The coal sector is critical for the economy and overall development of the country. Close to 60% of the country’s power supply currently comes from coal-based thermal plants. Coal is also an important input in the steel sector. This indicates why maintaining an adequate supply of coal is an important objective for the government. This article discusses some of the major developments in the coal sector in the last few years.
Increase in Coal Production
The last few years have witnessed a sharp increase in domestic coal production. Under the last administration, between 2010-11 and 2013-14, there was an increase of 31.1 MT from 431.3 MT to 462.4 MT. On the other hand, in the first three years of the current dispensation, there has been an increase of 59.9 MT. In 2016-17, 554.1 MT of coal was produced by Coal India as compared to 494.2 MT in 2014-15. The year-on-year growth rate in coal production has also been relatively higher under the current administration. (See Charts 1 & 2)
Chart 1: Production by Coal India:
Chart 2: Rate of Increase in Coal Production:
Today, India is producing adequate coal for domestic consumption. Another indicator of this increase is availability of coal supply in our thermal plants. Data from the Central Electricity Authority reveals that when the current administration took office in May 2014, a third of the thermal plants (32 plants out of 100) in the country had critical levels of coal supply (less than seven days of coal stock). Today, just one plant faces a coal shortage.
Expanding Coal Mining
In August 2014, the Supreme Court issued its judgment in the “Coalgate” scam case and cancelled the allocation of 214 coal blocks. Then the Coal Bill was passed as an ordinance. (In 2015, the bill was eventually cleared by Parliament). This enabled the auction of the cancelled blocks, which was necessary for ensuring an increase in the supply of coal in line with the rising demand. Till date, 84 coal blocks have been auctioned. This shall potentially raise more than Rs 3.94 lakh crore over the lifetime of the mines. As per official data, there has also been a 62% increase in drilling for exploration over the last three years – to 11.3 lakh metres in 2016-17 from 6.9 lakh metres in 2013-14.
Decline in Coal Imports
Expectedly, the increase in domestic production of coal has led to a decline in import of coal. A recent reply to a question in the Lok Sabha has revealed that there has been a significant decline in coal imports in recent years. Coal imports declined from 217.78 Mt in 2014-15 to 203.95 in 2015-16. Further, in 2016-17, the imports declined to 190.95 Mt. The trend continues this fiscal year, as there has been a decline of 8.1% in the first quarter as compared to the same period in the previous year. Imports have an adverse effect on the economy as they lead to ballooning of the current account deficit and adverse pressure on the exchange rate. Also, imported coal is costlier which increases the cost of electricity generation in thermal plants. This decline in imports has led to large foreign exchange savings for the country. Annual savings have been estimated at more than Rs 20,000 crore. (See Chart 3)
Chart 3: Decline in Coal Imports:
Our dependence on coal imports is likely to continue as thermal plants with a combined installed capacity of more than 80,000 MW, built during the tenure of the last administration, have been designed for only using imported coal. Also, an important reason behind dependence on imports is the low domestic supply of coking coal, which is a critical input for the steel industry. The largest steel producer, SAIL, depends on imports for close to 80% of its coking coal requirement.
Improvements in Quality of Coal
There have been concentrated efforts for not only increasing coal production but also improving the quality of coal. There were concerns about the quality of coal as it increases the quantity of coal required for power generation. The government had introduced third party sampling of coal for assessing the quality. The independent agency is supposed to analyse samples at the loading stage on behalf of both the supplier and the power plant. As per the report card released by the ministry, 41.9 crore tonnes have been assessed so far. Another important step towards improvement of the quality of coal supplied by Coal India is the decision to only provide crushed coal to power plants. The improvement in coal quality and supply have been instrumental in achieving a 9% decline in the amount of coal required by our power plants to produce a single unit of electricity over the last three years — from 0.69 kg per unit in 2013-14 to 0.63 in 2016-17. (See Chart 4)
Chart 4: Coal Per Unit Electricity:
In recent years, primarily due to environmental concerns, there has been a conscious push for reducing our dependence on thermal power plants. This is a simultaneous process and but may take many years to fulfil. Thus, the coal sector is likely to continue as the backbone of our energy needs and the government needs to continue focusing on its growth.