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Coal – India’s traditional energy source

Coal - India's traditional energy source

As Coal India reports plunging profits, is India shying away from its traditional energy source?

Coal India, the largest coal miner in the world, reported a weak Q4 result on Tuesday. The state-run giant garnered a 38.24% plunge in its consolidated net profit at Rs. 2,716.09 crore in the fourth quarter ending on March, 2017. This led its shares tumble in the Bombay Stock Exchange by as much as 2.9% to Rs. 259.5 apiece in intraday trade. The price is trading lowest in three years. It was yesterday’s one of the worst performer on Sensex and Nifty.

Even in today’s trading, Coal India is down 1 point (-0.37%) at 266.10 at 10:44am on BSE. On the NSE, it is down 1.70 point (-0.64%) at 266.00 rupees a piece.

Coal Production in India:

Coal production by the mining giant raised to Rs. 176.37 million tonnes in Q4 from Rs.165.24 million tonnes last year. However it missed analysts’ expectation of net profits by quite a wide margin, thanks to higher costs. This negative sentiment in turn was boosted by its planned production target cuts. It was about a 10th to 600 million tonnes in the fiscal year 2017-18.

The Kolkata-headquartered company accounts for over 80% of total coal production in India. This makes them most dominant figure in the energy industry. Its figures and plans cast a great deal of influence on the sector.

The enthusiastic were boarding on the Paris Climate Accord in December 2015. India has vowed to increase its share of renewable power to 175GW by 2022. This in turn has led to greater investment in alternative sectors, primarily solar and hydro.

 

UTKARSH project:

The Modi government had earlier decided to put aside an ambitious project ‘UTKARSK’. It is a roadmap for achieving a billion tonne production of coal in the country by 2020. It is at an estimated investment of Rs. 1 lakh crore. It is to shrug off rising import bills of coal in a country blessed with the resource’s abundance.

But as the power sector dynamics changes its focus will change from coal to renewable. The government is determined to capitalize on increasing demand for clean energy sources. The coal will dominate the power sector’s share of above 50%. It will dominate at least for another 20 years; attempts to mobilize funds for alternatives are gaining ground.

 

Shakti Policy:

The recent clearance of a new linkage policy was ‘SHAKTI’ (Scheme to Harness and Allocate Koyla Transparently in India). This cheered the private sector power companies. It promises them long-term coal supply through auctions to their power plants. It was until then was facing huge deficits of coal and relying on imports. This in turn has assured Coal India Limited (CIL) investors of long term supply contracts of the company. This will be to state-run and private thermal power plants.

However, the speed of production of coal by CIL has in recent months exceeded. I has the actual demand leading to millions of tonnes of unsold coal. Being left on wagons and waiting to be bought.

 

GST rate on Coal:

To bring a relief to the company, the government has fixed the GST rate on coal. The GST rate changed of the 5% slab, dragging it down by near 6%. At the current scenario, coal attracts a compounded tax of 11.69%. This will boost the demand for the fuel as power plants. I will be passing on the cost saving to consumers, rallying their demand from cheaper bills.

Futhermore, Coal India and its peers in the coal sector faces increasing competition from a booming solar sector. The prices for solar power have hit a record low, even in global standards, at Rs.2.44 per unit. All thanks to the Narendra Modi led government’s push for greater share of solar in India’s energy market. The recently launched UJALA scheme has also spiked inflows of capital into solar projects, out beating investment in coal.

 

Slowdown in the Coal Industry:

The fastest growing major economy of the world is slowly shying away from the dirty fuel. In order to maintain it’s much appreciated commitments of cutting greenhouse gas emissions. Aiming to reduce the share of coal powered energy below 50% by 2040. It has already created shockwaves in an industry that was poised to grow in double digits. The growth was expected after years of scandal-marked image and competitive imports from Indonesia and Australia.

All the nation and policymakers has to see is how the industry copes up from ever challenging hurdles.

 

 

 

 

 

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