Photo by: Reuters
KOLKATA (miningweekly.com) – Coal major Coal India Limited (CIL) may be forced to halt supplies to its financially distressed bulk customers.
Higher production, rising coal stocks at thermal power plants, falling electricity demand and the financial distress of electricity distributors have forced large coal consumers to call off the acquisition of fresh fuel supplies.
“It is not that we are stopping supplies on our own. But several of CIL’s operational mining subsidiaries have been approached by consumers, mostly power distribution companies controlled by provincial governments, seeking stoppage of fresh supplies,” a CIL official said on Monday.
“These distribution companies feared that, given their current crippling debt burden, they would not be able to make payment for fresh coal purchases nor clear past dues,” the official said.
He was, however, quick to add that, considering that both CIL and power distributors were controlled by federal and provincial governments, the halt in fresh coal supplies was "unofficial" as neither could afford to be seen making such a “tough decision”.
Power distributors from the provinces of Madhya Pradesh, Rajasthan and Jharkhand, were the first to seek a halt in buying new supplies, with officials expecting the list to grow as more power distributors started to feel the pinch of their growing indebtedness.
The inability to commit to buying fresh coal supplies was evident from the staggering losses of power distribution companies of provincial governments. For example, distribution companies in Rajasthan, in central India, have notched an accumulated loss of about $12-billion. Those in Tamil Nadu in southern India notched up $2.12-billion in losses.
The losses were so pronounced that the country’s central banker Reserve Bank of India in a recent note on financial stability said the $8-billion worth of combined loans of distribution companies, which had been recast by government-owned commercial banks, were now at risk of becoming nonperforming assets on the books of these banks.
Besides the financial health of these coal consumers, thermal power companies' rising coal stocks, a direct fall-out of low electricity demand and falling plant load factor (PLF), were contributing to the market moving from a shortage to a surplus.
According to Central Electricity Authority data, thermal power companies had estimated average coal stocks sufficient to supply 23 days of consumption, up from about 6 days of consumption in 2014. Meanwhile, the average PLF of thermal power plants had fallen to around 58%, from 65% in 2013/14 and 73% in 2011/12, indicating a slowdown in energy demand.
According to the CIL official, while aggregate data on dispatches from pithead during the past few months was yet to be finalised, disaggregated data clearly showed a “dangerous trend" of rising coal production and buyers not having money to lift the fuel.
CIL's production for 2014/15 increased to 484-million tonnes, compared with 462.42-million tonnes in the previous year, while imports, which had been growing at a compound average growth rate of 19% over the past five years, had now started slowing to about 11%.