OPEN APP
Home >Industry >Energy >What's at the heart of our coal crisis (And why it won't get better soon)

At the heart of India’s current coal crisis lies a major domestic supply problem. Domestic coal production growth has been slowing down over the years, while demand has been going up. This can be seen from the accompanying chart which plots the average per-year growth in coal production over different time frames, from the last 50 years to the last five years.

Annual coal production
View Full Image
Annual coal production

What the chart tells us clearly is that the growth in domestic coal production has been slowing down over the years. If we look at a 50-year period, the growth has been 4.7% per year on average. During the last five years, the growth has slowed down to 2.3% per year on average. Of course, a minor part of the slowdown has to be attributed to the spread of the covid pandemic during 2020-21, the last financial year. Given this slow growth in production, the country has been dependent on imports to fulfil the overall demand.

Hence, even a slight disruption in coal supply -- either through an even slower growth in domestic production, or through a slowdown in imports -- can create a problem.

Between April and August this year, domestic coal supply was at 263.8 million tonnes, against 259.6 million tonnes during April to August 2019. This is a growth of just 1.6% over a period of two years or around 0.8% per year. Essentially, from April-August 2019 to April-August 2021, the slowdown in domestic coal production has been even faster than the historical slowdown.

On top of this, coal imports from April to August 2021 collapsed by 12.5% to 94.9 million tonnes. They were at 108.5 million tonnes from April to August 2019. This was primarily due to collapse in imports from Indonesia and South Africa, which fell by 34.3% to 31.8 million tonnes and 33.3% to 12.6 million tonnes, respectively.

In this scenario, the supply of coal through domestic production and imports hasn’t been enough to fulfil demand. While no estimates for coal demand for the current financial year are available, the Kolkata-based Coal Controller’s Organisation (CCO) does provide annual data on this front. Like in 2020-21, the CCO estimates the demand was for 1052 million tonnes of coal. Against this, the total supply was at 948.8 million tonnes, with 232.8 million tonnes of imports and the remaining being domestic supply. Clearly, this year, the difference between the demand and supply has gone up, which has led to the current shortage.

The good news is that coal production between April and September was at 315.6 million tonnes, up 5.5% from the same period in 2019.

So, why is India not able to produce enough coal? As per the Geological Survey of India, the country's total geological reserves of coal stood at 344 billion tonnes in April 2020.

Around 80-95% of the geological reserves can be extracted in open-cast mines, which is the main form of mining these days. So, the point is that India has enough coal going around. It just needs to be extracted.

This is where things get tricky. The bulk of India’s coal is mined by the public sector Coal India companies and the Singareni Collieries Company (SCC). In 2020-21, of the total production of 716.1 million tonnes, public sector companies mined more than 90%.

To expand coal supply, these companies need to build new coal mines. This requires acquisition of land, which is difficult at the best of times. It also requires a whole host of other permissions at the state and the central level. Further, the people being displaced need to be rehabilitated. The point being, it is not easy to set up a new coal mine quickly. It takes time and that explains the slow growth in production over the years. The fact that land prices have gone up hasn’t helped either.

In 2020-21, the private sector and others produced less than 10% of our total coal output. Much of this was for captive use. For a very long time, the private sector was allowed to mine coal only for captive use. This has changed in the recent past, with commercial mining of coal allowed in 2020.

The government is now auctioning mines to the private sector. These mines will take time to reach a significant scale. What holds back the public sector companies will hold back the new private miners as well. Finally, experienced human talent in the sector is scarce, given that it is limited to the individuals working or having worked for the Coal India companies and SCC.

All in all, India’s coal sector woes aren’t going to go away quickly, though we are moving in the right direction.

Vivek Kaul is the author of Bad Money.

Disclosure: Kaul owns Coal India shares.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout