Poor planning, delayed coal imports stoke a power crisis in Tamil Nadu 

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Tamil Nadu is confronting a power crisis, its first in six years, as the peak summer approaches – the result of poor planning and delays in sourcing of coal by the state’s electricity utility.

Under fire from the Opposition and consumers, Chief Minister MK Stalin wrote to Prime Minister Narendra Modi on April 22, blaming power shortages in the state on the railways.

In his letter, Stalin wrote he had been informed that although “coal production is sufficient to meet the increased summer demand for power, the same is not getting transported to ports due to short supply of rakes by Railways.”

The upshot is that the state is receiving only 50,000 metric tons (MTs) of coal daily as opposed to an agreement under which it was supposed to get 72,000 MTs. Stalin urged the Prime Minister to intervene and ask the Railways to transport more coal to Tamil Nadu.

Shortfall of railway rakes is a perennial problem, as any senior official in Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) would testify.

In an effort to circumvent the problem, TANGEDCO officials and state bureaucrats put their heads together during the 2011-2016 regime of late chief minister J Jayalalithaa and came up with a process that would ensure adequate coal supply.

This year, TANGEDCO officials appear to have been caught napping on the job. Let us first take a look at the usual procedure of coal procurement to understand what went wrong.

Annual coal plan 

Given that the normal supply of domestic coal is only around 50,000 MT per day, Tamil Nadu needs to import coal to offset the shortage, especially in the summer months. State-owned thermal power stations cannot run solely on imported coal, so a blend is used – 30 percent imported coal mixed with 70 percent domestic coal.

The latest date for issuing tenders for the import of coal, usually from Indonesia, is in February every year. In some years, if global coal prices are volatile, tenders are issued as early as in November for next year’s supply.

Planning ahead and timing are crucial because TANGEDCO is already cash-strapped and reeling under debt to the tune of Rs 1.34 lakh crore, as per the 2022 budget.

From issuing the tender to receipt of coal, the process can take anywhere between one-and-a-half and three months, TANGEDCO officials said.

Summer demand peaks at around 16,000-17,000 MW every year. By the end of May, the season of wind power generation kicks in and coal demand reduces. Again, in June and July, coal demand usually increases as the North-West monsoon sets in and Coal India Ltd’s mines are generally flooded, making production impossible; coal shortages are common in September-November.

Sleeping at the wheel? 

This year, the tender to import Indonesian coal was issued only on March 26, a delay of two months from the norm.

The bid was won equally by two firms --  PT Bara Alam Utama, an Indonesian coal supplier, and Hyderabad-based Smartgen Infra Pvt Ltd.

“Orders for coal have been placed by the firms and we will get imported coal in 2-3 weeks,” said a senior official at TANGEDCO who did not wish to be named.

The order is for 480,000 MTs of coal at a price of $137 + 5 percent Integrated Goods and Services Tax (IGST) per MT. The total cost works out to Rs 698.3 crore for TANGEDCO.

Questioned about the delay in issuing the import tender, the official cited above responded: “Coal is expensive in international markets and the prices were very high. Instead of going for one large tender, as the price is fluctuating, we will go for many small tenders – at least one every quarter. This is because price trends are not predictable.”

Emailed queries to Electricity Minister V Senthil Balaji and TANGEDCO chairman Rajesh Lakhoni have remained unanswered so far.

Experts say high global prices of coal and the conflict in Ukraine are not reasons enough to justify the delay in issuing the tender for coal imports.

“Calling for tenders for imported coal in end-March is late,” said a former top executive of TANGEDCO, who requested anonymity given the politically sensitive nature of the issue. “It has nothing to do with cash flow as payment to importers is always on credit, not in advance. But yes, given the current situation with international coal prices going through the roof, it will be far costlier than domestic coal. Of course, it may have been cheaper had tenders been called for and settled last year itself.”

This person said the delay may have been because of the availability of cheap power in the short-term market. But as power demand increased in March and supply did not catch up, short-term power prices soared so rapidly that the Central Electricity Regulatory Commission stepped in and asked the country’s electricity exchanges to cap prices at Rs 12 per unit, which is still expensive.

The former official said the cost of power from state-owned or private plants using domestic coal is less than Rs 5 per unit. Even short-term contracts specified a price of Rs 5.5 per unit.

“One needs to build up your domestic coal stock to 10-15 days during winter months, enter into short-term contracts for March to May well in advance in November and likewise, call for imported coal tenders during November by the latest and settle the contract latest by January. It would appear that the present crisis is the result of poor planning,” he added.

One more reason to fret 

Another worrying aspect of the tender is that 50 percent of it has been awarded to Smartgen which, according to media reports, is in the dock with the Directorate General of GST Intelligence (DGGI) for allegedly faking GST invoices to the tune of Rs 140 crore to gain a tax benefit of Rs 20 crore. The director of the firm, Murali Barathwaj, was arrested in September 2020.

“If a company which has won a bid is found to have committed such offences, the government must cancel all contracts with this firm since this is a clear violation as per the terms and conditions of the Specification Section II, Clause 7, Rejection of Tenders and Tamil Nadu Transparency in Tenders Act, 1998 and Rules 2000,” said S Neelakanta Pillai, a retired TANGEDCO official and a Right-to-Information activist.

Pillai also pointed to a petition filed by him against TANGEDCO with the Tamil Nadu Electricity Regulatory Commission, the power sector regulator, which states that Smartgen had not supplied a quantity of 119,808 MTs of imported coal as per its contractual obligation in a purchase order dated October 24, 2019.

In the petition, Pillai stated that TANGEDCO did not recover either the balance coal or the equivalent amount from the firm.

“The worst part is that TANGEDCO simply closed the contract without mentioning or recovering the amount due from Smartgen and without levying any penalty. I have mentioned in my petition that the total loss to TANGEDCO due to this is Rs 201.422 crore. Now they have once again gone and given the tender this year to the same company,” he said.

Pillai has also written to the power utility requesting 34 clarifications/modifications in the latest tender for coal import.

The state electricity minister attempted to defend himself and blamed the Centre while speaking in the assembly on April 23.

“Tamil Nadu needs 72,000 tonnes of coal per day. The Union government, which provided 48,000 tonnes to 50,000 tonnes of coal per day, had reduced it to 30,317 tonnes on April 18. The next day, the State received 37,785 tonnes of coal. On April 20, the supply stood at 20,257 tonnes and on April 21, it went up slightly to 46,000 tonnes,” Balaji said.

“During the previous regime, State’s own power generation capacity was not increased even by 5 percent per year.  Had that been done, Tamil Nadu would not have faced power shortage now,” he added.