India to lift coal offtake amid Covid-19

Its coal ministry has announced a series of measures aimed at raising dispatches from state-controlled producer Coal India (CIL) to power and non-power consumers, even as coal demand has dipped amid a nationwide lockdown that is aimed at controlling the Covid-19 pandemic in the country.

Indian utilities, which have also seen a record jump in their coal inventories, will not receive payments from most power distribution companies until 30 June amid a recent government ruling, affecting their ability to pay CIL in advance for the fuel. The generators are operating at lower capacities amid a drop in electricity consumption amid the temporary closure of key industries.

India's coal ministry has said that utilities and non-power consumers can provide CIL with a letter of credit instead of making advance cash payments while continuing to take their supplies, in an attempt at boosting liquidity in the market while providing much anticipated relief to coal consumers of coal.

Consumers will be allowed to lift more coal from CIL than they have under contract for the year as part of the supply pact and no incentives will need to be paid to the coal producer for the more than agreed supply. As for the long-term fuel supply agreement, if CIL supplies more than it agreed to, it is liable to receive some incentives or extra payments from utilities, over and above the fuel supply cost.

The coal ministry has also agreed to lower the base price for coal supplied under electronic auction to non-power sectors such as sponge iron and aluminium manufacturers.

The measures have been announced to ensure that CIL reduces its stocks and continue to increase its output as well as ease the burden on electricity generators. The company has a cumulative stock of around 74mn t at its mines while utilities have total inventories of 48.7mn t — enough to meet consumption needs for 29 days.

"These measures will create a win-win situation," coal minister Pralhad Joshi said, adding that the government is committed to boosting coal demand by supporting the power sector and non-power sector consumers during the coronavirus pandemic. The power sector will remain a key coal consumer in India as CIL plans to supply 550mn t of coal to utilities in the 2020-21 financial year ending March 31, 2021, up from 463mn t in 2019-20.

The coal ministry's decisions, which will remain in effect for six months, comes as coal demand in the country has declined with several sponge iron and cement mills shut and reduced operating capacities at utilities amid the ongoing 21-day nationwide lockdown that started on March 25. The lockdown could be lengthened, with several states favouring an extension to contain the spread of the coronavirus.

The steps are vital as a slowdown in offtake could severely hamper CIL's ability to raise productivity and further weigh on India's entire fuel supply at a time when the country is aiming to reduce its reliance on imports.

CIL's overall supplies to consumers in March fell by 10.3pc from a year earlier, while its supplies in 2019-20 were down by 4.3pc. CIL's ambitious output growth plans are potentially facing reviews after the firm recorded its first fiscal year-on-year drop in output in around 20 years.

It is unclear if the measures will immediately increase coal offtake, given that demand for the fuel remains subdued amid an economic slowdown. The World Bank has sharply trimmed its growth forecast for India and forecasts that the country will grow at around 1.5-2.8pc in 2020-21, the slowest pace of growth in recent decades, and well below a previous projection that India's GDP growth would be at 6.1pc.

By Saurabh Chaturvedi