India has cut coal supplies to the non-power sector and put on hold plans for some fuel auctions for utilities without supply deals due to a slump in inventories, even as the country battles a seasonal jump in demand for electricity.
The supply cuts come months after India's most crippling coal shortage in recent years led to power cuts lasting up to 14 hours in some states and amid worries gruelling summer temperatures will exacerbate shortages.
Coal inventories at state government-owned utilities, which account for a third of all coal-fired plants, have slipped to 22% of mandated quantity, the lowest this year. Inventory levels below 25% are considered "critical."
State-run Coal India, which accounts for more than 80% of domestic output, has slashed supplies to the non-power sector - which includes aluminium smelter and steel mills - to 275,000 tonnes a day, according to an internal company note seen by Reuters, 18.3% lower than February and 29.8% below March 2021.
Coal India told Reuters that its supplies to the non-power sector were in line with its average over the "past few years", without elaborating.
Among other measures to tighten supply, the federal coal ministry has put on hold a plan to conduct three coal auctions for utilities over the next three months and will organise one auction for the quarter instead, saying the methodology to conduct three auctions was "under process."
South Eastern Coalfields, a unit of Coal India, has extended the due date for payment for auctions conducted on March 11, thereby delaying supply, and also cancelled another auction scheduled for March 21, according to notices on its website.
Production and dispatch by Coal India typically drop from April and taper further from June until September due to the annual monsoon season that curbs output in some areas.
"Given the prevailing low coal stocks, and the steadily rising coal demand, Coal India would need to increase production significantly ... to avert a domestic coal shortage," said Jayanta Roy, Senior Vice-President at Moody's unit ICRA.
The world's largest coal miner said it expects to boost output and does not foresee a coal crisis for the power sector.
The federal coal ministry did not immediately respond to a request for comment, but said on Saturday companies could consider imports to deal with the shortfall.
Record Low Imports, High Coal Prices
But high global prices of coal would mean an additional financial burden for companies looking to import the fuel. That would also translate into higher input costs for power producers and debt-laden state government-owned distribution firms.
Senthil Balaji, electricity minister of the southern state of Tamil Nadu, said high global coal prices could push power purchase costs to as much as 9 Indian rupees ($0.1190) a unit, over 2.4 times the average procurement cost during the year ended March 2021.
Coal inventories at state government-run power plants have fallen despite record production by Coal India in 2021, as the company prioritised supply to federal government-run NTPC Ltd (NTPC.NS), power ministry data showed.
Inventories have also been hit as India's coal imports fell to a nine-year low in 2021 due to a jump in global prices.
Non-power sector consumers such as aluminium smelters and steel firms have stepped up lobbying in recent days, asking Coal India to hike supplies as they look to capitalize on its cheap coal and boost exports at competitive prices. ($1 = 75.6310 Indian rupees)