India's domestic coal production has gone up by a record 28%.
The coal sector abounds in paradoxes, and perennially remains stuck in a quagmire. India is both one of the largest producers and importers of coal. The Government is attempting to revive and rejuvenate the sector and, simultaneously, pledging to phase it out as a part of its zero emission commitments.
Coal India Limited (CIL), the public sector behemoth, continues to be pampered while efforts are underway to end its dominance and pave the way for the global mining industry. The Ministry of Coal has announced a reduction of imports to zero, while the Ministry of Power has made imports compulsory.
Transparency in allocating mining rights is the buzzword, but imports are opaque. The fortunes of the industry and investors remain in the doldrums. The Coal India scrip offloaded at Rs 358 by the Government amidst optimism in 2018 currently trades at under Rs 180. The unprecedented slew of reforms have been but piecemeal.
India is both one of the largest producers and importers of coal.
The real problem in the country is the shortage of coal and not the mechanism to distribute it transparently.
Modi government's decision to penalise power plants for not importing coal is a turnaround from its earlier resolve to end coal imports.
Government's directives on importing coal nudge its agencies to buy at any price.
The massive global withdrawal from fossil fuels for climate and environmental reasons poses a challenge to the viability of long-term investments.
Uneasy Handling of Coal by Various Departments
As even Dr Manmohan Singh realised in the wake of the 2014 Coalgate scam, you don't fiddle with coal without messing your hands. The flickering lights across the country testify to India's reliance on coal-based thermal power for 75% of its electricity demand. Coal India Limited, the largest coal-producing company in the world, has indented to import 2.4 Million Tonne (MT) of coal for 26 power plants; the figure is to go up to 12 MT. The CIL has no expertise in import activities or experience handling third-party logistics. 7 MT is to be imported by State Governments. NTPC and DVC will be importing another 23 MT of the dry fuel.
A Union Power ministry directive to blend 10% imported coal to circumvent the domestic coal shortage has made India, the second largest coal-producing country import the dry fuel. A follow-up missile of the same ministry puts a gun to the head of the power companies with the threat domestic coal allocations will be reduced from July if they do not start to use 10% imported coal by 15 June. Also, power plants that did not place orders to import coal by 31 May will have to import 15% of their fuel requirements until 31 October.
Hefty Bill of Coal Imports
Modi government's decision to penalise power plants for not importing coal is a turnaround from its earlier resolve to end coal imports by the financial year 2023-24 (April-March). In February 2020, Coal Minister Pralhad Joshi touted the country's intention to halt thermal coal imports from 2023-24 as a commitment to Atma Nirbhar Bharat. In a letter dated 28 April, 2020, the power ministry even directed all generating companies to replace imported coal with domestic coal for blending purposes.
Although Foreign Minister Jaishankar proclaims the Russia-Ukraine conflict isn't an Indian crisis, the burgeoning oil import bill coupled with coal puts a tap on the country's depleting forex reserves. Commodity trade, of which oil and coal are integral components, thrives in times of crisis, generating windfall profits for select participants.
Government's directives on importing coal nudge its agencies to buy at any price. In the global market, the price of coal is five times the CIL notified coal prices. The decision to pitch Coal India, a Central Government PSU, to consolidate the import requirements of the states intends to bring uniformity of landed price and quality. However, the volume to be imported for the short term is too low to achieve economies of scale. Supplying imported coal from eastern and western ports to power plants dispersed across the country will bring price disparity from plant to plant, including those located at pit heads.
The CIL procurement is still in the pipeline, and price discovery will take place after the last date for receipt of bids on 29 June.
Is SHAKTI Enough to Deal with Power Woes?
The spectre of shortages, imports, and windfall gains points to the inadequacy of the SHAKTI ( Scheme for Harnessing and Allocating Koyala Transparently in India) policy of the Union Government for allocating coal among thermal power plants transparently and reducing imports.
As Anil Swarup points out in his book Not Just a Civil Servant, the real problem in the country is the shortage of coal and not the mechanism to distribute it transparently, which has only had a minor impact on coal production. The coal scam, which the policy intended to undo, arose from the scarcity of coal. Despite having the world's fourth largest coal reserves, India imported 235 MT of coal last year, of which 13 MT valued at Rs 171,000 crore could have been met from domestic reserves.
Swarup attributes this to a combination of issues related to land acquisition, environment and forest clearances and railway rakes' availability to transport coal. These have been dealt with but peremptorily. The production of CIL was stagnant till recently, and it was without a CMD for more than a year.
The Government drained CIL of over Rs 35,000 crores through the buyback of its shares, besides compelling it to set up a fertiliser plant! The big coal mining states, West Bengal, Odisha, Chhatisgarh, and Jharkhand, are ruled by opposition parties at loggerheads with the Centre.
Limited Success of Half-hearted Reforms
The conviction of former coal secretary HC Gupta in the so-called coal scam paralysed the coal bureaucracy resulting in piecemeal and half-hearted reforms. In 2014, the Supreme Court cancelled 204 out of 218 coal blocks allocated since 1993. Back-of-the-envelope, outrageous calculations by the CAG led to the cancellation of mines with no takers even today due to inflated floor prices. Only 105 mines have since been allocated, of which 47 have opening permission, and just 36 of 47 are under coal production.
Many policy announcements with laudable objectives have failed to bring anticipated results.
In 2018, flexible utilisation of coal mines was allowed to PSU's of the power sector.
In 2019, 100% FDI under automatic route for sale of coal, coal mining activities, coal handling and separation was allowed.
In 2020, auction on a revenue share basis was introduced. Also removed were restrictive provisions, like prior mining experience in India, on the participation of the global merchant mining industry.
In 2021, sale of up to 50% of coal produced in a year by captive coal mines was permitted. These measures have not significantly enhanced the availability of coal in the open market due to the persistence of structural impediments.
The Long Game of Goal
External challenges continue to stalk the coal industry. The poor financial health of discoms and rising NPAs of thermal power plants hold up miners' dues. A surge in power demand is making matters worse. The massive global withdrawal from fossil fuels for climate and environmental reasons poses a challenge to the viability of long-term investments. India has promised renewables will provide 50% of its electricity by 2030. This figure could rise further as it pursues a net zero emissions target by 2070.
The Coal industry, riddled with contradictions and piecemeal reforms, will continue to chug India's energy sector haltingly until the sun sets.
(The writer is a former Member of the Postal Services Board. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)