by ajoy k. das

India Ministry of Coal has decided to stop blending of imported coal with domestic dry fuel by local thermal power companies by the end of the current fiscal year.

The ministry has directed state-run miner, Coal India Ltd. (CIL) to revisit its fuel supply agreements with each domestic thermal power producer so incremental supplies of required grade could ensure that thermal power companies are able to bring down coal imports for blending to zero by March 31, 2021, a government official said.

In fact, the ministry to facilitate supplies from CIL to thermal power companies will draft an “import substitution” model memorandum of understanding (MOU) that could be the framework for new fuel supply agreements between the miner and the electricity generating companies, the official said.

The model MOU would have provisions that address the need for importing coal to be blended with domestic dry fuel, and guarantees from the miner to make supplies that would meet requirement of blending by thermal power companies. On the consuming sector end, the model MOU would have incentives or disincentives for short supply or lifting more volumes than stipulated in fuel supply agreements.

In line with the Ministry of Coal, its counterpart in the Ministry of Power has already issued an advisory to domestic thermal power companies to submit plans of progressive phasing out of importing coal for blending purposes and achieve a zero-import target by the end of the current fiscal year.

Indian coal imports during 2019-2020 has been pegged by the government at 247.1 million metric tons (mt), up 5% over the corresponding previous fiscal year. Of these total volumes, an estimated 70 million mt of coal was shipped in exclusively for purpose of blending by thermal power producers.

CIL production during 2019-2020 was reported at 602.1 million mt and the government set a production target of 710 million mt for the current fiscal year.

The government said the present COVID-19-induced recession is a good time to push for import substitution when demand for electricity and hence coal is at a historical low.

It might be noted that Indian manufacturing sector growth during the last quarter, January-March 2020, was recorded at 3.1%, the lowest growth
in a quarter over the past 11 years. More significantly, the fall in manufacturing growth was when the full impact of the pandemic and national lockdown imposed in the last week of March fully impacted the economy.

This is showing up in falling coal imports into the country. In April 2020, the first month of the fiscal year and when the country was under full lockdown, coal imports were down 29% at 18.95 million mt.

On average, domestic power demand fell by 20% during lockdown months of April and May, with peak demand pegged at 134 gigawatt (GW) on May 4, compared to 168 GW on May 4, 2019.

The depressed demand for electricity and economic slowdown was expected to reduce demand for imported coal among thermal power companies and an opportune time for CIL to step in with import substitution supplies.

According to a CIL official, the miner was well equipped to replace at least 100 million mt of imported coal, even assuming 2019-2020 production of 602.1 million mt. And factoring a production growth of more than 700 million mt during the current year, it was entirely feasible for the state miner to replace the entire volume of coal imported by thermal companies for blending purposes.

Government data showed that out of the total 198 GW of thermal coal capacity in the country, more than 162-GW generating capacity resorted to importing coal. About 144.6 GW of generating capacity was designed with boilers to be fed with imported coal blended with local grade and 17.6 GW of capacity designed to operate only with high-grade imported coal.