Coal Rich, Coal Short Again: How a 5% Import Mandate Passes a Logistics Failure On to Power Bills

Coal India Has, Delivered Late: Why Blending Mandates Charge Consumers for a Logistics Failure

India has some of the world's largest coal reserves, yet for the second time in five years the government is preparing to order power plants to burn imported coal. That contradiction is the story. The shortage is not about how much coal India has. It is about whether coal reaches power plants in time and when it does not, someone has to pay to make up the gap.

How the Cost Travels

The proposal would require plants to blend up to 5% imported coal. It is being weighed just as import prices climb: Indonesian coal is up about a fifth since May, Russian 14% and South African 19%. Here is how that cost moves through the system:

1. Generators buy more expensive imported coal for part of their fuel. Their cost per unit of electricity rises.
2. That cost is passed through to their buyers, the state distribution companies (DISCOMs), through fuel-cost adjustments to tariffs.
3. DISCOMs are already under pressure. Spot power has averaged ₹7.71 a unit in September, the highest monthly level since 2022, so any power they buy on exchanges to cover shortfalls is expensive too.
4. Eventually the cost lands in one of three places: consumers through fuel surcharges on their bills, state budgets through larger subsidies to DISCOMs or DISCOMs' losses, which later need bailouts. The directive is issued by the Centre, but most of the bill ends up with states and electricity consumers.

Why Supply Is Short Despite Large Reserves

Shortages have recurred for the same reasons: coal output and its movement by rail slow during the monsoon, stocks at power plants run down and power demand does not fall in step. This year, weak hydropower during the monsoon has made thermal plants carry more of the load.

Coal imports are already at a 15-month high, a sign that stocks are running down faster than domestic supply can replace them. Mandatory blending treats the symptom by bringing in coal from abroad. It does not fix the cause, which is getting domestic coal to plants in time: rail capacity, the planning of coal stocks before the monsoon and matching mining output to seasonal demand.

The Policy Reversal

The last mandates ran from December 2021 to March 2024. Since then, the focus has been on raising domestic output and cutting imports and that approach did reduce foreign purchases for two years. Returning to mandatory imports now, when global prices are rising, is buying at a bad time.

It also means paying in foreign currency, which adds to the import bill. The government's case is real: power cuts cost more than expensive coal. But a mandate should be a short-term emergency measure with a clear end date.

The last one lasted more than two years.

For the exam: when a country with large reserves imports the same resource, look at logistics and timing, not reserves. Then trace who ends up paying.