Govt’s Order on priority Coal supply to Power Plants may hit Non-Power sectors like Cement, Aluminium & Steel Industries

Supply priority by Railways to power plants may hit cement, aluminium, as Railways directed Zonal Railways to give priority to coal despatches for power units.

NEW DELHI: The government’s decision to prioritise coal supply to power plants will greatly hurt other industries dependent on coal such as cement and aluminium, according to industry players who had written to Railways and Finance Minister Piyush Goyal to voice their grievances.

The Ministries of Coal, Railways, Power, and Finance held a meeting on May 17 in which they decided, given the shortage of coal with power plants, to instruct companies such as Mahanadi Coalfields Limited (MCL) to deploy rakes of coal only for power plants and not to do so for other consumers of coal. The letter to MCL says that this decision would be in force “till further directives”.

Stock position

According to data with the Central Electricity Authority, 17 power plants had super-critical (less than three days worth) of coal stocks as of May 22 while three power plants had critical (less than five days worth) of stocks.

The Railway Board wrote to all zonal railways on May 18 saying that “it has been decided that loading of coal for power houses (i.e. plants of Central/State power utilities and IPPs) from goods sheds should be accorded higher priority till June 30, 2018”. These instructions were made applicable from May 19 onwards.

Fuel supply pacts

“The CPP (captive power plant) consumers have signed Fuel Supply Agreements (FSA) with CIL (Coal India Limited), which is a legally binding agreement with long-term coal supply assurance and hence abrupt stoppage of supply will bring the industry to a grinding halt which will have a severe impact on the downstream industry like transmission and distribution, packaging, cement, consumer products, paper, tyre manufacturing, resulting in a loss of jobs for millions,” the Indian Captive Power Producers Association wrote in a letter to Power, Coal and Finance Minister Piyush Goyal.

The letter goes on to show how, while CIL’s coal supply to independent power producers (IPPs) had grown every year and by as much as 8.1% in 2017-18, the supply to captive power plants contracted by 6.2% in 2016-17 and saw no growth in the next year.

Coal shortage

What we have requested the government is that we understand that there is a genuine issue of IPPs running short of coal and that this would affect the end-consumers and that they should be given priority, but this should not mean zero supply to other sectors, and it shouldn’t be without any advance notice,”said Samir Cairae, chief executive officer of Diversified Metals (India),Vedanta Limited said.

“As [a] normal practice, you can tell us about one month in advance to make alternative arrangements, but in this case we got a notice of just a few hours!”

Other industry analysts lay the blame for the shortage of coal stocks in power plants on the government’s laxity regarding maintaining critical stocks and its untimely decision to stop all coal imports for power generation, increasing the pressure on domestic supplies.

“Even when there was adequate supply of coal, many power plants did not keep sufficient stocks of coal because they felt that there was enough supply,” one sector analyst told on the condition of anonymity. “The government took no action against them for this. And then, the government, last year decided to bring down coal imports for power to zero, which has resulted in this shortage now. Everybody knows that Coal India’s supply falls short in the May to June period, which is then followed by the monsoon when supply is naturally low.”