By Deepa Jainani and K G Narendranath

As the country is witnessing yet another crisis of coal shortage and power outages, Union power secretary Alok Kumar explains how huge increases in the prices of imported coal and LNG have put a big burden on the domestic coal sector. He says with the several steps being taken by the government to boost domestic coal output and ease logistic problems, power outages would soon be a thing of the past. Kumar says the Indian energy market is maturing fast. New market instruments including variously designed short-term contracts will facilitate market-based price discovery. The Centre will be firm on ensuring financial discipline among state power utilities and discoms, he iterates. According to him, some state governments, which still don’t pay power producers on time and delay release of subsidies to discoms, are to be blamed for the problems faced by the sector. “If a discom fails to pay the gencos, it won’t get power. We can’t allow the sickness to spread,” he says, in an interview with Deepa Jainani and K G Narendranath.

Q: After two years of stagnation, power generation in the country returned to growth in 2021-22 (8.5% on year during April-January). But a post-pandemic surge in consumption seems to have upset the demand-supply balance in the sector and created a wider power deficit.

We have projected the demand and supply of power using various credible economic models and also after taking into account reports from the states. The current scenario is in sync with our projections. The long-term trend would be of supply growing at CAGR of 4.5-5% to cater to demand, which is rising at a matching pace.
The projections of power generation and requirements are conveyed to all concerned– power producers, ministries of coal and railways etc. An inter-ministerial committee meets almost every second or third week to assess the situation and resolve coordination issues.

Q: What do you attribute the relatively low levels of coal stocks at the thermal stations right now?

At present, coal stocks at power plants are about 24.5 million tonne, which, given the current level of consumption, would last for 12 days. There may be some marginal imbalances (of demand and supply) in some areas.

We have allowed the state governments to use the coal allocated to them at the plants of their choice. This flexibility has been given to them considering that in states like Maharashtra, some plants have ample stocks while others struggle with low stocks. Optimisation of fuel stocks across power plants and better management of the unloading infrastructure will help improve the overall situation. The government is conscious of the need to provide coal to the plants which are facing fuel shortages, on high priority.

The logistics of coal supplies are designed to cater to different fuel transportation systems: transportation of domestic coal from Coal India’s mines and captive mines through Indian Railways to the power plants; a merry-go-round system for pit-head stations; newly designed rail systems for imported-coal-based units; separate logistics for gas-based units in terms of the LNG terminals and gas pipelines. This system can’t change overnight, but all stakeholders are making coordinated efforts to ease the bottlenecks.

The Railways, for instance, has now committed to induct 0.1 million wagons in the next 2-3 years; it has also identified several sites in their network to enhance capacity of loading and transportation and investments are being made. In the first week of April, some parts of the railway system was suspended for maintenance work, but given the issues of low coal stocks at power plants, the transporter has now staggered such work so that coal supplies are not hit.

Q: What will be the impact of the steep rise in fuel costs on thermal power output and consumption?

Over the last ten months, prices of imported coal and landed prices of LNG have risen manifold. As against a level of $50-60 per tonne a year ago, cost of imported coal ruled at around $100 per tonne for the ten months to February but are now even higher at $150-160 per tonne. Similarly, LNG prices, which used to hover around $8-9 per mmBtu, are now at $40 or higher. This is a worldwide phenomenon.

The point is because of high prices of imported fuels and the system of merit-order dispatch, there is now an increased pressure on domestic coal suppliers and the railways, the principal transporter. Rather than any laxity on the part of Coal India (its output rose to a new record of 622 million tonne in FY22 against 607 million tonne in FY21) or the Railways, it is the sharp rise in imported fuel costs that has caused fuel supply constraints at some power units. Logistics designs can’t be transformed in the short term, it takes time to design infrastructure, invest in them and make them operational.

Q: What are the steps taken by the ministry to address the current issue of coal supply shortage and power outages in many parts of the country?

Domestic coal production and transportation of the fuel via the rail network are being increased to the maximum possible levels in the short term. We have also advised the states and power companies owned by the Centre namely NTPC and DVC to import coal for blending, and this has started happening already. Around 9 million tonnes of coal will be imported by June by our utilities, without disrupting transportation of domestic coal.

Contractual issues faced by imported-coal-based power plants are being resolved. Adani Piwer and Tata Power resumed operations at their Mundra stations in March. We have asked power plants located within 500 kms of coal sources to generate as much as they can, as the supply of coal to these plants take less number of train days. If the states with which these units have supply pacts can’t lift the entire electricity produced by them, the units could even sell power on the power exchanges.

Q-What exactly are the government’s projections of power demand and supply in FY23?

Total power generation in the country is projected to be 1,640 billion units (BU) in FY23 but actual supplies will be less by around 8% because of auxiliary consumption. There could also be some transmission losses. Peak demand in the year may be 215 giga watt. Supplies of around 1,550 billion units would be required.

In the last few days, the demand has been close to 200 GW, but it may go up to 207 GW in this month itself

Q: The Central Electricity Authority (CEA) has projected an year-on-year increase of 31% in power consumption in FY23…

The electric power surveys (EPS) carried out by the CEA are long-term in nature and could be off the mark for that reason. These projections would be fine-tuned closer to the period concerned. The government reckons that the growth in power consumption in FY23 will be 7-8%, as against medium-term trend of 4-5%.

Q: Hasn’t the present coal shortage something to do with sub-optimal planning?

During the two pandemic years, some complacency may have set in, but things are now on track. The Railways are going to induct 0.1 million new wagons to ease coal transportation over the next two years. The dedicated freight corridor and coastal shipping will help too. Coal India is investing around Rs 15,000 crore in projects to improve first-mile connectivity. New conveyor belts, silos and mechanised loading would cut down the loading time from three to four hours per rake now to one hour and allow loading during monsoon period as well.

We are sure that from next year onwards we will not have such a tight (coal supply) position and hopefully prices of the fuel would also come down. Power supplies are also getting a boost from the solar sector. It may be noted that exchange prices are low during the hours when solar power is traded because of robust supplies.

Q: Are you in a position to assure the country that power outages during summers won’t recur in the coming years?

We are sure that outages won’t occur from next year onwards. We will take all possible steps to ensure that. But some state-run power units need to clear big dues owed by them to Coal India. Maharshtra utilities, for instance, have outstanding dues of Rs 2,500 crore to Coal India. One can’t expect Coal India to continue to supply fuel to these stations unless payments are made. Financial discipline of state power utilities has to improve significantly.

Q: But payment issues are there throughout the value chain in the power sector. Over-dues owed by power distribution entities (discoms) to gencos stand at Rs 1.23 trillion now, 17% higher than a year ago.

It is not true that payment issues exit through the chain. Actually, a few state governments are to be blamed for the problems. Six states – Tamil Nadu, Maharashtra, Rajasthan, Utar Pradesh, Andhra Pradesh and Telangana – account for 60% of over-dues to gencos. Many states often fail to pay subsidies on time to discoms. So, if outages happen in a state which hasn’t paid discoms the subsidy dues, and which is not following financial discipline, then it cannot blame anyone else for the situation.

Q: Several steps are being taken to bolster financial and operational efficiencies of discoms : the liquidity infusion scheme , extra borrowings of 0.5% G-SDP linked to power-sector reforms, stricter norms for lending by PFC-REC, the revamped distribution sector scheme and Letter of Credit for payment security under power purchase agreements. But these seem to have had only a limited impact on them.

The Union government is taking all steps possible to facilitate the process (of making discoms financially viable), but in a federal country, much depends on the states. They have to be responsible too. We are going to put in place a system that will ensure timely payments to gencos. If a discom fails to pay, it won’t get power. In the one to two years, this system will be fully up and running. You can’t allow the sickness to spread. If you’re not disciplined, better you (only) suffer. Such sickness will be contained and localised.

As many as 4.1 million smart meters have been installed in the country t reduce the discoms’ aggregate technical and commercial (AT&C) losses. Ten states have availed Rs 28,000 crore under the additional borrowing window linked to reforms.

Q: Independent power producers (IPPs) seem reluctant to cut supplies to defaulting discoms…

Yes. We have told them (IPPs) several times (to snap supplies to defaulters) but they don’t regulate or curtail supplies. Central PSEs have largely enforced the norm, so the amount the discoms owe them has come down by half in FY22. Private players ought to take a cue from CPSEs.

Q: How are the stricter prudential norms being followed by PFC-REC helping?

After the norms have come into force, these lenders’ exposure to discoms (working-capital and short-term loans) has come down substanbtially. On our request, the RBI has directed the Indian Banks’ Association to follow similar norms and most banks are already on board.

In fact, several states have come to us and protested (against the stricter lending norms). But we have remained firm and stressed that financial indiscipline by state utilities can’t be tolerated any longer. Many states have benefited from this approach of ours. Tariff orders are also being issued more promptly now. By March 31, 2022, as many as 21 states have issued tariff orders, as compared to 16 a year ago.

Q: Were discoms’ financial losses in FY22 higher than in the previous year?

We are yet to compute the figures, but I’m aware that many states like Assam, Gujarat, Odisha and Bihar have seen improvement.

Q. What is the latest debt stock of state-run discoms?

It is close to Rs 5 trillion, of which Rs 1.2 trillion is the debt of Tamil Nadu discoms.

Q. Why are power distributionn reforms aimed at increasing competition, optimum use of infrastructure and market-determined pricing not making the desired headway? Investor interest seems inadequate…

Around 10% of the electricity consumers in the country are now served by private utilities. In a country like India this is quite a significant number. The state governments will have to decide on whether they want to privatise the distribution sector or improve the efficiency of their own system through good governance. Both models are available and working. Odisha has recently privatised the sector. Gujarat, on the other hand, made the operations more efficient in the government sector itself. So have Haryana and Assam. The Dadra and Nagar Haveli discom has recently been privatised too.

Q. There is still a long way to go before pricing of electricity is market-determined. State-run NTPC still has a clutch of long-term power supply agreements. Will these long-term pacts continue to be the norm or spot power trade and merchant sales will get a larger share?

There will largely be a sustained movement towards market-based discovery of prices. Of course, there will continue to be underlying contracts, as on cannot go by spot prices alone in such a large huge country. But the duration of PPAs is going to be shorter, with new deals being struck for 4-5 years, rather than 20-25 years. Even a ‘long-term’ PPA will now be for 12-15 years only.

The mechanism of market-based economic dispatch (MBED) is on the anvil. Recently we have introduced the concept of real-time market, which has been very successful.

The share of energy whose prices are discovered through market is going up. Indian energy market is now progressing towards complete transformation. In the next 10 to 15 years, 40-50% of power sales will be through market mechanisms/intermediaries, as against 10-11% now. New market segments are being evolved thanks to the Green Day Ahead Market for renewable energy and the DEEP portal.

Market regulator SEBI and Central Electricity Regulatory Commission (CERC) are working on long-term market products of over 11 months. Several types of contracts will be available for discoms to choose from.