The critical shortage of coal threatens the aluminium industry

The extremely power-dependent aluminium industry faces a difficult time. Coal India Ltd (CIL), which recently took steps to reduce coal supplies and railroad rakes for Captive Power Plants, (CPPs) has caused a coal crunch in the Indian Aluminium Industry.

Aluminium is an important metal and a vital commodity for many sectors. It is crucial for the country’s economy. In-house CPPs are the only way to ensure uninterrupted, high-quality power supply for aluminium smelting.

This will result in the industry being unable to develop a mitigation plan for sustainable operations. It is also impossible to resort to imports with such short notice.

CPPs in the aluminium industry have signed FSA (Fuel Supply Agreements) with CIL, its subsidiaries, for long-term coal supply. An abrupt halt to this guaranteed coal supply causes the industry to grind halt. This has a serious impact on the SMEs of the downstream sector, which results in higher prices for finished products and more burdensome end consumers.

Aluminium is a highly energy-intensive, continuous process that relies on high levels of power. Coal accounts for approximately 40% of the aluminium production costs. To meet the growing demand for aluminium in India, huge investments worth Rs 1.2 lakh crore ($20billion) were made to increase the domestic production capacity by 4.1 million tonnes per annum. To meet the country’s increasing power requirements, India’s aluminium industry has built a capacity of 9000MW CPP to power its refinery and Smelter operations. This will reduce dependence on power grids.

Any power outage or failure of 2 hours or more results in the freezing of molten Aluminium within the pots. This causes the aluminium plant to be shut down for at least 6 months, resulting in heavy losses and restart expenses. Once the plant is restarted, it can take almost a year to achieve the desired metal purity.

Due to rising production costs in India, primarily because of rising power prices and an increase in duties and cess, the Indian aluminium industry is struggling to stay competitive globally. The high rate of unrebated taxes and duties from the Central and State governments, which makes up 15 percent of the aluminium production costs, is one of the highest in the entire world. This adversely affects the sustainability and competitiveness in the Indian aluminium sector.

Because aluminium is a power-intensive, continuous process-based industry, the Aluminium Association of India sought support from Coal India in order to continue sustainable operations and reduce the load on the grid.

2) Railway rake allocation based on priority for coal dispatch to Aluminium industry.

3) Allocation of coal dispatches by rakes in proportion to 75 per cent power and 25 per cent non-power, as per the MoC circular on auction linkage, dated February 15, 2016.

4) No decision should be made on an ad-hoc basis to stop or curtail secured coal supplies. CPP-based industries should be notified in advance (2-3 months) to develop mitigation plans for power or coal imports.