NLC India to invest in Rs430 bn power, mining projects
Projects expected to add 3,920 MW of power, 11.50 mtpa of mining capacity. September 2020
The nationwide-wide lockdown which came into effect on 25 March brought economic activities to a sudden standstill as many factories and offices were shut and operations suspended. This slashed electricity demand, thus affecting the demand for coal and causing inventories to swell to record levels. The combined inventories of coal with power plants and at pit-heads and non-pit-heads of commercial coal mining companies in India have risen to three-months of average coal production seen in last fiscal year.
The lockdown measures were gradually eased in May in several states and large cities, including Delhi, Bengaluru and Hyderabad that decided to reopen some businesses and limited public transport. However demand for coal did not see any significant pick up. Several manufacturing companies were unable to restart operations mainly due to shortage of labour and liquidity constraints. Power plants were not very keen to lift coal due to muted demand and high inventories and dispatch of coal fell by a sharp 26.5 per cent YoY in May, said the CARE Ratings report. Thermal power generation has seen a near 20 per cent month-on-month decline in April 2020. Thermal plant load factor (PLF) declined to 42.4 per cent in April 2020 from 60.3 per cent in February 2020 (pre-Covid) on account of lower demand.
As India push forward with plans to further ease lockdown measures in June, economic activity and electricity demand from the commercial and industrial sector would see some recovery. Although month-on-month improvement will be seen in coal demand but the short term demand prospects for coal looks subdued as power plants have sufficient coal stocks. Also, to avoid the risk of coal catching fire and pilferage due to high inventories at pit-heads, coal miners are likely to cut their production till the record stockpiles are brought down to mandated levels. The upcoming monsoon season also weighs on coal sectors as hydropower generation will see further growth. However, any diversion of coal to non-power sector, such as cement, steel etc that imports coal (which can be substituted with domestic coal) may provide some support to domestic coal companies and also help in curbing imports.
The country imported 243 million tonnes of coal in FY20, up by 3.3 per cent over FY19. Coal India Ltd (CIL) has been mandated by the government to replace at least 100 million tonnes of substitutable imports with domestically-produced coal in the ongoing fiscal, as per CARE Ratings. CIL’s fuel allocation under the exclusive e-auction scheme (to make coal available to non-power consumers, including captive power plants) for the non-power sector rose over three-folds from 1.2 mt in April 2019 to 3.91 mt in April 2020 as the company looks to tap non-power sector due to slump in demand from the power sector. In FY20, CIL’s coal allocation under the scheme had dropped to 8 mt from 11.4 mt in the previous year.
Besides this, opening up of coal mining for the private sector is likely to boost the domestic production in medium term although it will take some time for the country to reduce over dependence on CIL for its coal requirements.
India’s production of coal grew by a marginal 0.1 per cent to 729.1 million tonnes (Provisional) in FY20 as compared to 7.9 per cent growth in FY19, mainly due to prolong excessive rainfall hampering mining operations. Coal production could have possibly registered a decline if not for increased coal output in the final three months of FY20.
The Covid-19 induced lockdown which came into effect from 25 March brought many business activities across the country to a near standstill. Mining was classified as an essential industry and allowed to remain operational through the lockdown period. However production was impacted due to shortage of labour force as many left for their hometown in the wake of the Pandemic. Besides, halt in business activities sharply reduced the demand for power. Almost 70 per cent of power generation in India is coal-based.
Power sector consumes about 70 per cent of total coal produced in India. Electricity generation (excluding renewables) fell 25.4 per cent YoY to 81.5 billion units in April with thermal PLFs facing larger impact than renewables given the higher variable costs and must-run status to renewables, nuclear and hydro power generation. Coal-based power generation fell by a sharper 31.7 per cent YoY in April 2020. Thermal plant load factor (PLF) declined to 42.4 per cent in April 2020 on account of lower demand.