Coal Sector Needs an Institutional Makeover

Ashish Gupta, Observer Research Foundation

India is currently the third largest consumer of electricity and this position will continue over the coming years on account of sustained economic development, urbanisation, improved electricity access and an expanding manufacturing base. Recently, the Ministry of Coal, Power & Renewable Energy stated that universal and affordable energy access 24/7 is the mission of the present government under Prime Minister. This mission cannot be fuelled without coal and therefore it requires special attention. This is important because Coal occupies an important place in India’s energy basket due to its affordability. Unfortunately, the coal sector is unable to garner the requisite momentum because of its entrenchment with the political class. There have been discussions happening for a very long period to reform this crucial sector by adopting international best practices. But the reforms initiated are either not sufficient to bring desired change in the coal sector or reforms are implemented in a hasty manner.  Some of the key reforms that are required to keep the sector attractive are given below:

Mine Development Operator (MDO)

MDOs usually work on contract basis for mining coal. They are not the owners of the coal block and are generally averse to take on risk. Currently 68 percent of coal production comes from work outsourced to MDOs. Some MDOs are of international repute but the compensation for the contracted work is so low that there is no incentive to use specialised mining equipments. Apart from this when CIL outsources, it is only for a limited time and at fixed cost of production. This only allows use of shovels that last for 9 years and dumper last for about 5 years. Commercial mining practices cannot be used in this environment and because of this large quantity of coal is left unmined at the coal blocks.

Division of coal blocks

Many coal blocks with large coal reserves are divided into smaller coal blocks and awarded to different companies. This block-wise division of the coal is not really economic because the coal block divisions are not necessarily congruent with the natural geological boundaries. This can lead to unnecessary wastage between the blocks.

Skilled Manpower

Currently CIL has 0.3 million manpower in which 0.06 million comprised of technical personnel including clerical staff. Coal India also faces superannuation of about 750 middle and senior management personnel every year, which leads to draining of years of knowledge base. While the bottom managerial level is being replenished, there is a vacuum in the middle management preventing adequate supply of talent to top management.

Most of the engineers are either opting for more lucrative disciplines and many who are trained to perform the task want to work as planning engineers rather than to work on field. The pay structure is still not at par with software engineers though it is a highly technical field with high risk attached to it. This is a very critical issue hindering the growth of the coal sector.

Reluctance to change

Starting from the establishment of the CIL in 1975, more thrust was given to acquire engineers only. Now engineers are not required to play a role of activist, environmentalist, human resource person, finance manager and so on like it used to be in the past.  All these disciplines are now distinct from one another and require special skill set. Absence of specialised skill leads to engineering solutions that do not take into account the social and economic element.

CIL’s dilemma

CIL’s productivity is criticised routinely. But the question is, is it CILs fault? The government is looking to disinvest 10% share of its shareholding in CIL. The move will certainly generate much needed revenue for the government and will also improve efficiency in the working of CIL. But a memorandum of the trade unions submitted to the Joint Bipartite Committee for Coal Industry has highlighted deep concerns of workers over disinvestment of CIL.

Needless to say, the governments in the past have failed to unite unions. What is not clear is if this is inevitable or intentional. CIL cannot be faulted for opposing moves towards efficiency because unions which are affiliated to political parties that actually oppose efficiency. The government needs to take a rational stand and engage in dialogue with trade unions for increasing efficiency, productivity and wages.

Given the changing dynamics in the market CIL needs to adopt best management culture and techniques. CIL is an energy company, for energy companies nothing is more critical than efficiency.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 24

 

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November 2015: Shades of Paris

Lydia Powell and Akhilesh Sati, Observer Research Foundation

Climate Change

Energy sector news in November was dominated by news on development of renewable energy projects and rhetoric geared towards climate negotiations in Paris. This year (2015) was declared as the hottest year ever by World Meteorological Organisation (WMO) continuing with the tradition of declaring a year as the hottest ever just before a climate summit. It is probably the ‘hottest’ year for a climate treaty as well. Indian leaders were busy calling for climate justice, energy justice and financial justice from every available platform in the hope of retaining at least a semblance of equity in any agreement that may be agreed upon in Paris. Companies were making commitments to pour money into renewable energy on every media channel.  Ironically companies such as Coal India Limited (CIL) and National Thermal Power Corporation (NTPC) whose cash flows critically depend on fossil fuels were among the many companies making huge promises on renewable energy. SunEdison, the American company supposedly spearheading the solar revolution in India promised that it will set up 500 MW of solar plants in India. Surprisingly the news that the share prices of SunEdison have fallen by over 87 percent in the last one year did not make it to the front pages of the Indian business press. What is behind the fall in share prices continues to be debated but one cannot rule out the possibility that SunEdison has the potential to become the Enron of the solar sector.

The Hon’ble Minister for Environment, Forests and Climate Change launched justclimateaction.org a new website on India’s climate action in November. ‘We are not part of the problem but we are willing to be part of the solution’ is a notable quote from the Hon’ble Minister featured on the website. China was reported to be in favour of a binding treaty giving rise to optimism over a legally enforceable / binding treaty in Paris. Whether India will foreclose and narrow her liberty of choice by declarations made to other powers is not clear at this point but if it does India may be voluntarily walking into a low income trap. China offers a lesson. Population evangelists told China that the number of Chinese babies must be reduced to save the world. China obliged and reduced the number of its babies. Today China is looking for ways to increase the number of its babies. It may not succeed as it is now too expensive to bring up babies in China. Today climate evangelists are telling India to reduce carbon emissions to save the World. If we oblige and make absolute reductions in carbon emissions to save the world we may get into a similar problem in the future. The guarantee from experts that expensive energy will not compromise on India’s development is not encashable. The only comfort is that in an evolving environment with a complex interplay of economics and demographics, the Paris treaty may stand only until parties of interest negotiate a new instrument for a new context in the future.

Conventional Fuels

This is not the best of times for fossil fuels. The problem of plenty is keeping prices down for coal, oil and gas. There were reports of profits of state owned oil and gas producers dropping. There was also news of the government increasing taxes on petroleum products to maintain its revenue stream amidst falling prices. The government continued to urge affluent consumers to give up their subsidised LPG connections. The threat of withdrawing subsidised LPG connections for those with an annual income above a million Indian rupees was also issued but no concrete policy action was announced. But the low price environment also facilitated an end to the stalemate in a policy on pricing natural gas. Signals of freeing up gas prices started emerging in November which is a positive sign. The downward pressure on gas prices was also affecting prospects for imported LNG. NTPC was reported to be refusing to buy high priced gas from GAIL (India) Ltd and India and Qatar were reported to be adjusting their LNG import agreement to new realities. Talks on trans-border pipelines such as TAPI continued as they tend to do even when the economic case for their viability decreases exponentially.

India’s growth in demand for petroleum fuels was widely reported. India fuel demand is said to have grown by 17.5 percent from the same month last year according to data from PPAC. India’s total fuel consumption for 2014-15 could be about 3.6 million barrels per day (bpd) accounting for a growth of 8.7 percent in 2015-16 (Please refer to Data Insight at page no. 7). Overall India’s fuel demand grew by 440,000 bpd since 2013-14. This must warm the hearts of OPEC countries but send shivers down the spines of climate alarmists.

On the coal front, news of coal imports declining continued to flow. There are also signs of easing coal use rules which could pave the way for introducing a ‘market’ for coal. Washing of coal appears to be seeing a revival. The restructuring package for distribution companies was announced in November but it is not clear if this will go the way of earlier restructuring plans – vanish without a trace of improvement in efficiency or economic viability.

The winter of discontent over fossil fuels continues but it can bounce back and shock as it has done so in the past!

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 24

 

Say No to Clean Cook Stoves

Lydia Powell and Akhilesh Sati, Observer Research Foundation

‘India Sees Clean Cooking as Climate Action That Saves Lives’ is the title of a recent article in the New York Times. The article describes the plight of Indian women trying to cook daily meals using fire wood and goes on to explain how the smoke filled huts affect the health of those who live in these huts. According to the article ‘the menace of cook-stove pollution, does not stop in the home. It contains high concentrations of tiny particles compounds many environmental problems as well, from glacial melt to falling crop yields’. Though the author of the story quotes research by Prof Kirk R. Smith, professor of global environmental health at the University of California, Berkeley, that concludes that even if the 2.8 billion people using wood stoves switched to gas, the increase in global emissions would equal just a half-a percent change in the efficiency of the world’s automobile fleet. The author picks clean cook stoves, stoves that burn wood more efficiently as the ideal solution (captured in the title of the article). Perhaps the author agreed with the observation of Prof Smith that ‘it can be politically incorrect to advocate for gas cooking, since it’s not a renewable energy source’ and decided to vote for clean cook stoves instead of natural gas or liquid petroleum gas.

The UN too has aligned itself with the idea of clean cook stoves and set up the Global Alliance for Clean Cook-stoves, that aims to ‘develop a viable cook-stove market and distribute 43 million cook-stoves worldwide by the end of the year by linking manufacturers and developers with investors and other financial support mechanisms’. India alone has a market ten times this size according to the CEO of the UN alliance for clean cook stoves who thinks that the shift to clean cook stoves will not only transform the lives of those now living in smoke filled huts but also make a contribution to reducing black carbon that is supposedly melting glaciers.

There are many issues with this supposedly well-meaning but poorly thought through idea of replacing dirty cook stoves with clean cook stoves. First, if saving lives is the goal, one can do far better than distribute cook stoves. Far too many die a quick death on account of poverty, deprivation and related violence. Clean cook stoves are unlikely to make a difference. In fact clean cook stoves may prolong their life of poverty. Second it is very unlikely that impoverished women in India go to bed every night dreaming of a clean cook stove. What they in fact may be dreaming of is a gas stove that their urban counterparts use or perhaps an induction stove that they see on television. They may even be dreaming of not cooking at all so that they can go to school or take up a job.

It is well known that the growth in use of modern cooking fuel use in Indian households has been far slower than the growth of electricity in households. This defies logic because liquid petroleum gas (LPG) cylinders are decentralised packed forms of energy that can be adopted even in rural areas. It is like solar energy but only better as it will deliver far more energy consistently for unit of investment. Unlike grid based electricity LPG does not require elaborate infrastructure and centralised control.  The reason for poor adoption and low penetration of LPG is social not economic. Cooking is a task carried out by women marginalised in the household and in the society. But devices such as television sets and mobile phones that require electricity are primarily consumed and controlled by men. Electricity connections are therefore prioritised over cook stoves.

A recent paper points out that an urban household in India in which the first child is male has a higher chance of opting for an LPG stove compared to a household in which the first born is a girl based on empirical evidence. The rise in the status of a woman who bears a male child (even if temporary) and the interest in the health of the male child are cited as reasons for adoption of LPG for cooking. One cannot change this social problem with free clean cook stoves.

Those interested in saving lives in India would do better to redirect their attention and more importantly the massive UN funds from clean cook stoves to LPG stoves. LPG will eliminate fuel gathering, reduce cooking time and also eliminate smoke. Those who want to save or improve lives can work with governments to offer an LPG connection to rural women about to be married. This dowry from the government will not only make a small contribution towards enhancing the status of the young woman but perhaps also empower the woman to use her extra free time in productive or educational activities. They should probably begin with the Government of cooking fuel as it could be the ultimate ‘amma’ scheme.

Hypocrisy is entrenched in the debate on climate change but it scales new heights when it says that all climate action is in the interest of the poor. If we scratch narratives of risk including climate risk, we are likely to find raw Malthusian fear of the other. First it was the fear over savage habits of the other that had to be corrected through colonisation. Then it was the fear over people numbers that had to be stopped from growing through ‘development’. But for this obsession, the Chinese will not be growing old before they become rich. Now it is their desire for gas stoves or cars that has to be stopped with environmental codes of conduct. This fear will pass when the next fear (robots taking over?) comes along. Leaving the Malthusians to dwell in their fears, the Indian government must quickly package and deliver the LPG dowry to its daughters!

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 23

 

India has no option but to strategise its energy basket dominated by coal

Ashish Gupta, Observer Research Foundation

We highlighted in the last weeks analysis (Are large projections for renewable only cosmetic? ORF Energy News Monitor Volume XII, Issue 22), why coal will remain the dominant choice for developing countries for power generation. Though some countries will curb their coal production other countries will increase their production indicating coal production level will remain the same while countries change their preferences for fuel primarily for economic reasons. But major consumers as well as major coal exporting countries see opportunity in coal as they expect coal to stay as a key fuel for power generation for the foreseeable future.

The recent report “The Case for Coal: India’s Energy Trilemma”, released by World Coal Association is also of the view that even incorporating cost declines in renewable technologies, coal is expected to remain the most cost- effective option for meeting electricity demand growth in India. The report also mentions that investing USD 1 billion spent on ultra-supercritical coal in India could abate more CO2 than if the same amount is put in European renewables. These findings are important and give India a reason to follow coal though there are other reasons such as domestic availability for choosing coal.

First, India has only 0.3 percent of proven oil reserves of the total whereas gas accounts for only 0.7 percent. Coal is the only source which India has in abundance currently standing at 6.8 percent of the world proved reserves[1]. As per the Ministry of Coal (MoC) statistics based on the result of exploration carried out up to the maximum depth of 1200m, a cumulative total of 301.56 billion tonnes (bt) of geological resources of coal have so far been estimated in the country as on 1.4.2014. Out of this 125 bt comes into the proven category. Though many international institutes are not convinced of this estimation it is the nodal agency for managing coal resources in the country, we have no reason to contest MoC statistics. Another important point which needs to be mentioned here that international estimating agencies keep the coal reserves at the same level despite MoC updating its proven reserves by 2-3 bt every year for eg 121 bt in 2013 revised to 125 bt in 2014.

Second, coal wins the case on reserve to production ratio which establish how long reserves will last if the country is producing at current production level.

image (1)

 

Source: 12th Five Year Plan, Planning Commission

It is clear from the above graph that if we continue to produce at the current level, oil reserves will last in less than twenty years whereas gas can run the country for only around twenty five years. But if coal path is pursued at the current level then we do not have to worry about availability for a hundred years. Apart from this coal can be converted into gas and can be utilised as fuel in power plants which is much cleaner than raw coal. Even raw coal can be made cleaner through various clean technologies. Therefore why should India worry about costly resources when it can make economic gains with coal.

Many analysts have raised concern that even after having abundant coal reserves, coal shortage is a norm in the country. But the problem is institutional because Coal India Ltd (CIL) was not able to fill the gap. But now CIL has shown tremendous improvement in its practices and registered a growth in production of 8.4 percent during April to March, 2015. Even in this fiscal CIL has begun on a strong note with a record production during April at 41.52 million tonnes (mt), 101 percent of target production. Over Burden Removal (OBR), an important performance criteria that improves the mine geometry and exposes the coal seam for future mining making the mines safer to operate, jumped by 27.5 percent during April, 2015 compared to the same month last year. All these improvements suggest that our coal shortage will be reduced in the coming years implying huge savings in foreign reserves. This is another important reason that why India must capitalise on coal.

All this does not mean that India must not follow other cleaner sources. But given the financial burden and other technical hindrances which come with cleaner sources leaving no scope for India but to strategise its energy basket dominated by coal. Cleaner sources could play a supporting role because India needs all sources of energy available to meet its growing energy needs using the best possible technology.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

[1] BP Statistical Review, 2014

Courtesy: Energy News Monitor | Volume XII; Issue 23

 

Are large projections for renewable only cosmetic?

Ashish Gupta, Observer Research Foundation

There are many optimistic projections from various quarters regarding the future of coal. Many agencies are predicting that coal usage in power generation will come down dramatically by 2040. Some even expect that those who invest in coal will be doomed and the coal sector will die a premature death.

According to the BP Energy Outlook 2014, coal and oil consumption is expected to slow down whereas gas consumption expected to grow at 1.9 percent compared to overall energy demand growth of 1.7 percent. Renewable sector is expected to grow substantially at 39 percent during the period 2014-2035. This indicates huge renewable capacity will be added in the future posing a very important question whether there will be any role for coal?

Projected Share of Renewables in Power Generation

image (1)

Source: IEA World Energy Outlook 2014

TWh= Terawatt hour

From the graph (IEA New Policy Scenario), it is clear that the role of fossil fuels will be reduced substantially whereas renewable will continue to grow massively. The share of fossil fuels in the power generation which was at around 69 percent in 2012 will be reduced to 52-23 percent by 2040. The electricity generated from coal (app. 12,000 TWh) and renewable (app. 12,000 TWh) will be almost equal in 2040. But these large estimates for renewables must be qualified as it also includes hydro. This means that the increment will come have to come from the hydro sector and not specifically from the new renewable sources like solar, wind etc. If hydro is excluded then the share of renewable will come down by 50 percent because 6,000 TWh is expected to be generated by hydro in 2040. Therefore are these large estimates for renewables are only cosmetic? This is an issue that must be clarified.  Let us have a look on world coal production planned during the same period.

World Coal Production

image (2)

Source: IEA World Energy Outlook 2014

It is evident from the above graph that some countries will curb their coal production whereas some countries will increase their production. This means that the production level will remain the same while countries change their preferences for fuel primarily for economic reasons. For example China’s coal production is expected to be reduced by 4 percent from the 2012 levels. But this is not enough to make us believe that this reduction is the result of renewable proliferation. It is possible that efficiency gains might be the reason behind such reduction. Effectively China will use less coal to produce more electricity or steel.

Interestingly, as China reduces its consumption, India will be increasing its production level by 3 percent from 2012 level. So whatever space is vacated by China will be taken over by the India. Apart from this Australia and Indonesia will also be increasing their coal production by 2 percent and 3 percent respectively from 2012 levels. Therefore major consumers as well as major coal exporting countries will be increasing their production. They all see opportunity in coal. So it is clear that both consumers as well as exporters expect coal to stay as a key fuel for power generation for the foreseeable future.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 22

 

 

The Baptist and the Bootlegger Unite

Lydia Powell and Akhilesh Sati, Observer Research Foundation

Carbon Constraints

The announcement by ten large oil companies (BP, BG, Eni, Repsol, Saudi Aramco, Shell, Statoil, Petroleos Mexicanos, Reliance Industries and Total) who together account for almost 20 percent of the world’s oil and gas output that they will back policies consistent with the goal of keeping the increase in average global temperatures to within 2 degrees Celsius was embraced by climate Baptists as the ultimate endorsement of their agenda. The approach of the ten company group labelled oil & gas climate initiative (OGCI) to co-opt the enemy is not new. The Bootleggers colluded with the Baptists in the United States to ask for prohibition on alcohol as it helped the cause of the Baptists and the business of the bootleggers. In think tank language this ploy is celebrated as a move that makes ‘strategic sense’. The statement by OGCI follows a letter in June by European gas companies BP, Eni SpA, Royal Dutch Shell Plc, Total SA, Statoil and BG urging governments to agree to carbon pricing at the United Nations’ COP21 climate change summit starting in Paris in December. These gas companies appear to be looking at a market opportunity for gas if an agreement in Paris calls for a reduction in carbon emissions. Once a global declaration against carbon is made, coal fired power plants are likely to be the first targets for attack which will clear the way for gas.

Exxon Mobil that is not part of the collation against coalis in the middle of a controversy over allegations that it hid conclusions of its own research on climate change as it had ramifications for its business. Judicial activism against perceived corporate evil is not new in the United States but what the activist judges may not have realised is that fossil fuel is nottobacco. All are implicated when it comes to fossil fuel use unlike tobacco. When judges punish fossil fuel companies they will also punish themselves – either by imposing higher burden on their wallets (more tax or more money for energy use) or by having to live with complicated energy.

Meanwhile Toyota announced that it will transform its product line with hybrid vehicles that run on fuel cells. The result according to Toyota will be a 90 percent reduction in emissions compared to emission from its automobiles in 2010. This surprise move away from battery driven vehicles appears to be driven by concern over recharging time for batteries that Toyota thinks is detrimental to adoption of electric vehicles world-wide.

Hydrocarbon Markets

Last month continued to be depressing for oil prices but there were some positive signs. Early in October the dollar weakened which pushed up the price of crude. US production continued to contract even as its oil demand continued to increase. Escalating conflict in the Middle East made a small contribution to pushing oil prices up but Goldman Sachs held on to its prediction that the market was oversupplied and that prices will remain lower for a longer period. The repeal of the ban on oil exports from the United States did not make progress.

As it is often the case in the United States, unrelated commitments such as funding renewable energy and land conservation projects were supposedly being considered as sweeteners by the export lobby. The US department of interior cancelled two lease sales in the Arctic effectively ruling out drilling in the near future. A notable setback in the shale region was reported in October as Occidental Petroleum decided to pull out of Bakken.

image (1)

image (2)

Source: The World Bank

Saudi Arabia reduced prices for November oil sale to Asia and the USA to keep its supply competitive with rival supplies. Speculation on Russia’s position in stabilising the oil market continued. There was even talk of Russia joining the OPEC but it appears to be far-fetched. Russia continued to increase supplies driving down prices. The war for market share is said to be raging between Saudi Arabia and Russia with China as the primary battleground. Meanwhile Iran is fine tuning its oil E&P contract terms to make it more attractive for potential investors. The country is said to be targeting an investment of $100 billion for developing the oil and gas industry. Iran is also said to have lined up buyers for 500,000 barrels of new oil. BP and CNPC announced a partnership agreement during the Chinese President’s visit to London this month. The two companies already have a successful partnership in developing the Rumalia field in Iraq and they now seek to put it to use in developing the shale resources in China.

The future of these investments hinges on things brightening up in a bleak market. The International Energy Agency (IEA) said in its monthly report that oil markets will be oversupplied in 2016 as it expected demand growth to slow down. The regulator at the Bank of England asked British Banks to disclose their exposure to commodity assets as concerns over the financial system’s exposure to collapse in commodity prices grew. The energy information administration (EIA) reported that US crude oil storage levels were close to 80 year highs at 476 million barrels. According to IMF estimates, if oil prices stay low, Middle Eastern oil producers stand to lose $1 trillion budget hole.

Notwithstanding IHS Global’s observation that only one in twenty LNG projects around the world will be developed by 2025, Malaysia’s Petronas reaffirmed its commitment to the LNG project in Canada’s pacific coast. The French company ENGIE (formerly GDF Suez) announced a deal to import LNG from Cheniere Energy of USA from its Sabine Pass and Corpus Christi export terminals. The deal could facilitate EU diversifying away from Russian gas. However prospects for LNG do not look bright as growth in demand in China is lower than expected. Japan’s return to nuclear power is unlikely to help.

This is not the best of times for the fossil fuel industry. It is under attack from both ends. At one end we have peak profit rather than peak oil or peak coal haunting the sector. At the other we have an evangelical mob waging war against carbon. What can it do other than cannibalise its weaker constituents just to stay alive!

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 21

 

India’s Coal Sector: Unable to capitalise on falling prices

Ashish Gupta, Observer Research Foundation

The coal sector has witnessed a lot of turmoil in the recent past. In 2010-11 the price of coal reached an all time high but now it is crawling at low level. The single most important reason for the rise and fall of coal prices is China.

image (1)

Source: Various coal prices index 

As one can see from the graph above until 2009, the price differentials did not favoure imported coal use in China. But after that the situation changed dramatically. China which was self reliant in coal became a net importer of coal in 2010-11. China emerged as an importer not because of coal availability deficit but because it wanted to take advantage of the arbitrage opportunity. The reason was that transporting domestic coal to south east China was expensive on account of insufficient rail and road network. Coal had to be first transported to the east on rail lines (Da-Qin & Shuo-Huang) and then to eastern ports (Quinhuangdao, Hunaghua and Rizao) and then loaded onto boats and finally shipped south via sea routes. The length of the voyage and the price were the key disadvantages. The landed price in the southern markets was comparable to the price of imported coal in the same ports. The arbitrage opportunity allowed Chinese coal buyers to take the advantage of price differentials between domestic Chinese coal and international coal prices. This role reversal strategy helped China to gain on both the fronts financially as well as strategically but India is at the receiving end as prices continue to fall.

When global coal prices were too high as compared to Indian coal prices, it made no commercial sense for the power sector to go for higher imports. But the recent collapse of global coal prices has changed the whole cost dynamics.

China had always played an important role in shaping global trade flows and increasing price fluctuations in world coal markets. When China’s import demand increased it created over-capacity in coal exporting countries which turned into oversupply when prices collapsed in the global market. This behaviour does not imply that that Chinese demand for coal has come down but the same demand is now satisfied with domestic coal. A shoft towards efficient power plants also means that China can generate the same quantity of power from less coal.  China can therefore move on to the next level of efficiency and save a lot on the coal consumption front signifying its continued progress in the sector.

image (2)

Source: https://www.quandl.com/data/DOE/COAL-US-Coal-Prices-by-Region?utm_medium=graph&utm_source=quandl   & https://www.fois.indianrail.gov.in/FoisWebsite/html/Freight_Rates.htm

From the above graph, it is  evident that the price of coal from Coal India (CIL)  are now on par with global coal prices level (prices calculated for distance at 1000 km, 1300 km, 1600 km & 1900 km) specially the low quality coal that is supplied  to power plants. But the question remains whether the decline in global coal price will bring any advantage for India? Unfortunately, the answer is .no’. Though imported coal is of high quality the appetite of Indian power plants are full. The extra-ordinary performance of CIL has created an oversupply of coal in the country in an environment of low demand from the power sector. Most of the power plants have more than adequate coal stocks.

However there may be some benefit for power projects running on imported coal as coal prices slide. With imported coal prices plummeting, returns of such projects are expected to improve. But the number of such projects are small and therefore it will not have a country-wide impact There will also be some saving on foreign exchange reserves which will benefit the economy. Apart from this coking coal importers may also reap some benefits. power projects based on domestic coal may also benefit, as they can increase blending of imported coal and boost utilisation rates. Overall India is not in a position to take advantage of a favourable situation in the coal market.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 21