The Indian sources are rushing to secure the coal supplies in India. The coal stock in India has reached a critically low level which can turn out to be a major issue.
The current status of coal stock in India-
Till September 29, 16 among the 135 power plants using coal had reached the zero level as per the Central Electricity Authority (CEA). Half of the total power plants had stock that would have lasted for less than 3 days.
In all, 80% of the power plants had less than a week’s coal stock available. Now, it is important to note that coal is the source of 70% of the electricity production in India.
Why is there a coal shortage in India?
The demand for power in Industries has increased after the second wave for covid-19 in India. Along with that, the gap between low domestic prices and high coal prices has increased. For this reason, the buyers avoid imports.
The coal India operated by the state generates 80% of the coal in the country. It released a statement that the increase in the international coal prices and transport costs have led to a reduction in power production by imported coal. This increases the pressure on uses that domestically extracted coal to increase production.
Why is the gap between domestic and global coal increasing?
The domestic coal rates of India are majorly determined by Coal India. The increase in coal rates has a significant effect on power rates and inflation. This is making an increase in politically sensitive decisions. Coal India managed to keep the prices stable last year irrespective of global prices increasing sharply. The chairman of the company said that the miner will increase rates but is not precise when it will happen.
In the meantime, coal price measures have hit a high record recently. It happened due to the global power demand for power production fuel when the industries were opened after the pandemic. The recent power crisis of China has been directing the global fuel demand.
Why are the utilities unable to give higher costs?
The power tariffs of India are decided by the states individually. They are among the lowest in comparison to other countries. The distribution companies managed by the state have taken in higher input costs to keep the tariff stable. For this reason, the companies are under big debts with billion-dollar liabilities.
The problematic balance sheets of these companies have further caused delayed payments to power generators. It also affects cash flow and other investments in the electricity generation sector.
The producers for power in India have entered into long-term agreements with distributors. So, they cannot enact high input prices until new clauses are agreed upon and added to the contracts.
With this issue, the big power producers shall stay unaffected for now but others shall have to face a big crisis. The big power producers like Tata and coal India are rising from this. While many non-power consumers of coal have reduced their production due to an increase in foreign prices.