Coal India Limited's demand-supply mismatch that fails to end

Topics Coal India | Coal Supply

CIL’s ability to miss demand-supply prediction has existed for a long time now, even during normal market conditions
Mining registered growth amid slowdown at the end of the last financial year.

Unlike the industrial and manufacturing sectors, there was 4 per cent growth in coal mining in March 2020 over the same month in the previous year.  Coal India Ltd (CIL) registered 9.9 per cent production growth during the last quarter of 2019-20.

The company produced 602.14 million tonnes of the mineral last financial year. However, the surplus coal has come when electricity generation has registered a record low, with little demand from the company’s largest customers.

The company said thermal units were flush with coal stocks sufficient for as long as 28 days.

“Many of the thermal plants have requested CIL to regulate coal supplies to them,” it said.

Electricity generation fell 6.5 per cent in March. Also, barring January and February, power demand growth has been in the negative since September.

“The challenges for the company include high pit-head inventory, low demand from power plants and the possibility of low e-auction premium,” Edelweiss said in a report.

Despite the likely dip in cash accretion, however, there is no risk to dividend payout owing to the healthy cash balance, said Edelweiss.

CIL has seen a demand-supply mismatch even during normal conditions. In April-September 2019, the world’s largest miner produced 241 million tonnes, which was 6 per cent lower than in the corresponding period in the previous financial year.  Coal dispatch to the power sector was 7 per cent less during same period. This was when India’s power demand touched a record high of 180,000 Mw during the peak summer season (April-July) in 2019. This led to rise in coal imports during the same period.

CIL said the reason for record production at the end of the financial year was to compensate for the loss it faced during the prolonged monsoon in 2019-20.

“After production was severely impeded on account of excess and prolonged monsoon during the first half of the fiscal, we could recover much of the lost ground in the second half. CIL produced 120.28 million tonnes more coal in H2 than it did in H1,” it said.
However, since the lockdown was announced on March 22, power demand has fallen by 25-30 per cent over the previous year. This has led to confusion with surplus coal stocks and no takers.

As demand from the power sector wobbles, payments to CIL by power-generating companies and states is stuck.

Power-generating companies, especially the units owned by state governments, owe CIL Rs 12,423 crore as of January 2020.
This has worsened with the country going into nationwide lockdown and in just two weeks of April, the dues increased by almost Rs 3,000 crore.

CIL’s customers, in turn, are themselves staring at rising dues from states’ power distribution companies. As of March 2020, the dues of power gencos stood at Rs 92,000 crore. At the same time, state-owned discoms have a loss of Rs 18,000 crore.
CIL has decided to go slow on mining.

“As demand has fallen, CIL has shifted its focus to remove the overburden. This would help it to accelerate coal production whenever demand picks up and coal can be supplied without any delay,” said a senior coal ministry official.

Removing the overburden will involve removing the top soil and rock to expose coal seams in open cast mines. Close to 95 per cent of CIL’s production comes from open-cast mines. April onwards, CIL has removed 114.43 million cubic metres of overburden in its open cast mines. This is 10 per cent more over last year in the same period.

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