Expert Speak Terra Nova
Published on Jun 06, 2022
India's increasing use of imported coal undermines the country's strategy of being "self-reliant" in the energy security sector.
Imported Coal: Source of Energy Security for India? India is the world’s second-largest producer, consumer, and importer of coal after China. In 2020, India had the fifth-largest coal reserves of over 111 billion tonnes (BT), just below China which had the fourth-largest reserves of 143 BT. Though coal reserves are comparable in quantity, China produced 3.9 BT of coal in 2020, five times more than India’s production of 759 million tonnes (MT). In November 2021 and again in April-May 2022, a crisis of power supply attributed to low coal stocks at thermal power generation plants led the Indian government to push generators to import coal. This advice came at a time when seaborne thermal coal prices were at their highest levels. An increase in the use of imported coal not only contradicts India’s strategy of self-reliance for energy security but also compromises the quest for affordability, an idea that underpins most of India’s energy policy choices.

Production and Imports

Raw coal (coking and non-coking) production in India increased from 341.272 MT in 2002-03 to 777.31 MT in 2021-22 implying an annual growth rate of just over 8 percent. Most of the growth came from an increase in production of thermal coal. Historically this has meant the import of only coking coal as reserves were not adequate. However, as demand for power accelerated, coal was put under open general licence (OGL) in 1993 that initiated thermal coal imports. Until the mid-2000s, volume of coking coal imports exceeded volume of thermal coal imports. This changed in 2005-06 when India imported 21.695 MT of thermal coal compared to 16.891 MT of coking coal. It was attributed to consumer (thermal power generators) preference for coal quality. Thermal coal imports accelerated with construction of imported coal-based coastal power plants. Between 2002-03 and 2019-20 (pre-pandemic year), coking coal imports increased from about 12.947 MT to 51.833 MT , whilst thermal coal imports grew from just 10.313 MT to over 196.704 MT in the same period.

An increase in the use of imported coal not only contradicts India’s strategy of self-reliance for energy security but also compromises the quest for affordability, an idea that underpins most of India’s energy policy choices.

Traded Coal Prices

Indonesia, Australia, and South Africa account for over 80 percent of India’s coal imports. In 2020-21, Indonesia accounted for 42.98 percent (92.535 MT) of India’s coal imports followed by Australia 25.53 percent, (54.953 MT), and South Africa (14.45 percent, 31.093 MT). Indonesia was the largest source of thermal coal imports accounting for 55.56 percent, or 91.137 MT followed by South Africa (18.95 percent, 31.093 MT), and Australia (10.98 percent, 18.008 MT). Australia alone accounted for 70.21 percent or 35.945 MT of India’s coking coal imports in 2020-21. When the price of coal increased in these markets, imports fell by 13.7 percent (year-on-year, y-o-y) in August 2021, 9.1 percent in September and 3.4 per cent in October. Coal production grew by 8.6 percent from 716.08 MT to 777.31 MT but imports fell by 13.31 percent from 215.25 MT in 2020-21 to 186.58 MT in 2021-22. Source: Coal Controllers Organisation, Ministry of Coal, Government of India Most of the reduction in imports was for non-coking (thermal coal) which fell from 164.05 MT in 2020-21 to 134.34 MT in 2021-22. This is typical of what happens in a ‘market’ when demand responds to price signals. One of the negative consequences of this market response was that electricity generation from power plants that rely more on imported coal was adversely impacted.  Some of these plants reverted to using domestic coal. This aggravated the domestic coal stock crisis. The federal government is attempting to counter the market response by pushing thermal generators to import coal for power generation at a time when international coal prices are at their highest levels. This will impose costs on the Indian power system that is perennially teetering on the brink of financial distress.  As of now it is not clear how this additional cost burden will be shared (federal government, state government, thermal generators, distributers, consumers and other stakeholders).

China’s Coal Import Behaviour

In 2009, China, until then a net exporter of coal, imported 129 MT or 15 percent of globally traded coal.  According to detailed analysis of the change in China’s coal trade behaviour, this did not imply a structural shift in global coal markets.  There was no need for importing coal as China was producing 2.9 BT of coal a year that was adequate to cover demand. However, coal buyers in Southern China had entered the international market to minimise cost taking advantage of the price arbitrage spreads between domestic and internationally traded coal. China could easily decide to buy 15-20 percent of globally traded coal when the price is right or just as easily stay out of the international market. The relationship between China’s domestic coal price and the international coal price is now one of the key factors in determining global coal trade flows. India on the other hand is forced into the international market for coal irrespective of prices because domestic production is unable to keep up with growth in demand.  Weighted average international coal price (Indonesia, Australia, and South Africa) in rupees (quarterly exchange rate) has increased from around INR4,000/tonne in 2020-21 to over INR11,000/tonne in the first quarter of 2021-22. This is almost an order of magnitude higher than the average domestic coal price of INR1,500/tonne through the same period. In contrast to China’s coal import behaviour that is described as one of ‘cost minimisation’, India’s import behaviour can only be described as one of ‘cost maximisation’, though not by design.

The federal government is attempting to counter the market response by pushing thermal generators to import coal for power generation at a time when international coal prices are at their highest levels.

Issues

Under the narrative of self-reliance (Aatmanirbhar) imported coal compromises India’s energy security.  To address this challenge the government announced in 2020 that India will become self-sufficient in thermal coal in 2023-24 with production from CIL (Coal India Limited) alone ramped up to 1 BT and logistical bottlenecks removed through coordination with the Ministry of Railways and the Ministry of Shipping.  Ironically, imported coal is the fall-back fuel for power generation contributing to India’s energy security in 2021-22.  Imported coal is also challenging the ‘affordability’ rationale that is used to justify the use of domestic coal over alternatives such as natural gas. In reality the frantic embrace of imported coal illustrates that what is unaffordable politically and economically is ‘no power’ rather than expensive power. 2011 was a year of energy supply disruptions and high prices due to political upheavals in hydrocarbon producing regions that reduced hydrocarbon supply. Natural disasters (tsunami) and its reverberations reduced world nuclear power and floods in Australia reduced global coal availability. Annual average price of oil was highest ever above US$100/barrel. Responses to these multiple supply disruptions were found immediately because countries such as Japan that were hit the hardest were well integrated with global energy markets. Coal and gas flowed into Japan making up for the loss of nuclear power that accounted for 30 percent of generation. The underlying message is that integration with international markets for fuels through prices and logistical networks is a better option for energy security, rather than nationalistic notions of self-reliance. Source: Coal Controllers Organisation, Ministry of Coal, Government of India
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Authors

Akhilesh Sati

Akhilesh Sati

Akhilesh Sati is a Programme Manager working under ORFs Energy Initiative for more than fifteen years. With Statistics as academic background his core area of ...

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Lydia Powell

Lydia Powell

Ms Powell has been with the ORF Centre for Resources Management for over eight years working on policy issues in Energy and Climate Change. Her ...

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Vinod Kumar Tomar

Vinod Kumar Tomar

Vinod Kumar, Assistant Manager, Energy and Climate Change Content Development of the Energy News Monitor Energy and Climate Change. Member of the Energy News Monitor production ...

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