Demand for coal to be robust; imports to reduce: Anil Swarup

Now the government is focused on working on import substitution strategy, said Swarup. Union Minister for Power and Coal Piyush Goyal had said that the government has drawn up an entire programme to completely eliminate import of coal by any state government or state discom in the next 3-4 months. NTPC has decided not to import any coal and their demand will be met by Coal India, said Swarup, adding that other entities will follow suit.

When asked that there were doubts about quality of coal produced by CIL according to some reports, he said there are third party coal quality checks being done and the payments too are done through third party. So, as of now there have been no complaints of grid slippages due to quality.

Coal India has a target of producing 598 million tonnes of coal this year.Below is the transcript of Anil Swarup’s interview to Prashant Nair, Reema Tendulkar & Nigel D’souza.

Prashant: I have been reading you have been saying that this lack of demand, weak off take, weak power demand, etc. these are all very temporary. Things will pick up. That sounds logical, but it is kind of alarming. A couple of years back, industry power sector, industry plant load factor (PLF) were as high as 75 percent. It has dropped to about 60 percent right now. Just take us through what your analysis of the situation is and where are we at now?

A: Let us first understand the fundamental demand that I keep saying that there will be increase in demand. If you look at the per capita consumption of power in India, it is at the level of late 19th and early 20th century in the US. Even today, it is much below even what goes on in China. And since we are growing anywhere between 7 percent and 8 percent and the belief is that as we grow further there would be demand.

Now, let us understand that why this demand is not getting articulated if there is this demand. This demand is not getting articulated because of the poor financial health of the distribution companies (DISCOMs). They are not in a position to buy power because they are in a terrible financial state of affairs and it is in this context that the entire Ujwal DISCOM Assurance Yojana (UDAY) scheme was launched.

UDAY is kicking in, as you might have read and heard. Bonds are being floated by the state governments, loans are being taken over by state governments. There would be some time before this starts impacting on the demand. When I say demand, demand is there, but it gets articulated through these DISCOMs. Once the DISCOMs’ financial conditions improve, they will start demanding more. So, I have absolutely no doubt that the demand for power will increase. Once that happens, the PLF will increase and PLF can only increase by demanding for more coal. So, that is how we are looking at it.

Prashant: So, if you look at it, UDAY has only helped things along in the positive direction. If you look at the power demand from even DISCOMs before UDAY, when the financial situation was far worse, the situation is only improving now. There seems to be discrepancy. Your point seems logical, but my question is, is it only the weak DISCOM health, that is the spoilsport here - that is part number one. And part number two, the government is also focusing in a very big way on solar power now. You have got big targets out there and the cost of solar power has also come off quite a bit by about Rs 4-4.5 or so. How is that going to impact? We are talking about some big numbers on coal, some big numbers on solar and the underlying situation of power demand being weak. So, put it together for us.

A: You have to understand the overall space that is available. If I am saying that we are presently at the levels of late 19th and early 20th century US, the per capita consumption, the demand space is huge. It will not merely be fulfilled by solar or thermal. We will require a lot of energy in the future to meet our energy requirements. So, I am not very perturbed about the solar energy coming up, in fact that is how it should be. A lot of space in the demand space will be occupied by the solar energy. It is good for the country; it is good for the environment, but I do not think it is going to eat up the space of thermal power.

So, in that sense, as you very correctly pointed out, the primary problem is with the DISCOMs. Even now, if you got to interior areas, there is a lot of load shedding that is happening. So on the one hand, we are sitting on a lot of power and lot of coal and on the other, there is a demand which is not being met because there is a lot of load shedding that is actually happening in a number of states. Now, if load shedding is happening, meaning that thereby, there is a demand, but the states DISCOMs are unable to supply power, that is where UDAY comes in. So, I am very clear in my mind. It is because of the financial health or poor financial health of the DISCOMs that we have this shortage of demand.

The second point we must understand is on the one hand, this demand is not getting articulated by the DISCOM, on the other hand, there has been a stupendous increase in supply of coal from something between 1 percent and 3 percent growth during the 2010-2014, you certainly had 9 percent growth last year. And we were sitting on an inventory of 56 million tonnes at the pitheads. So, the coal supply has grown so much that probably it was not anticipated that so much coal will come because that was not the historical evidence, but Coal India seems to have done very well and that is where the coal came from.

I am very hopeful that the DISCOMs will recover as a consequence of a lot of effort that is put in, in the context of UDAY and once that happens, we will have demand. Now if we do not plan that way, we could be in trouble once the demand increases and certainly we will fall short of coal again. So, that is how we are preparing.

Reema: On the subject of the shortage of demand, would you then alter your FY17 production as well as off take targets because while there is latent demand, right now there is still a shortage of demand.

A: No, what we do is, in coal we prepare for that target that we put in mind. We have to be prepared. Suddenly, the demand emerges, say two months down the line, demand picks up and what do you do? You would not be prepared, so you have to remove the overburden. Therefore, what we have done is we have gone ahead with the removal of overburden. The actual mining has been kept suppressed a bit, but if there is an increase in demand, we will supply that coal. As far as the target is concerned, our target is basically ensuring that whatever is demand is available. We prepare according to a demand that we fix for 2016-2017 which we fixed at, if I remember correctly, 598 million tonnes, we are moving towards that, but no one stops us from reducing production, as we have done in the past, in case the demand does not rise to those levels. But to say that you reduce the target and do not prepare for it, would not be the correct approach because if the demand does arise, which it should arise, then we will be found wanting.

Nigel: You were talking about the state DISCOMs. Just want to get in a couple of questions. We had a comment coming in from Mr Piyush Goyal. He said that the government is working to eliminate coal import for state DISCOMs. As of now, what are the numbers we are working with? How much do they consume in terms of import, is it 30 million, 40 million because that will directly shift to Coal India, if we stop imports. And also, is there any potential that central government of India companies, could they as well totally stop importing coal?

A: Absolutely, that is what we are working on. We are working on an import substitution strategy. This strategy for public sector undertakings (PSU) has already been worked out, it's been in operation. Henceforth, no state or central PSU will import coal. All their requirements shall be met by Coal India. So, that is a space that we are trying to occupy. We are also working on a strategy for the private sector. We are trying to understand why they are importing coal when coal is available here. We know some of the reasons ourselves because some of the boilers at some of the plant cannot accommodate the quality of coal that is available. But we are doing a much detailed exercise. We are going into each of the plant that is importing coal and our strategy -- because that is the space we see so long as the DISCOMs do not articulate that demand. At least the demand that is being met through the import of coal - that is a space that Coal India could occupy.

As far as the numbers are concerned, it may not be appropriate for me to say that we are targeting so much. It will all depend on the quality of coal that they are importing and the capability of the boilers to accept the Indian quality of coal that is available. Our job is primarily to see that the coal or the quality of coal that can be made available should be made available from within the country rather than enabling it to import._PAGEBREAK_Nigel: What is that number? In the past what has that number been in terms of imports from state DISCOMs as well as state governments? I think NTPC has reduced their imports drastically, so could you give us the numbers as to what it was in the last year and what has it come down to?

A: I do not remember the exact number off-the-cuff but I know that NTPC has taken a decision not to import a single ounce of coal and no import for NTPC is happening. So where is that coal coming from. It is coming from Coal India.

Similarly the other public sector entities that are importing coal have decided not to import coal. We have had discussions with them and this decision has already been taken, but as far as private sector is concerned, it is much more complex. So we are trying to work out a strategy and see how we can come in that space where coal is being imported by them. I do not immediately recall the number.

Prashant: With the global coal prices jumping up - that also works to the advantage of Coal India and that is a big one, but as you said NTPC has completely stopped which means they are dependent on you. A couple of years back, I come to the quality of coal, three or four years back there was huge spat between Coal India and NTPC with regards to the quality of coal which Coal India was supplying. Generally the quality of coal here in India is lower as compared to other parts of the world but even then the issue was charging for certain grade of coal and NTPC not quite getting it. There are some reports which suggest the issue has arisen once again that even as you have ramped up production hugely, the quality is a big issue now?

A: We recognise this fact clearly that if we are going to supply coal and if you are going to charge for a different grade as compared to what has been applied by Coal India. It won't help in the long run. Consequent to which a regime has been put in place, a third party quality check is now being done and the payments to Coal India is based on the report of the third party quality check and that is working very well between NTPC and Coal India, there have not been any report in the recent past with regard to great slippage, with regard to NTPC. So that is working very well with them. It will not merely apply to NTPC. It would be across the board, in fact in the long run to build the brand of Coal India, it is absolutely imperative that not only should the coal production go up but the credibility of coal or quality that is being supplied is restored and everyone gets the quality of coal which they charge for. Therefore, we are clear in our mind that the focus is on ensuring that there is no great slippage.

Nigel: Jindal Steel & Power's blocks were deallocated and they were taken up in the courtrooms as well. The financial health of the company is deteriorating as well. What is happening on the other front? We haven't heard about it for the last year or so?

A: It is in the court so I would not like to comment on it. They have to take a call on it once the decision gets taken. We will do what the court says.

Prashant: What is the target for this year? What are you going to do in terms of coal output this year?

A: We will continue to do what we are doing.

Prashant: You did 534 million tonne last years. What is this year?

A: We are looking at 598 million tonne.

Prashant: What is the share of e-auction volume overall now and where do you see at the end of the year?

A: I will have to get that figure from Coal India.

Prashant: You took price increases earlier, right. Any more plans for more increases?

A: None this year.

Reema: What are the current inventory levels of coal? How many days of supply?

A: Right now average more than 20 days.

Prashant: Across power plant?

A: Yes.

Prashant: Going back to the solar power issue, this is in a way substituting. You gave that example of power demand by US, but at that point there wasn't this big thrust on solar in the US, right, but here it is going to be competing. In the case of coal, you are only paying for variable cost which is Rs 1.5 or so. The fixed cost is already being accounted for, but it will come at the cost of coal. Wouldn't you agree?

A: I do not agree because at this point in time there is no replacement happening, in fact if the demand does get articulated as it should through the DISCOMs, we will be short of supply of power. If you do the calculation, the way we have outages in the field, the way power supply has not been made, it is because the demand is not been articulated. There is demand but it is not getting articulated.