Coal shortage to hit captive power production in aluminium industry

The Indian aluminium industry has set up ~9,000 MW CPP capacity to meet its power requirement for the smelter and refinery operations.

The highly power-dependent aluminium industry is in for a tough time ahead. This is because of Coal India Ltd’s (CIL) recent move to significantly reduce coal supplies and railway rakes for Captive Power Plants (CPPs), resulting in coal crunch for the Indian aluminium industry.

Aluminium is a metal of strategic importance and an essential commodity for diversified sectors, crucial for the nation’s economy. Aluminium smelting requires an uninterrupted and high-quality power supply for production which can be met only through in-house CPPs.

Hence, such drastic curtailment of coal supplies, without any advance notice, will bring the industry to a standstill as it has been left with no time to devise any mitigation plan to continue sustainable operations. Also, resorting to imports at such short notice is not feasible.

The aluminium industry CPPs have signed the Fuel Supply Agreement (FSA) with CIL and its subsidiaries for assured long term coal supply. Any abrupt stoppage of this secured coal supply brings the industry to a grinding halt and has a severe impact on the SMEs in the downstream sector resulting in increased prices of finished products and burdening end consumers.

Aluminium is a continuous process based highly power-intensive industry wherein coal accounts for ~40 percent of aluminium production cost. Huge investments of ₹1.2 lakh crore ($20 billion) have been made to double the domestic production capacity to 4.1 mtpa to cater to the country’s increasing aluminium demand. The Indian aluminium industry has set up ~9000 MW CPP capacity to meet its power requirement for the smelter and refinery operations and reduce dependence on power grids.  

Any power outage/or failure (two hours or more) results in freezing of molten aluminium in the pots which leads to shutting down of the aluminium plant for at least six months rendering heavy losses and restart expenses, and once restarted, it takes almost a year to get the desired metal purity. The Indian aluminium industry is already struggling to remain globally competitive due to increasing production costs in India primarily due to increased power cost over the past few years with rising coal prices, increase in various duties, cess and RPO. Also, the high incidence of unrebated Central and state taxes and duties, constitutes ~15 percent of aluminium production cost which is amongst the highest in the world. This is adversely impacting the sustainability and competitiveness of the Indian aluminium industry.

Being a continuous process-based power intensive industry, The Aluminium Association of India has sought the following support from Coal India to continue sustainable operations and to reduce the load on the power grid:

• Resumption of adequate coal supply against secured linkages for sustainable industry operations.
• Allocation of railway rakes on priority for coal dispatch to the aluminium industry.
• Allocation of coal dispatches through rakes in proportion of 75 percent (power) and 25 percent (non-power), as per Coal Ministry circular for auction linkage, dated 15 February 2016.
• Any decision for stopping or curtailing secured coal supplies should not be taken on an ad hoc basis. The CPP-based industry should be given prior notice well in advance (2-3 months) to devise mitigation plans for coal or power imports.