Coal news and updates

Days before the surge pricing experiment was announced, the Railways tweaked its tariffs for carrying coal

 

Dovetailing the Railway Budget into the Union Budget is one thing, but divorcing the Indian Railways’ administrative decisions and its finances from the political realm would need a whole lot more steamrolling as reflected in the reaction to its surge pricing experiment for premium passenger trains.

 

The Railways’ scramble for ideas to enhance revenues by “every single penny” possible in the middle of the year has no doubt been triggered by an unanticipated dip in gross earnings in the first five months of 2016-17 that are about 13 per cent off Budget targets and five per cent lower than the same period a year ago.

 

Passenger traffic volumes have been flat, but earnings from freight operations that account for about two-thirds of Railways’ revenues, have dropped about 10 per cent from a year ago. Apart from the tepid performance of core industries such as steel and cement in recent months, the biggest pain for the Railways’ balance-sheet is emanating from the power sector which has otherwise been painted as a success story by the NDA government.

 

Coal tariff

Within the commodities, it ferries, half of the Railways’ freight income accrues from transporting coal from pitheads (and ports in case of imported coal) to power plants and a few other end-user industries.

 

As opposed to its coal loading target of 200 million tonnes for April 2016 - July 2016, the Railways carried 177 million tonnes during the period.

 

A 13 per cent decline in coal imports in the first half of 2016,

 

“Last year, we moved 552 million tonnes of coal, and had geared up for a target of moving 254 rakes per day for Coal India alone, compared to 213 that we did last year,” said a senior Railways official. “Last year, we were on the defensive as we couldn’t move enough coal fast enough. Now, there are no constraints, but not enough takers for coal,” he said.

 

Days before the surge pricing experiment was announced, the Railways tweaked its tariffs for carrying coal — raising them by 7 per cent to 13 per cent for distances between 200 km and 700 km and slashing rates by four per cent to 13 per cent for transport beyond 700 kms.

 

While it claimed this was a revenue-neutral move, it’s a timely attempt to align the Railways with the Coal Ministry’s new approach to rationalise and swap coal linkages for power plants so that distances over which coal is carried, are shortened.

 

“We understand that coal will not be able to sustain the year on year growth for our freight earnings, as the country is now betting more on solar, hydro and nuclear energy sources. In addition to that, the traditional movement of coal would also be impacted,” the Railways official explained, stressing that the Railways is looking beyond coal, but the impact of the current slowdown in coal movement needs an immediate response.

 

Role reversal

Two days before the nationwide strike by trade unions on September 2, Union Power Minister Piyush Goyal had reiterated that the country has sufficient supply of coal to tide over any production outages at state-run Coal India Limited. “Even if no coal is mined for the next 50-60 days, the power industry can rest assured of an uninterrupted supply to keep plants running,” he said.

 

This is a far cry from about two years ago when thermal power generation plants were clubbed on the basis of their fuel supply status as critical (with coal to last seven days or less), supercritical (with coal to last less than 3 days coal) and normal.

 

From that scenario, where the Supreme Court had cancelled coal block allocations en masse and power plants couldn’t start production without fuel, there has indeed been a turnaround, with officials pointing out that most power plants now have enough coal to last them for 30 days.

 

However, this neither augurs well for the Railways nor for Coal India Limited, which has been asked to double its capacity to 1 billion tonnes a year by 2020.

 

“Earlier, lack of coal was squeezing the power sector and was blamed for high stressed assets in the banking system. Now the power sector is impacting the coal sector. For the first time in Coal India’s history, we have had to back down on our production capacity,” a senior official dealing with coal said.

 

Coal supplies

Power players have been writing to Coal India requesting to hold off coal supplies, dues are piling up and if there is no pick-up in demand, coal production would have to be cut further and the railways will suffer, even more, this official said.

 

“This is a brewing crisis and a sign of distress in the power sector and the one billion tonne target set for Coal India would probably have to be reviewed if this unprecedented situation of coal supply exceeding demand persists,” he said.

 

A day after Mr Goyal’s statement, Coal India revealed that output and offtake fell around 10 per cent in August, clocking its worst performance in three years and falling short of this year’s target to raise production to about 590 million tonnes. Coal India, like the Railways, has also hiked its prices by 6.3 per cent in May, by when the slowdown in demand had become apparent.

 

The UDAY factor

“Coal India is prepared to mine the coal and the Railways can deliver… But the power sector should want it and for that, state electricity distribution boards need to sign power purchase agreements with generators,” the official from the coal sector said.

 

Analysts attribute the crisis in the power sector to the low plant load factor (capacity utilisation) of around 60 per cent at most thermal power generation plants, as indebted inefficient state distribution companies or discoms are shying away from signing power purchase pacts.

 

In an August research report on power utilities, JM Financial analysts reckoned that even if the economy grows at 8 per cent and optimal coal is available, the power capacity utilisation (PLF) may remain stagnant at 60 per cent to 65 per cent levels till 2020–21.

 

“With the existing over capacity (including plants with no power purchase pacts) and 60 GW to 75GW of additions expected till FY20–21, power capacity may well outpace power demand for the next 2–3 years,” it noted, unless there is a sharp recovery in economy, in particular, the manufacturing sector.

 

Demand growth

When asked recently if the one billion tonne target for Coal India remains sustainable in light of the low PLF in the power sector, Mr Goyal said that the PLF ‘sounds’ low as a lot of power plants stranded earlier for want of gas and coal are now operational. “So please nobody get the impression that PLF (being) low means power demand is low…Demand is keeping pace with the economy, it’s growing at 7 per cent,” he said.

 

Indeed, between April 2016 and July 2016, electricity generation has grown at 7.1 per cent but the increase in July was a mere 1.6 per cent, the slowest pace of growth in eight months.

 

Effective implementation and constant monitoring of the Ujwal Discoms Assurance Yojana (UDAY) which aims for a time-bound reform of indebted state electricity distribution companies, would be critical to ensure that number is a blip rather than the norm. Rail Bhawan and Coal India honchos would be watching closely.

Soure:The hindu.com