India persists with setting higher coal production targets despite offtake slowdown

KOLKATA (miningweekly.com) – Despite falling offtake and missed targets, India’s Coal Ministry is likely to persist with setting higher production targets for Coal India Limited (CIL) for 2017/18.

Indications from key Ministry officials point towards a production target of 660-million tons a year during the next financial year. This is a 15% increase on what CIL is expected to produce at the close of the current financial year on March 31, 2017.

According to official data released last week, CIL’s production during the April to December 2016 period was 377.7-milion tons, compared with a target of 417.5-million tons.

The country’s largest miner is expected to close the current financial year with production of 575-million tons, or at best 582-million tons. This will be lower than the 2016/17 target of 598-million tons.

The slowdown in demand, particularly from thermal power producers facing sagging demand for electricity from industrial sectors, was reflected in the April to December coal offtake figures, which came in at 391-million tons, against a target of 434-million tons estimated at start of the current financial year.

Commenting on the rationale of persisting with setting higher production targets despite softer offtake from key bulk consumers, a Ministry official said that production growth targets were set with a long-term view and were not “a factor of short-term annual cyclical demand”.

He said that if the long-term goal was to avoid a repeat of the shortage of coal in the domestic market witnessed until two years ago, it was necessary to evolve the overall framework of sustained higher levels of production, irrespective of short-term slowdowns.

However, the Coal Ministry’s optimism over the long-term revival of demand in its likely decision to maintain sustained coal production growth is open to debate in view of developments and projections in the power sector.

For example, according to Central Electricity Authority (CEA), the statutory government body overseeing the power sector, India will not need any new thermal power generating capacity until 2022, in view of an ambitious government drive to add capacity in renewable energy production projects.

A draft plan for electricity projects covering the period 2017 to 2022 has been circulated for comment and feedback from various industrial stakeholders.

If the current thinking of CEA is followed through, it will mean that in the immediate term, the government’s existing plan to add 4 000 MW of new thermal generating capacity under its ‘ultra-mega power plants’ plan will not come to fruition.

According to a media report, of the 180 000 MW of operational thermal power generating capacity in the country, the plants are operating at an average capacity ranging from 60% to 65% and any surge in electricity demand in the medium and long term could easily be met through improving the plant load factor of existing plants.

Hence, in view of such a forecast, a section of government and nongovernmental industry officials say that doubts continue to persist over the sustainability of the Coal Ministry’s plans to focus on coal production growth by CIL.