Demand-supply dynamics to keep imports at bay

As Indian economy gets unshackled from the lockdown, though in a gradual manner, comfortable stock at power plants and subdued demand for electricity create enabling condition for lowering of thermal coal imports being targeted by the government in a new era of Atma Nirbharata or the sense of self-sufficiency.

- Sumit Maitra

While power demand declined sharply during January-June period, domestic coal output was quite resilient resulting in partial import substitutions.

With lower demand and generation, the capacity utilisation rate or plant load factor of thermal power plants during April-July dropped to multi-year lows of 48.3 percent, which was 13 percent lower than a year ago. With an increase in generation, the capacity utilisation improved in July from the lows of 42 percent in April.

There are hurdles to achieve this goal of import substitution namely significant drop in international coal prices and global supply glut which is forcing many mines to work in uneconomical ways, creating the prospect of cheaper dumping at the expense of domestic coal.

While Coal India has been providing concessions to buyers, fuel prices for power plants, being largely fixed in the form of notified prices, are unlikely to get readjusted to reflect changing market dynamics.

And Coal India being a near-monopoly supplier to the power sector, would refuse to revise its prices for its major customer, the power sector, to protect its margins.

Things would be different once commercially mined coal is made available to domestic consumers and Coal India is forced to play along with numerous other merchant producers.

But that reality would get realised at least five or six years after commercial coal auction is executed successfully.

Till then Coal India would only need to compete against import prices.

Coal-fired power generation is expected to retain competitiveness in India (where the coal fleet is only around 10 years old on average) and other populous, low income emerging markets, for a much longer time. Large, low cost mines supplying energy coal to seaborne markets will continue to be able to generate decent margins.