India: Will increased Coal Supply from CIL reduce country's dependency upon Imports?

India's Coal Ministry have been planning to cut imports of the fossil fuel by at least a third over the next five years, counting on an increase in domestic production and a jump in renewable output. The mining behemoth, CIL has targeted a coal production of 710 MnT in FY21 which is 102 MnT higher than the coal produced of 602 MnT in FY20.

However, the not-so anticipated outbreak of Covid-19 across the globe and the subsequent lockdown in the country has made the upcoming future about the trade dynamics quite vague.

With the industrial activities taking a halt for almost a month there is a drop in electricity demand and the coal stock at power plants has increased significantly. CIL has ended FY20 (in the month of March) with a stockpile of around 125.5 MnT at pit heads and 50 MnT at the power plants thus having a month's coal stock at the power plants. Continuing the trend in next month also, the domestic power plants have a total coal stock for 30 days at 49.8 MnT as on 23 Apr'20, CEA data shows.

Amid the increased supplies from CIL, Coal Ministry has asked Indian states asking to refrain from importing coal, and instead rely on domestic material from Coal India Limited.

However, an uptick in Indian thermal coal production may not turn buyers away from imported material immediately due to an acute lack of logistics and infrastructure facilities in the country and coastal power plants design, in view of industry experts.

There are significant rail restrictions amid congestion and wagon availability, which limits the flow of coal to domestic power plants in a number of states.

Apart from this, some thermal power plants are designed in such a way that they are dependent upon imported coal. This is because Indian coal is usually low in calorific value and high in ash content which cannot be used without blending with imported coal.

In case of non-power sector, demand for imported coal will continue to surge amid limitation in domestic infrastructure and transportation in India.

On the production side also, the industry participants are of the opinion that the CIL's coal production target of 710 MnT amid low demand seems unreasonable. While coal ministry is hopeful of pickup in demand once the lockdown ends in a phased manner, there will be a gestation period before these things happen and production could pick up, resulting in country's continued dependency upon imports.