Coal India, the giant state-controlled mining group, has succeeded in boosting output by tens of millions of tonnes a year as part of the Modi government’s reforms — only to find its customers unwilling to buy it.
Piyush Goyal, power and coal minister, said at a business meeting in Kolkata that he had told S Bhattacharya, Coal India’s chairman, to work out how to sell unmanageably high stocks of the coal it had mined even if that meant cutting prices.
For years Indian electricity consumers have complained about lengthy power cuts that were blamed on a lack of fuel for the coal-fired generating stations that supply most to the grid.“We have come to a situation where we don’t have any more ability to stock coal,” he said, suggesting the company might have to cut back on the production it has battled to increase over the past two years.
Today’s problems are different: generators have coal but are reluctant to sell power to bankrupt electricity distribution companies that have failed to pay their debts. Overall power demand is in any case sluggish because of the stagnant manufacturing sector.
Arunabha Ghosh, chief executive of the Council on Energy, Environment & Water, a research group, blamed a hitch in the sequencing of much needed energy sector reforms since Narendra Modi was swept to power in an election nearly two years ago.
Coal India, which mines 80 per cent of the country’s coal, was told to more than double its output to 1bn tonnes a year by 2020. It duly increased production, mining 52.1m tonnes in December, up nearly 11 per cent on the same month of 2014.
Transport links are also being improved, and the government auctioned coal mine concessions to private investors after a scandal over opaque allocations of mining rights under the previous, Congress administration.
The past lack of coal reflected inefficient mining and the concessions scam, said Mr Ghosh. “Fixing that was relatively quicker than dealing with the health of the discoms [distribution companies].”
In the long term, coal in India faces competition from cheap solar power and the need to reduce carbon emissions to limit global warming, but the immediate cause of the current supply glut is the financial collapse of several discoms.
For the third time in 13 years, the government has launched a bailout plan. The latest, known as Uday (Ujwal Discom Assurance Yojana or Bright Discom Assurance Scheme) is designed to restore them to health by restructuring debts and transferring them to the relevant state governments.
HDFC Bank, in a research report, said the discoms were saddled with Rs3,800bn ($56bn) of losses and Rs4,300bn ($63bn) of debts in March last year, a position likely to have worsened since then.
The debt load presents another problem for India’s embattled banks, and persuading state governments to shoulder the costs of implementing Uday is expected to be difficult, especially if they face state elections.