Explained: Why Poor Planning Was The Prime Reason Behind Supply Shortfall At Power Plants

In all probability, the fuel crisis in power plants will be addressed in a few weeks. The clue lies in the Indian Meteorological Department’s prediction of heavy rainfall in September and rising daily despatch of 1.75 million tonne (mt) by Coal India Limited (CIL) for the last couple of days.

The reduced temperature will reduce the use of air-conditioners and pumps (by farmers), flattening the electricity demand, which was shooting in July-August due to deficient rainfall. Meanwhile, CIL despatches may be stabilised at around 1.8 mt a day. Together they should ease out the pressure on fuel supplies.

Such demand-supply mismatch is not uncommon. What is exceptional this year is the timing. Normally, such mismatch happens during summer spikes but not in monsoon, when power plants remain well-stocked to tide over the production uncertainty.

Also exceptional was the knee-jerk reaction of the government. Leaving price and viability issues aside, imports take time and in times of space crisis in ships, it is even more difficult. Together, these two factors, therefore, create a case for introspection.

Supply Shortfall Or Bad Planning?

Contrary to early predictions by IMD, India suffered both erratic and deficient rainfall this year.

As on 31 August, the total rainfall was 24 per cent less. The trend was not uniform. Haryana received 14 per cent above normal but neighbour Punjab was down by 24 per cent. Similarly, Uttar Pradesh received 8 per cent less rain. West Bengal got 7 per cent extra. But, Bihar — located between the two — reported 17 per cent less downpour.

One side-effect of this erratic rainfall was the majority of the coal mining areas, excepting Odisha, were drenched. Roughly 95 per cent of India’s coal comes from opencast mines. Rain makes them slushy, making production and evacuation of stocks difficult. However, major monsoon demand areas as in Punjab were receiving less rain.

But that shouldn’t have affected coal availability to power plants. Covid-19 pandemic reduced the demand for coal last year. As pit-head stock kept rising to the level of 100 million tonnes at the beginning of this year, CIL regulated production.

This is a normal practice. Contrary to common perception, coal cannot be stored. It catches smouldering fire if left in the open for long. Fire reduces the calorific value of coal, which is the common metric for the price of fuel.

As in April-June 2021, CIL was selling 5 per cent more coal than the 2019 level, while production was down by 9 per cent. As the demand increased, CIL’s production increased. During April-August 2021, production was back to the 2019 level, while off-take was up by 8 per cent.

Clearly, CIL kept pace with the spike in demand in July-August this year. You cannot expect more flexibility from mining that too in monsoon. Also, considering that the country’s total gross domestic product (GDP) is still below 2019 levels, CIL’s production and supply matched the pace of economic recovery.

What went wrong then? The answer is available in daily coal-stock data published by the Central Electricity Authority (CEA).

Let us assume 15 June is the start of the monsoon season. As of 2021, coal-power generators had a stock of 30.5 million tonnes that can last for 17 days on average. As on 31 March, the stock was 28.3 mt (15 days). It means generators added barely two days stock for the monsoon. As on 15 June 2020, the stock was as high as 49 mt, enough to meet requirements for 29 days.

The difference in these two years lies in the government’s focus. India was witnessing the first wave of the pandemic during the 2020 monsoon. Though the countrywide lockdown was withdrawn, the government was keeping a close eye and ordered electricity generators to maintain stocks to prevent any shortfall in power supply. The focus was missing this year.

Even a cursory check will reveal many power plants delayed lifting fuel allotted to them this monsoon. As CIL went insistent, some even stopped responding to communications. They thought thermal electricity demand will remain low, and didn’t block finance in coal.

In reality, demand peaked at an all-time high at 200 gigawatts (GW) on 7 July and sport electricity rates touched a record high. Generators are now keen to tap the opportunity, but they don’t have the raw material.

As on 1 September, CEA reported seven days of coal stock on average with power plants. Too many have less than five days and three days stock — which fall under “critical” categories. However, strikingly enough, the CEA list didn’t refer to a single plant under the critical category. Is it because they know that the shortage is created?

Is imports a solution? Over the last three years, the total availability of imported coal never exceeded 1 mt. The average is around 0.5 mt. Because import-based generation was not viable. How can they be viable now?

Deep Maladies

It would, however, not be right to squarely blame the generators for the fiasco. Normative requirement guidelines expect power plants to maintain upto 30 days of stock in the monsoon. However, the cost of holding this stock cannot be passed on to distribution utilities or DISCOMs.

As state governments are in competition to give cheap electricity and win votes, DISCOM finances suffer. The promised subsidy from the states is delayed. Stretched DISCOMs delay payment to generators. Private producers or IPPs are the worst sufferers.

Generators have been trying to survive the onslaught by cutting corners and reduction in coal stock is one of them. While this is a good advertisement for improving reliability of the logistics sector, the truth remains that they now keep lower stock than expected. As of June 2019, they had only 15 days stock.

All these are putting coal companies under pressure. While this correspondent is not a fan of public sector mining practices, there is little denying that coal production and delivery mechanisms have their own limits. It is impossible to push coal deliveries, imported or domestic, beyond a limit during the harvesting season, when railways deploy rake capacity to the farm sector.

In all fairness, the government might have played up the issue of imports to pacify nerves. But, it was a bad precedent in terms of policy direction. Though the import route was always open, the Centre was aiming to curb thermal coal imports (India doesn’t produce coking coal) since 2012.

The Narendra Modi government did the maximum to remove hurdles before domestic production and reduce import bills. The state-owned major, NTPC, almost stopped importing fuel. It is not fair for the same government to play the import card.