where the government has taken the greening concept seriously and asked coal producers to control production and power generators and move over to other greener fuels. 
  • This has made coal producers less willing to increase investment.

 

Challenges

• Power tariffs: Ideally, power companies should import coal. But that increases the cost of power production and power tariffs cannot be revised easily, like in the case of crops. 
  • It is often asked that if the government can keep raising the price of petrol and diesel when crude oil prices go up, why isn’t a similar policy followed for power. 
• Distribution companies have been running losses due to their inability to cut down on transmission losses or increase tariffs. As their losses mount, the amount overdue to the generators increases. 
  • Therefore, the producers are not willing to increase their costs.
• Impact on the economy: The economy has been showing signs of recovering and the October-December period is crucial because there are expectations of pent-up demand helping to accelerate growth. Any disruption in the power supply can push back this process.
  • The challenge is that today all the three sectors, agriculture, industry and households, are equally important. 
  • The rabi sowing is about to start and power is required to drive the sowing efforts. Rabi crops are sown at the end of monsoon or the beginning of winter. They are also known as winter crops.
  • For industry, production requires uninterrupted supplies. The coal crisis in the country has hit the textile processing units in Surat. Nearly 400 units in this southern Gujarat city, employing close to 500,000 people, plan to cut down production from next month because of rising coal prices.
  • Inflation: The prices of vegetables have started increasing and edible oils continue to be a pain point in the inflation schedule. If power companies start revising their tariffs, inflation will shoot up.

 

Coal Production

• Through sustained programme of investment and greater thrust on application of modern technologies, it has been possible to raise the All India production of coal at 730.354 million tonnes in 2018-19 (Provisional) with a positive growth of 7.9%.
• Coal India Limited has set up Regional Sales Offices and Sub-Sales Offices at selected places in the country to cater to the needs of the consuming sectors in various regions.

 

Introduction

• Coal is the most important and abundant fossil fuel in India. It accounts for 55% of the country's energy needs. The country's industrial heritage was built upon indigenous coal.
• Commercial primary energy consumption in India has grown by about 700% in the last four decades.
• The current per capita commercial primary energy consumption in India is about 350 kgoe/year which is well below that of developed countries.
• Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise.
• Considering the limited reserve potentiality of petroleum & natural gas, eco-conservation restriction on hydel project and geo-political perception of nuclear power, coal will continue to occupy centre-stage of India's energy scenario.

 

Import of Coal

• As per the present import policy, coal can be freely imported (under Open General Licence) by the consumers themselves considering their needs based on their commercial prudence.
• Coking Coal is being imported by Steel Authority of India Limited (SAIL) and other Steel manufacturing units mainly to bridge the gap between the requirement and indigenous availability and to improve the quality of production.
• Coal based power plants, cement plants, captive power plants, sponge iron plants, industrial consumers and coal traders are importing non-coking coal.
• Coke is imported mainly by pig-Iron manufacturers and Iron & Steel sector consumers using mini-blast furnace.
• Details of import of coal and products i.e. coke during the last six years is as under:

 

 

History of Coal Mining in India

• India has a long history of commercial coal mining covering nearly 220 years starting from 1774 by M/s Sumner and Heatly of East India Company in the Raniganj Coalfield along the Western bank of river Damodar.
• However, for about a century the growth of Indian coal mining remained sluggish for want of demand but the introduction of steam locomotives in 1853 gave a fillip to it.
• Within a short span, production rose to an annual average of 1 million tonne (mt) and India could produce 6.12 mts. per year by 1900 and 18 mts per year by 1920.
• The production got a sudden boost from the First World War but went through a slump in the early thirties. The production reached a level of 29 mts. by 1942 and 30 mts. by 1946.
• With the advent of Independence, the country embarked upon the 5-year development plans. At the beginning of the 1st Plan, annual production went up to 33 mts.
• During the 1^st Plan period itself, the need for increasing coal production efficiently by systematic and scientific development of the coal industry was being felt.
• Setting up of the National Coal Development Corporation (NCDC), a Government of India Undertaking in 1956 with the collieries owned by the railways as its nucleus was the first major step towards planned development of Indian Coal Industry.
• Along with the Singareni Collieries Company Ltd. (SCCL) which was already in operation since 1945 and which became a Government company under the control of Government of Andhra Pradesh in 1956, India thus had two Government coal companies in the fifties.
• SCCL is now a joint undertaking of Government of Andhra Pradesh and Government of India sharing its equity in 51:49 ratio.

 

Government Initiatives

• In April 2018, The Ministry of Coal has launched UTTAM (Unlocking Transparency by Third Party Assessment of Mined Coal) Application for coal quality monitoring.
  • The app aims to ensure transparency and efficiency in coal quality monitoring process and bring coal governance closer to people.
• The Cabinet Committee on Economic Affairs (CCEA) has approved a new coal linkage policy to ensure adequate supply of the fuel to power plants through reverse auction. The new policy will help in ensuring fuel supplies to the power plants in an organised manner.
• Ministry of Coal has developed Online Coal Clearances System to provide a single window access to its investors to submit online applications for all the permissions / clearances and approvals granted by Ministry of Coal.
• Coal Allocation Monitoring System (CAMS) is developed to monitor the allocation of coal by CIL to States, States to SNA and SNA to such consumers in a transparent manner.
• Opening up of commercial coal mining for Indian and foreign companies in the private sector.
• The CCEA approved the methodology for auction of coal mines/ blocks for sale of the commodity on 20 February 2018. The move has been defined as the most ambitious reform of the sector since its nationalisation in 1973.
• The auction will be done on an online transparent platform. The bid parameter will be the price offer in Rupees/ Tonne, which will be paid to the State government on the actual production of coal.
• This reform is expected to bring efficacy into the coal sector by moving from an era of monopoly to competition. It will increase competitiveness and allow the use of best possible technology in the sector.

 

India’s coal reserves The coal producing areas of India include Raniganj, Jharia, Dhanbad and Bokaro in Jharkhand. Coal is also classified into four ranks: anthracite, bituminous, subbituminous, and lignite. The ranking depends on the types and amounts of carbon the coal contains and on the amount of heat energy the coal can produce. Gondwana coal makes up to 98 per cent of the total reserves and 99 per cent of the production of coal in India.  The carbon content in Gondwana coal [250 million years old] is less compared to the  Carboniferous coal [350 million years old][Almost Absent in India] because of its much younger age. Gondwana coal forms India’s metallurgical grade as well as superior quality coal.