In a bid to bolster coal availability for non-regulated sectors (NRS) such as cement, steel, sponge iron, and captive power units, the Union Coal Ministry is poised to introduce significant policy modifications. The ministry plans to provide these sectors with long-term coal linkages devoid of end-use restrictions, signalling a shift from the existing policy framework established in 2016. This move comes amidst a surge in coal demand from these industries.
The current policy mandates that industries procure coal from state-run companies through auctions, specifying end uses. However, with the evolving market dynamics, increased domestic coal availability, and the strategic objective of reducing coal imports, the ministry sees a need to revisit these guidelines. Stakeholder consultations on this matter are scheduled to be held by the Coal Secretary on June 13.
In a communique outlining the agenda for the meeting, the ministry stated, “Given the current and future market dynamics, the increased availability of coal, and the objective of reducing coal imports, there is a need to re-evaluate the existing arrangements for coal supplies to the non-regulated sector. This includes moving from a regime of auction-based coal linkages for specified end uses to a system of coal linkages for consumers without end-use restrictions.”
Power utilities are the largest coal consumers in India, utilising nearly 810 million tonnes out of the 1 billion tonnes produced domestically in FY24. However, demand from NRS users is also rising sharply, driven by increased production of critical raw materials for infrastructure and construction. The government anticipates that the thermal coal requirement for NRS users will reach 380.56 million tonnes by FY30, a significant increase from current levels.
Data from the government indicates that 60.91 million tonnes of coal were supplied to captive power plants in FY23-24, a 38.1% year-on-year increase. Supplies to the steel sector rose by 15.3% to 9.69 million tonnes, while the sponge iron sector received 9.91 million tonnes, marking a 28.7% increase. Conversely, coal supplies to the cement sector slightly declined by 0.98% to 8.86 million tonnes.
In FY23, India imported 238 million tonnes of coal, with approximately 125 million tonnes accounted for by NRS users. An inter-ministerial committee report on coal import substitution, published by the Union Coal Ministry in March, highlighted that the reasons for coal imports by NRS users are multifaceted. These include domestic supply shortfalls, quality issues, and high railway freight costs that increase the landed price of domestic coal for plants located far from mines.
Although India possesses more than 378 billion tonnes of estimated coal resources, the reserves of high calorific value and low ash content coal are limited. The coal import substitution report noted that while NRS users procure domestic coal through linkage auctions, which guarantee supply for an initial period of 5-10 years, they often exit these agreements when international coal prices become more favourable.
This policy shift towards easing supply norms and removing end-use restrictions is expected to provide a much-needed boost to the industrial sector, enhancing operational efficiency and reducing dependence on coal imports.
