India's coal output
failure By Siddharth
Srivastava
NEW DELHI - India's struggling
coal sector has been thrown into sharp relief by
the country's independent Comptroller and Auditor
General (CAG), which estimates that the national
treasury has lost nearly US$33 billion because of
the way the government handles mining rights.
New Delhi, according to the CAG, nominated
more than 142 coal-mining rights between 2005 and
2008 to 75 private and 67 state entities, instead
of instituting competitive auctions to determine
the real price of the coal blocks that have been
deemed to be worth more.
Even as the
opposition Bharatiya Janata Party seeks the
resignation of Prime Minister Manmohan Singh over
the "Coalgate" scandal, the fact remains that the
coal sector has
been in dire need of
reforms for some time, predating 2005. Competitive
bidding as has been formulated for the oil and gas
sectors forms only one cog in the overall dismal
scenario.
Coal output stagnant India's coal output has remained nearly
stagnant over the years even as demand has
increased rapidly. Given the absence of domestic
fuel linkages, electricity producers such as
Adani, Reliance Power and Tata Power have been
forced to purchase expensive overseas coal blocks,
spending billions of US dollars to ensure supplies
and guard against price volatility.
Production failures have also meant
India's coal imports, which were negligible just
five years back, have risen rapidly, causing a
drain of foreign exchange. India already imports
more than 80% of its oil needs. The Coal Ministry
estimates coal demand at nearly 1 billion tonnes
by March 2017, up 40% from the current 700 million
tonnes. Domestic output is projected to rise by
30%, creating a gap of nearly 300 million tonnes,
necessitating imports. To make matters worse,
the monopoly producer Coal India Ltd has been
clocking negative growth rates in output. CIL,
which produces more than 80% of India's coal,
claims it should not be solely blamed as its
problems are linked to external factors beyond its
control.
These include overzealous
implementation of environmental and
forest-protection laws, land-acquisition problems
and infrastructure issues such as inadequate rail
facilities. The entity has also been set back by
the threat of Maoist rebels in mineral-rich states
in eastern India such as Jharkhand, Bihar and
Orissa.
However, many do not buy CIL's
arguments. This resulted in the unusual instance
of one state-owned entity criticizing another in
June when Arup Roy Choudhury, chairman of
state-owned NTPC, India's biggest power generator,
said CIL's "inability to supply adequate amounts
of fuel is threatening NTPC's expansion plans. It
is the only company in the world where the
production has gone down but the profits have gone
up."
Choudhury said NTPC would not be able
to add 11,000 megawatts to its output because of
the lack of fuel availability. "The solution is
not to raise imports but increase local output,"
he insisted.
Price
politics Populist politics that seeks to
dole out free power and fix low electricity
tariffs to protect the consumer have messed up the
scenario further. Private entities avoid running
their plants on expensive imported coal as they
are unable to pass on cost increases. This has
created the piquant situation of idle and excess
capacity alongside power shortages and cuts.
For the same reason, none of the coal
blocks nominated by the government to private
entities have been developed. The coal producers
fear losses due to selling coal at the low
controlled prices.
At the same time, they
see reasons for holding on to the coal assets in
the hope that the government will allow open
merchant sales of coal in the future. This could
result in huge windfall gains that could dwarf the
notional losses that have been attributed by the
CAG.
CIL too has refused to import
expensive coal and selling it cheaply as per the
fixed prices, because of fears of erosion of
returns. The price of imported coal is nearly
double domestic rates, though the gap has reduced
a bit in the recent past.
Despite talk of
renewable, hydro or nuclear energy sources playing
their part, the bulk of India's electricity
continues to be generated via coal-fired thermal
power plants.
Further, the primacy of coal
will remain, given the exponential rise in power
consumption. In this context, the assertions of
the CAG could actually turn out to be a blessing
in disguise. It could usher in the much-needed
changes and amendments in India's coal sector. No
future government would want to risk another
report that exposes similar failures and losses in
allocation of coal blocks.
This will
create a constituency that lobbies for prices and
tariffs that reflect costs, as is happening in the
gas sector, where entities seek parity with prices
of imported liquefied natural gas that are much
higher.
With such huge and complex
problems weighing on the coal sector, some
imaginative thinking is clearly required if
solutions are to be found.
Siddharth
Srivastava is a New Delhi-based journalist. He
can be reached at sidsri@yahoo.com
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