Coal India to import fuel for use as inventory dips to 9-year-low, power shortage looms large

New Delhi: State-run Coal India, the world's largest coal miner, will import the fuel for use by utilities, a power ministry letter seen by Reuters showed on Saturday, as shortages raise concerns about renewed power outages.

It would be the first time since 2015 that Coal India has imported the fuel, highlighting efforts by state and federal officials to stock up to avoid a repeat of April, when India faced its worst power cuts in more than six years.

"Coal India would import coal for blending on government-to-government (G2G) basis and supply ... to thermal power plants of state generators and independent power producers (IPPs)," the federal Power Ministry said in the letter dated May 28.

The letter was sent to all utilities, top federal and state energy officials including the federal coal secretary and the chairman of Coal India.

India is expected to face a wider coal shortage during the third quarter of 2022 due to expectations of higher electricity demand, stoking fears of widespread power outages.

The power ministry said in the letter the decision was taken after nearly all states suggested that multiple coal import tenders by states would lead to a confusion and sought centralised procurement through Coal India.

India stepped up pressure on utilities to increase imports to blend with local coal in recent days, warning of cuts to the supply of domestically mined coal if power plants did not build up coal inventories through imports.

But the power ministry on Saturday asked states to suspend tenders that are "under process".

"The tenders under process by state generators and IPPs for importing coal for blending may be kept in abeyance to await the price discovery by Coal India through G2G route, so as to procure coal at least possible rates," the ministry said.

Grim forecast of power shortage

The energy-hungry nation expects local coal supply to fall 42.5 million tonnes short of demand in the September quarter, 15% higher than previously projected, due to higher growth in power demand and lower output from some mines, an internal power ministry presentation seen by Reuters showed.

The grim forecast shows the extent of the fuel shortage in India, at a time when annual power demand is seen growing at the fastest rate in at least 38 years and global coal prices are trading at near-record levels due to a supply crunch resulting from the Russia-Ukraine crisis.

India expects domestic coal supply of 154.7 million tonnes, 42.5 million tonnes short of the projected requirement of 197.3 million tonnes in the September quarter, the presentation showed. It previously expected a shortage of 37 million tonnes.

Coal inventories at power plants have declined by about 13% since April, which translates to eight days of coal requirement, the lowest level at this time of the year in at least nine years. The higher coal demand could also stifle efforts to build power plant inventories.

India now expects the demand for coal from utilities to be 784.6 million tonnes for the year ending March 2023, the presentation showed, 3.3% higher than projected earlier.

The projected annual coal shortage is now 49.3 million tonnes, nearly three times the 17.7 million tonnes projected earlier, the presentation showed.