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How to fire up India's coal production

As shortages hobble power plants, the call for privatisation of the sector is growing louder. But many say it will only be a half-hearted solution to the problem

Probal Basak  |  Kolkata 

As the country struggles with acute power shortage, the demand for opening up the coal sector for private miners has got stronger. (At the moment, private companies can mine coal only for captive use in their power plants.) Planning Commission Deputy Chairman Montek Singh Ahluwalia has said that competition from private miners will improve productivity and bridge the yawning gap between the demand and supply.

Yet, the 2th Five-year Plan (2012-17) voices its helplessness in the matter. "There are political sensitivities in opening up the coal sector to private investment, but it is simply not logical to keep private investment out of coal, when it is allowed in petroleum and natural gas," the document said, strongly advocating the need for amending the Coal Mines (Nationalisation) Act, 1973. Indeed, an amendment to this effect initiated in 2000 has been held up in Parliament due to these very "political sensitivities" manifested in protests by unions. But with state-owned Coal India miserably failing to meet the country's demand in recent years, the chorus for private coal mining has once again gathered momentum.

India's coal reserves of over 250 billion tonnes are amongst the largest in the world. Yet, the country has to import more and more coal with each passing year to fire its power plants. Power generation capacity of as much as 50,000 Mw which has come up over the over the last five years is either stranded or operating far below capacity in the absence of coal.

Coal India's annual production of about 450 million tonnes, or MT, is way short of the demand. As a result, India had to import as much as 152 MT of coal in 2013, registering an year-on-year increase of over 20 per cent. Planning Commission estimates that coal imports could go up to 185 MT at the end of the 12th Plan based on total coal demand of 980 MT and domestic supply of 795 MT.

It is not that Coal India, the world's largest miner of the commodity, does not have financial strength to make the required investment to bridge this demand-supply gap. Rather, the company is the most cash-rich public sector enterprise in the country: at the end of 2012-13, its cash and bank balance stood at a massive Rs 43,776 crore. (See Future is grey) The problems that have hobbled Coal India rage from slow environment clearances, mismanagement and rake shortage. That's why many believe privatisation of the sector will help.

In spite of private investment being allowed in captive mining (foreign direct investment of up to 100 per cent is allowed), there has hardly been any big-ticket investment. Global players like BHP Billiton and Rio Tinto have not shown any keenness for captive mining. Ahluwalia sees the solution to the coal crisis in opening up the sector fully. Rubbishing the concern over national security, which was the principle reason for coal nationalisation in 1973, his argument has been that as other more precious natural resources like oil and gas are not nationalised, there is no reason why the same should be the case with coal.

Former Coal India boss Partha S Bhattacharyya strongly supports Ahluhwalia's argument. He sees many positive outcomes of coal privatisation. "It will add competition, increase production and bring new technologies which will immensely help the sector," says he. He also believes that it will help Coal India benchmark its processes against the global best practices.

No gains in technology
Some detractors say that the entry of private miners may not lead to any substantial technological advancement. Before nationalisation in 1973, the record of the private sector in this field was very poor. Hardly any miner had invested in modern mining technologies. Their methods were primitive and unscientific. Accidents and fatalities were common. Workers were treated shabbily. Bhattacharyya does not believe that is a concern today. "Those are the days of the past. With foreign players, global best practices will also come in," says he.

The detractors also give the example of China, where mining sector was opened up in 1978. Though it might have helped China emerge as the world's largest producer of coal at about 3,500 MT per annum, it has not come without a cost: reports suggest China has seen over 40 per cent rise in thermal coal prices in the last couple of years. "Yes, prices may go up to the international standard. But, we are becoming self-sufficient in coal; what is the problem? The choice is ours; can we afford to go on importing coal," Bhattacharya says.

According to Rupesh Sankhe, research analyst at Karvy Computershare, a financial consultancy, an effective coal regulator should be the pre-condition for any move towards abolishing the Coal Nationalisation Act.

To this effect, the Union ministry of coal had introduced the Coal Regulatory Authority Bill, 2013 in the Lok Sabha, but it is yet to get Parliament's nod. Later, the Cabinet Committee on Economic Affairs last February approved setting up of the regulator through an executive order that would have only recommendatory powers. The provision is that the regulator will be empowered to specify the principles and methodology for determining the price of raw coal and washed coal and any other by-product generated during washing. "A coal regulator would go a long way if we are looking at private participation in the sector," says Sankhe.

Profiting from coal
Another concern often highlighted by the trade unions, especially the Left parties, is that of national interest. "Major global players are eagerly waiting to make huge profits as India undermines its self-sufficiency despite huge reserves in a situation where Coal India (has been) deliberately weakened as reserves are handed over to inexperienced and speculative private players," says a recent note on the issue by the Communist Party of India (Marxist), which was most vocal when a bill to amend the Act was initiated in 2000. "Yes, it can be a concern if global players start to aggressively export after coming in. In fact, this has happened in Indonesia and the issue is being debated there. But, a policy can be formulated keeping this in mind," Sankhe notes. Bhattacharyya, too, is of the view exports should be capped if India goes for privatisation.

The current management of Coal India, on its part, does not want to get into the "politically sensitive" debate. However, when asked to comment on the issue earlier, Chairman & Managing Director S Narasing Rao had pointed out the real problem for coal crisis lay somewhere else. "More than 48 billion tonnes of captive reserves were allotted to private parties in order to boost production, but they also faced the same problems and their projects are struggling to take off. So the case will not be different for private parties," he had noted. It is a fact that about 50 Coal India projects are waiting environment clearance, while about 150 are waiting for forestry clearance at the state level. Many of the clearances are pending for years now.

Surely, even if the next government at the Centre wants to take up the reform measure, privatising the coal sector would be a tall task. It would not only need to forge a political consensus for amendment to the existing law, but will also have to ensure a sound ecosystem that helps the country fulfil its goal of resolving the coal shortage.

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First Published: Thu, March 20 2014. 23:30 IST