Request you to kindly drop in all your mails/queries to support@infraline.com or call us at
+91-120-6799125 (D); +91-120-6799100 (B)

Mr. Alok Perti, Chairman (CPSI) and Former Secretary, Ministry of Coal

Excessive coal stocks: Is it an advantage?

In the wake of low power demand and falling PLFs, Alok Perti, former coal secretary, Government of India, analyses the reasons for the huge coal stock pile up at thermal power stations and at the mine heads. He feels that while increase in coal production by CIL and SCCL is a positive factor, a more judicious approach needs to be adopted to ensure that the excessive stock piling does not take place.

Supply of coal to thermal power stations for electricity generation has been a contentious issue for quite some time. In the years from 2010 to 2013-14, the general impression was that power stations were starved of coal supply and that the imports of Non-coking coal were increasing rapidly. During 2009-10, the coal production saw a fairly good growth of about 7-8%, but this growth was constrained in the next few years, and in 2011-12, the final year of the 11th plan, CIL’s production was only 436 million tons (MT) against the projected target of 520 MT (11th plan document). The main reason for this slow growth stated at that time was the delay in environment clearances as the Ministry was intensely engaged in determining the “go and no-go areas” and no clearances were forth coming for new projects or expansions. But from 2012-13, the situation has been improving. With improved supply of domestic coal, the imports should naturally reduce and that is what is being witnessed today. Over the last four years, some interesting changes have been observed in the supply and usage of coal. Way back in 2012-13, several states were requesting CIL to restrict supply of coal as stocks were piling up at the power stations and electricity demand from distribution companies was not increasing. In this article there is an attempt to understand the reasons for having huge stocks piled up both at the thermal power stations and at the mine heads and whether this is a desirable situation.

Trend in last four years

To begin with, it would be appropriate to look at the data for the last four years which would be adequate to understand the current dynamics of the sector and to study the trends which may help in predicting the future (Table 1).

Year

Production by CIL (million tons)

Production by SCCL (million tons)

Total Production (million tons)

2012-13

401.52

53.19

454.71

2013-14

413.495

50.469

463.964

2014-15

443.670

52.536

496.204

2015-16

484.93

60.389

545.312

The data shows an increase of about 90 MT of non-coking coal production from CIL and SCCL in the four years from 2012-13 to 2015-16. In the year 2013-14, CIL and SCCL supplied 385.157 MT of coal to various power stations in the country. It implies that about 78. 8 MT of non-coking coal was supplied to non-power sector presuming that all coal produced was transshipped out of the mines to users. Since there was a perceived shortage of fuel in the power sector, all additional production was intended to be supplied only to the thermal power stations during the 12th plan period. In the year 2015-16, CIL and SCCL supplied 443. 585 MT coal to thermal power stations. This amounted to an increase of 58.428 MT over the last three years. The closing stocks at the power stations on March 31, 2014 and 2016 stood at 22.763 MT and 43.235 MT, respectively. In other words, the actual increase in supply was about 38 MT.

Stock piling of coal in CIL mines at the end of financial year has been going up and down. In the year 2010-11, the stock reached to about 70 MT on March 31.

Table 2: Vendible coal stock at pitheads as on 31st March for 2013-2016 (million tons)

Year

CIL

SCCL

Others

Total

2013

58.17

3.02

1.86

63.05

2014

48.68

5.55

1.28

55.51

2015

53.47

5.35

0.52

59.39

2016

57.67

6.98

0.46

65.12

The Central Electricity Authority (CEA) is monitoring the coal stock position in about 100 power stations on a daily basis. If the stock goes below 4 days requirement, it is categorized as super critical and below 7 days as critical. The CEA has also prescribed the norm on amount of coal which can be stocked at the power stations, though there appears no uniform method in this prescription.

Table 3: Coal stocks at Power stations on March 31 in last four year

Year

Stock At TPSs (million tons)

No. of TPSs monitored

Critical

Super Critical

Number of TPSs with stock above norm

2013

19.00

93

23

13

17

2014

20.30

100

20

9

31

2015

26.103

100

12

6

38

2016

39.00

101

0

0

64

The data (Table 3) shows that coal stocks at the power stations have been improving. The number of critical and super critical power stations has become zero as on March 31, 2016. This is a notable achievement. However, the number of power stations having stocks far above the norm has increased and this may not be desirable in several cases. The list of the critical and super critical stations is not the same over the three years. In fact, it varies year to year quite significantly.

Table 4: Super critical TPS in 2012-13

Name of the TPS

Norm in terms of days

Stock as on 31st March 2013 in days

Stock as on 31st March 2014 in days

Stock as on 31st March 2015 in days

Stock as on 31st March 2016 in days

Mahatma Gandhi

25

4

21

24

67

Badarpur

30

2

28

39

18

Dadri

30

0

4

12

25

Anpara

25

2

16

21

18

Khaparkheda

25

1

3

6

24

Wardha

29

3

2

0

30

Simadhri

25

3

2

25

31

Sipat

9

1

4

18

16

Khalgoan

15

2

25

25

25

Koderma

20

0

22

39

43

Talcher

15

1

6

20

12

Farraka

15

0

24

17

24

Durgapur

20

2

5

24

44

Table 5: Super critical TPS in 2013-14

Name of the TPS

Norm in terms of days

Stock as on 31st March 2014 in days

Stock as on 31st March 2015 in days

Stock as on 31st March 2016 in days

Raichur

30

3

3

23

Bellary

30

2

7

20

Kakatiya

15

3

NA

19

Simadhri

25

2

25

31

Rayalseema

25

1

7

34

Dr. N. Tata Rao

20

0

7

31

Parli

25

0

4

78

Khaparkheda

25

3

6

24

Kolaghat

25

3

12

24

Super critical TPS in 2014-15

Name of the TPS

Norms in terms of days

Stock as on 31st March  2015

Stock as on 31st March 2016

Korba

15

1

9

Satpura

20

2

42

Warora

20

0

30

Raichur

30

3

23

North Chennai

30

3

17

Muzaffarpur

20

1

10

Implications

To be able to arrive at any meaningful implication of having large stocks of coal at the thermal power stations and at the mines one must consider the various limitations. Firstly, coal kept exposed to air in the open for long period leads to deterioration and often in hot summer months quickly catches fire. Ideally, coal should be used as soon as possible after it is beneficiated and delivered to the user. However, since the power stations consume fairly large quantities, the quantity required to be kept in stock depends upon the efficiency of the delivering mechanism and the ability of the miner to produce adequate quantities so that disruptions in the supply do not take place.

Secondly, most thermal power producers would like to run the plants at high PLFs so that their sale of power is maximum and debt servicing is not hampered. Coal companies supply coal on the basis of the Annually Contracted Quantities (ACQ) which for old power plants is based on the average supply made over previous years, and for new plants the ACQ is based on the requirement for running the plant at 85% PLF. Power plants would be happy having good amount of stocks all the time, but if stocks are kept of long periods and the quality deteriorates then the specific consumption would increase, resulting in increase of cost of power. Further, the space available for stacking the coal should be sufficient for keeping huge stocks. Normally, the quantity indicated as the norm for stocks to be maintained at the power stations gives an indication as to the capacity of the power station to stack up.

In the earlier years of the 11th plan, there was a serious problem of getting the required number of railway rakes at the loading points. Unfortunately, the season for maximum production and consequently higher requirement of railway rakes happen to be during October to March when all other mining and industrial production activities tend to peak and there is a bit of a competition. Often, the railway authorities have pleaded with the coal companies to restructure their production schedules, but this is not possible. Over the last three or four years, the rake availability and turn-around time for coal movement has seen a reasonable improvement. With improved performance of the railways, it is perhaps now time to re-examine the norms set for stacking at the power stations. Management for maintenance of excessive stocks at power stations entails costs and higher risks of theft.

For new power plants, particularly Independent Power Producers (IIP) who have built up the project on funds from financing institutions and have to service the debt regularly, it would be very comforting if the supply of coal is adequate and regular. For them, having higher coal stocks would be preferred provided they are able to maintain a PLF of 85%. Unfortunately, the demand for power is low and the average PLF in the country has declined from 73-74% in the years 2009-10 to around 60% at present. In such a situation, a stock which would be meant for use over 25 days would last for over 40 days. Where ever there is a case of low PLF and huge stocks, the situation is not a very desirable one. It would lead to wastage, may be some thefts and some of the coal being destroyed by fire. There are several cases where the power station authorities have been requesting for curtailing the supply not only in the current year but also during the previous three or four years.

As on March 31, 2016, there were about 25 power stations having excessive stocks, in most cases two to three times the norm set by the CEA. The position as of January 10, 2017 indicates that there are still about 12 such power plants having stocks much more than the norm. These are: Ropar, Panki, Tanda, Sabarmati, Koradi, Parli, Dahanu, Bokaro, Chandrapur (DVC), Kodarma, South REPL and Durgapur. The other interesting fact is that the number of super critical power stations as on January 10, 2017 is 9 and critical 22 (includes 9 super critical). This situation is very similar to the position on March 31, 2014. It is apparent that the position of critical and super critical keeps varying and requires constant monitoring which the Ministry of Coal does through a committee under one of the Joint Secretaries. The coal production peaks during the last quarter and the stock tend to pile up and the position on March 31 should invariably look satisfactory.

The other important factor is the stock piling of coal at the pit heads of mines. Coal production can be increased in existing mines through more intensive mining. In other words, the mine capacity can be enhanced to the maximum approved by Ministry of Environment, Forest and Climate Change while giving the Environment clearance. The coal companies have resorted to such action in the past. In the zeal to show greater achievements, the coal companies step up the production activity in the dry months of October to March. In the year 2015-16, the international prices of coal dropped and cheap imports were available resulting in availability of cheaper power through the power trading companies. The Power Distribution Companies (Discoms) avoided buying power through the signed PPAs resulting in low power generation in several plants. Added to that was the low demand for power essentially due to sluggish growth in industrial production.

All these factors combined to lower the PLF of powers stations leading to a fair degree of stock piling of coal at the power stations and at the pitheads of coal mines. The coal companies increased production in 2015-16 showing a growth of about 9% over 2014-15, resulting in excessive stocks being stacked up at power stations and at pitheads of coal mines. During the year 2016-17, from April 1 to January 10, the position of the total stocks at power stations monitored by the CEA was 20.9 MT with 9 super critical power stations. The stock at pitheads was 39.8 MT on November 15, 2016 and increased to 42.2 MT on December 15, 2016. The production target in 12th plan document for the most optimistic scenario was 615 MT for CIL. Even if CIL reaches 580 MT for the year 2016-17, it is likely to result in a similar situation as it was on March 31, 2016. It is necessary for CIL and SCCL, the two coal producing companies, to examine all aspects of the issue and work in a coordinated manner ensuring that unnecessary exposure of coal does not take place.

Way forward

The new government in 2014 having realized that there is a dire need for proper coordination between the power ministry and the main supplier of fuel, the Coal Ministry made one common minister. From power distribution and consumption to supply of coal, the fuel required, there is a need to fully appreciate each stage of this chain and constantly modify the strategies to suit the need of the hour. The situation as on March 31, 2016 is an example of lack of this effort. Departments and Ministries do compete to show better performance but it is necessary to recognize the external factors which may influence the performance of one branch and this may require some changes in strategy to avoid wasteful expenditure, be it by any of the portions of this chain.

While it is appreciated that increase in coal production by CIL and SCCL is a positive factor, a more judicious approach should be adopted to ensure that the excessive stock piling does not take place both at the mine Pitheads and the power plants, since coal is a commodity that deteriorates overtime when exposed to air. Perhaps, the answer lies in bringing in commercial mining and inducing competition in the sector, forcing the coal companies to value every saving in production and getting the most competitive price for their product.