Myopic coal mining policy pushes India towards darkness

Yet, today, its thermal power plants, which account for 55 per cent of the country’s electricity generation capacity, are starved of coal. This situation has not come about overnight.

The chickens hatched by Indira Gandhi’s populist measure of nationalising coal mines between 1971 and 1973 are now coming home to roost. That legislation killed a dynamic and competitive private sector mining industry and replaced it by a lumbering monopolistic public sector behemoth, Coal India Ltd.(CIL), which has utterly failed to increase its output in step with the growing demand for coal due to expansion of power generation capacity.

Almost every year, CIL’s  performance has fallen short of targets and this deficiency has been more acute in the last few years. Its capacity utilisation decreased to 90 per cent in 2009-10 from 94 per cent in the previous year. Ironically, the present  Union minister for coal, from the Congress Party, has acknowledged publicly that  Coal India was enmeshed in sloth, inefficiency and corruption.

Thanks to Coal India’s indifferent performance, the import of thermal coal has been steadily rising  and will reach 54 million tonnes this fiscal. This is despite the fact that the addition to generating capacity during the current Plan period (2007-2012) will be only 52,063 mw capacity  against a scaled-down  target of 62,374 mw, according to a report from the Central Electricity Authority.

The price of imported coal is two to three times that of indigenous coal. With power tariff pegged to price of local coal, who is going to subsidise the additional cost of power generation using  imported coal?  Last financial year, the net losses of the distribution firms touched Rs 40,000 crores; this year the losses are expected to double.

Part of these losses are due to persisting Transmission and Distribution inefficiencies which include line losses in distribution to the far flung rural sector and outright theft in the urban areas, which involves the collusion of employees.

Political pressure

A substantial portion of the financial losses of the distribution companies can be attributed to political pressure on the state regulators  not to increase tariffs to compensate for rising fuel  prices. Banks are now baulking at providing more loans to the power sector since their dues from power companies threaten to become NPAs (non-performing assets.)
In 1993, an amendment to the 1973 Coal Mines (Nationalisation) Act permitted entry of the private sector in mining coal for captive consumption in power plants. But, land acquisition problems and environmental clearance barriers have inordinately delayed the opening up of most of the proposed private mines.  

To bypass the hurdles of opening up mines in India, private Indian power utilities got the bright idea of investing in coal mines abroad in countries like Indonesia and Australia in order to source high quality thermal coal. Based on obtaining this foreign high quality coal at a price of around $35 per tonne, they assumed a generation costs of just Rs 1.5 to 2.5 per kwhr in their proposed high capacity, modern generation plants.

Unfortunately for their plans, the exporting countries have seen fit to cash in on the growing global demand for coal.

New legislation

The Indonesian government has recently passed legislation that forces  coal export prices to be linked to international prices, which are now hovering around $ 130 per tonne. This has totally upset all the cost calculations of the new generation companies and now they have to put their projects on hold till they have renegotiated rates with the distribution companies.

As for the future, with no one wanting a power station located in his backyard (consider the protests at Jaitapur, Kudankulam, Mangalore, Srikakulam etc.) the proposal to add 1,00,000 megawatts of capacity in the 12th Plan period ( 2012 – 2017 ) seems to be a pipedream. 

So, what is the answer? Something along these lines:

* Regulators need to bite the bullet and sanction tariff increases.
* Distribution companies must come down heavily on theft in cooperation with local governments.
* Encourage stand alone, grid-free, micro-power generation using renewable energy sources  and distribution utilities catering to limited local demand in rural areas, thereby releasing main distribution companies from rural demand which leads to heavy line losses.
* Rework tariffs with the independent power producers who are dependent on imported coal.
* Work out modalities to enable quicker implementation of private mines based on the new land acquisition rules.
* Reform CIL to make it leaner, cleaner (in terms of corruption) and more productive. Persons within the organisation can offer innumerable suggestions in this regard but the political will is needed.
* Divert investment in bulk power generation to exploiting solar energy, in places like Rajasthan.

But, if things are allowed to continue as they are, it is back to the kerosene lamp and hand ‘punkahs’ for all of us.