04 Nov 2017 12:26 IST

Coal-rake shortage hits Vedanta, Hindalco aluminium production

Coal-rake shortage hits Vedanta, Hindalco aluminium production

A shortage in the supply of coal due to inadequate rail rakes has pushed up costs and hit the production of aluminium companies, Vedanta and Balco. These companies use coal as fuel for their captive power plants, and had obtained coal linkages through auctions conducted by Coal India (CIL).

In the first six months of the fiscal, Vedanta Aluminium received only 6.3 lakh tonnes of coal, against a contracted quantity of 1.48 million tonnes (mt) — a shortfall of 57 per cent. Similarly, supply to Hindalco fell short by 78 per cent as it got only 2 lakh tonnes of supply, against the 8.90 lakh tonnes it had secured in the linkage auction. Balco received 1.40 mt of linkage coal against an assured supply of 1.77 mt.

Interestingly, as per the terms of the auction and the fuel supply agreement (FSA), Coal India is committed to supply 75 per cent of annual contracted quantity. A penalty is triggered if there is a shortfall.

Rake shortage

Adding to the companies’ woes, South Eastern Coalfields (SECL) and Mahanadi Coalfields have restricted supply to 80 per cent of the quantity bid won in the linkage auction since August, according to a communication between Aluminium Association of India and the Prime Minister’s Office.

The paucity of rakes to transport coal for captive power producers is a matter of concern as the government has prioritised coal supply to power plants connected to the grid, said the CEO of an aluminium company.

Vedanta Aluminium and Hindalco operate captive power plants with capacity of 3,015 MW and 3,070 MW respectively, while Balco operates a 1,140 MW plant.

Criticality of power

Aluminium smelting requires uninterrupted power supply, which can be met only through in-house and dedicated captive power plants. A power outage for more than four hours would freeze the aluminium pots, leading to a shutdown of the plant for nearly six months.

The government needs to take immediate corrective measures to prevent the aluminium companies from going the steel way and add to the NPA of banks, he added. Aluminium companies have invested ₹1.2 lakh crore and hold a debt of ₹75,000 crore.

Apart from operational issues, aluminium companies are fighting large-scale cheap imports into the country and have urged government to impose anti-dumping duty, similar to that of steel.

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