Indian Railways News

Policy flip-flops in Railways and CIL hits supplies to Power Sector

After more than a year, Indian Railways and Coal India are witnessing high demand for fuel from the power sector. Coal sales increased 15-16 per cent in August and September. Yet the two entities is not happy.

Emphasis on the power sector is bad for the CIL balance-sheet. This is because the miner gets 20 per cent higher price from non-power customers like steel, cement and others.

And over the last two months, its supplies to the power sector increased from roughly 82 per cent to 92 per cent. Even the most profitable open market sales have nearly stopped as CIL failed to offer much coal to the platform. The result may be felt in terms of lower margin in the July-September quarterly results.

CIL and Railways could step up supplies to the power sector but its production and marketing plan suffered fresh uncertainties.

The miner is expecting the situation to improve in October as the loading rate is set to improve from 215 a day to 235 a day in a week’s time.

History repeats

In the past, CIL used to direct nearly 30 per cent of its total sales to this segment. The ratio tilted in favour of power nearly four years ago, when the power sector was hit by fuel crisis.

The fuel crisis was a result of the greed and wrong policy prescriptions on the part of the then UPA government which ignored many alarms to recklessly enhance the generation capacity. CIL paid the price. It squeezed supplies to every customer to keep the power sector happy.

After coming to power, the Narendra Modi government went a step ahead. Open market sales were suspended throwing many ferroalloys companies, especially in Odisha, in great uncertainty.

Though the policy was reversed in the last year and more coal pumped into the open market; CIL had a hard time to get its customers back.

Coal supplies need strong logistics support which cannot be created overnight. Non-power customers found imports a more dependable option. The meltdown in energy commodity prices too helped the move.

The government’s decision to spare a potentially more polluting high-sulphur petroleum coke from carbon tax vis-a-vis four times rise in clean energy cess on coal from ₹100 a tonne to ₹400 a tonne, further tilted the game away from coal.

Cement makers started using petroleum coke not only for kiln operations but also for captive power generation. But just when CIL was trying to rebuild this market, the current crisis struck. And CIL has no one but the power sector to blame.

Spreading uncertainty

Between 2007 and 2017, India’s power generation capacity has doubled riding on thermal power capacity growth. It was expected that the plant-load factor of the sector will improve from 79 per cent to 85per cent during the period.

The reverse happened. PLF declined consistently to 60 per cent in FY17, indicating huge over-capacity running into 40-50 GW.

According to the Central Electricity Authority (CEA), as of July 2017, the all-India PLF was barely 55 per cent.

Open market tariff was an unremunerative ₹2.5 per kilowatt-hour (kWh) and private sector generators were facing techno-feasibility constraints to run plants at barely 55 per cent PLF. To reduce costs, they stopped storing coal for the monsoon.

A sudden upturn in demand for thermal electricity beginning mid-August, led to a rush for coal causing a disruption in the entire system.

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