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Coal India FY18 production target cut on weak demand

LiveMint logoLiveMint 25-04-2017 Soumonty Kanungo

In an unprecedented move, the Union government has reduced the production target for Coal India Ltd (CIL) from 660 million tonnes (mt) to 600 mt in the current year due to tepid demand for the fuel from thermal power plants.

CIL, the monopoly state-owned miner, has stock of around 69 mt of coal, according to a key official, who asked not to be named. In addition, power plants across the country have in their stock 26-28 mt of coal, this person added.

In 2016-17, CIL produced 554.1 mt as against a target of 598.6 mt, and despatched 543.1 mt of coal. With production exceeding despatches, CIL’s inventory (or stock) rose by around 11 mt.

CIL’s mines can produce up to 660 mt in the current year, but there is no point in stepping up production unless demand for coal improves, said another official at the miner, who, too, asked not to be identified. Pithead inventory (or stock stored near the mine) is a potential fire hazard, according to this person.

According to estimates by Motilal Oswal Securities Ltd, CIL’s sales in the current year should rise 6.8% to 580 mt, and further to 618 mt in 2018-19, despite an increase in the share of renewable energy in power generation.

A report by Nomura Securities International Inc. says CIL registered its highest ever production growth in fiscal 2016-17 with output in March exceeding even the firm’s own target by 4.5%. But sales for the month were 10.3% below target, according to Nomura.

Weak demand from thermal power plants apart, coal despatches suffered due to poor railway infrastructure, said the CIL officials cited above. Several new tracks are behind schedule, which meant sales couldn’t keep pace with expansion in production, they added.

The key problem is that Indian power plants are currently operating at 55% of their installed capacity, according to Partha S. Bhattacharyya, former chairman of CIL.

It appears that the country is focusing on renewable energy at the cost of sub-optimal capacity utilization of thermal power plants, he said. The marginal cost of scaling up generation from thermal power plants is going to be “much lower” than the cost of generating renewable power, he added.

And from the emissions standpoint, compliance with international protocols will not be difficult even if CIL produced 1 billion tonnes of coal and its entire production was consumed by power plants, he added.

CIL should explore other ways of using coal: the fuel can be processed to produce even fertilizers, Bhattacharyya said.

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