India's CIL to import coal to plug gap in domestic output, supply state-run generators

State-run Coal India Ltd. or, CIL will import coal to plug the shortfall in domestic supplies and supply the same to state-owned generators, according to a letter issued by the Power Ministry May 28 that was seen by S&P Global Commodity Insights. This is the first time in seven years that CIL will be importing coal to address shortfalls in domestic supply.

"In view of suggestions received from the states it was decided... that CIL would import coal for blending on G2G [government to government] basis and supply this imported coal to thermal power plants of state gencos and IPPs on composite billing along with the domestic coal," the letter said.

Generation companies have been directed to assess their requirement for seaborne coal for blending purposes for the entire financial year that ends March 31, 2023 and also till Sept. 30, 2022, according to the letter. The requirement estimates are to be submitted to the federal power ministry by May 31.

India's financial year runs from April 1 to March 31.

This development comes as the world's second-largest coal consumer faces an acute fuel shortage, leading the government to direct all state-run generators to ramp up imports.

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The federal ministry had issued an advisory in December 2021 to all domestic coal-based power plants to import coal to meet 4% of their requirements. On April 28, the quantum of imported coal obligation was increased to 10% of the total requirement, S&P Global reported earlier.

The power ministry said May 18 that Indian power companies would need to start using some imported coal by June 15 or their allocations of domestic coal will be reduced by 5% from July, S&P Global reported earlier.

Stockpiles at power plants stood at 22.17 million mt which is sufficient for over eight days of coal burn as on May 26, according to data from the Central Electricity Authority.

CIL's output between April 2021 and March rose 4.4% on the year to 622.20 million mt, according to data from the company's website.

India faced a power crisis in September-October 2021 because of a failure to stockpile sufficient coal before the monsoon season.

On May 29, the power ministry directed the central electricity authority to compute the quantity of coal consumed by a section of the power plants that have untied capacity that can bid for coal and sell power on exchanges in the day ahead market.

The computation should be done based on 10% blending by weight for generation between June 15 and March 31, 2023.

"This will give a window of about three weeks for these plants to procure imported coal," the statement said.

Price sensitivity impacts imports

A major reason for Indian buyers' reluctance in importing has been the elevated prices in the seaborne coal market following Russia's invasion of Ukraine and disrupted global trade flows.

India imported 17.4 million mt thermal coal over January and February, according to data from S&P Global. The country imported 161.4 million mt in 2021, down from 172.8 million mt in 2020.

As Europe and Japan-based users try to replace Russian coal, the prices of coal from alternative origins such as the US, Australia, South Africa, Columbia and Indonesia have risen.

The Kalimantan 4,200 kcal/kg GAR price has averaged $88.15/mt FOB so far in 2022, compared with $45.94/mt in the same period in 2021, a rise of nearly 92% on the year. Similarly, the Newcastle 5,500 kcal/kg NAR coal with 23% ash has averaged $182.54/mt so far in 2022, up 228% from the average of $55.52/mt in the same period in 2021.

Market sources said they expect the letter to be a sign that India would import seaborne coal through tenders soon, which may support Indonesian coal prices.

Sources said that even though Indian power demand is expected to ease with the onset of the monsoon, domestic supply is expected to be lower due to production being impeded by rains.