India could run out of coal soon. So why is a country with such big reserves facing shortages?

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India is on the verge of mass power shortages, with the country's power plants running dangerously low on coal.

According to Reuters and The Financial Times, which cited government sources, more than half of India's coal plants will run out of energy by the end of the week.

So, how has the world's second-most populous country reached this point?

Here is a summary of the factors that have led to India's coal shortage.

What are the current stock levels?

As of September 29, 16 of India's 135 coal-fired power plants had zero coal stocks, according to the Central Electricity Authority (CEA).

More than half of the plants had stocks that would last fewer than three days, while over 80 percent had less than a week's stock left.

Coal accounts for more than 70 percent of India's electricity output, and utilities account for about 75 percent of India's coal consumption.

What caused the coal shortage?

India's industrial power demand has surged since the second coronavirus pandemic wave.

On top of that, a widening price gap between lower domestic prices and record global coal prices has led buyers to shun imports.

State-run Coal India, which produces more than 80 percent of India's coal, said an increase in global coal prices and freight costs had led to a curtailment in power production by plants using imported coal.

This added to the pressure on utilities using domestically mined coal to ramp up output.

Why are prices between domestic and global coal widening?

Domestic coal prices in India are largely decided by Coal India.

An increase in coal prices generally has a knock-on effect on power prices and inflation, making a hike a politically sensitive decision.

Coal India has kept prices steady over the past year, despite global coal prices rising steeply in the same period.

While the company's chairman has said prices will eventually increase, it is not immediately clear when it will happen.

Meanwhile, Asia's coal price benchmarks have hit record highs in recent times, buoyed by global demand for power generation fuels as economies open up.

A major power crisis in China is the latest event driving global demand for fuel.

Why are utilities unable to pass on higher costs?

India's power tariffs, set by the respective states, are among the lowest in the world, according to the website, as state-run distribution companies have absorbed higher input costs to keep tariffs steady.

This has left many of these companies deeply indebted, with cumulative liabilities running into billions of dollars.

The companies' strained balance sheets have consistently triggered delayed payments to power producers, often affecting cash flows and providing few incentives for further investment in the electricity-generation sector.

Indian power producers locked in long-term agreements with distribution utilities often cannot pass on higher input costs unless clauses are included in their contracts.

What does India's crisis mean for global coal markets?

India is the second-largest importer, consumer, and producer of coal, and has the world's fourth-largest reserves. It mainly imports from Indonesia, Australia, and South Africa.

CRISIL, a unit of ratings agency S&P, says it expects Australian and Indonesian thermal coal prices to increase over the remainder of this fiscal year due to supply constraints and high demand from China and elsewhere.

India's average weekly coal imports during August through late September, when global coal prices rallied over 40 percent to all-time highs, dropped by more than 30 percent from the average for the first seven months of the year to just under 3 million tonnes, according to data compiled by Kplr.

The import total for the most recent week was less than 1.5 million tonnes, the smallest in at least two years, and websites of major coal importing state utilities did not show any new tenders seeking new cargoes this month.

Who are the winners and losers?


Shares of Indian power producers NTPC, Tata Power and Torrent Power, and Coal India have been rising strongly in recent weeks, spurred by rising power demand.

An official at a large utility operator said many traders who bought coal at the domestic spot auctions sold the fuel at steep premiums.

Many non-power consumers of coal, and import-based power plants, have curtailed production due to high foreign prices.

While large-scale outages like those in China seem unlikely in the immediate future, some pockets of the country might face power outages, officials say.


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