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Carrying coals to New Delhi

Doubts on coal reserves raise questions about thermal power

Business Standard  |  New Delhi 

It would seem that disappointment or controversy is never too far away from India’s energy sector. The recent admission by the Union ministry of power that even the ‘revised’ target of 62,000 MW for the 11th five year plan (the initial plan target was 78,000 MW) would be missed by 20 per cent, while disappointing, barely surprised those familiar with the Power Ministry’s record of meeting set targets. A recent report by The Energy Research Institute (TERI) pricks the sanguine belief, widely held, about India’s limitless coal reserves, deemed adequate to support a significant proportion of India’s energy ambitions well into the next century. Total coal reserves in India are estimated to be of the order of 276 billion tonnes, of which 110 billion tonnes are ‘proven’ resources. These estimates are based on the Indian Standard Procedure (ISP), a time honoured practice to estimate all minerals, dating back to the 19th century. This, according to the authors of the study is the crux of the problem. In not adequately considering the techno-economic costs associated with extraction, the ISP tends to overestimate mineral reserves that can be feasibly mined. An alternative estimation method called the United Nations Framework Classification (UNFC) that was designed to overcome the limitations of the ISP has not been implemented, despite a government go-ahead in 2001. Adopting the UNFC methodology, would provide a more realistic estimate of India’s mineral endowment, which in turn would lead to appropriate policy responses.

The report’s logic is persuasive: if the marginal cost of extraction exceeds the price at which it can be sold, it would make little economic sense to do so, unless the government subsidises the difference. Some of India’s reserves are indeed in thickly-forested areas in states such as Madhya Pradesh, Jharkhand and Chattisgarh. Even if the activist positions adopted by the Ministry of Environment & Forests (MoEF) were to be downplayed for the moment, getting the coal from pit to plant would require considerable investment in logistics and infrastructure, which even in a best-case scenario would be a gradual process. The central findings of the report are sobering for India’s energy policy. If present ISP-based estimates were discounted conservatively by 40 per cent, ‘proven’ reserves would come down by about 44 billion tonnes to about 66 billion tonnes. At present levels of consumption, they would suffice for 110 years. A dynamic forecast of the future supply-demand scenario would necessarily consider the higher demand as the Indian economy grows at approximately 9 per cent over the next two decades, as well as the potential of technology to access reserves currently classified as non-extractable.

India’s energy mix, which currently relies heavily on thermal power and is expected to do so in the foreseeable future makes it imperative that the findings of the report be treated seriously. For example, supply of coal from Coal India Limited (CIL) to power producers has been notoriously erratic. While this was ascribed to systemic inefficiencies, mainly in the form of inadequate infrastructure and transport networks, the TERI report might raise more fundamental questions about the reliability of CIL as a coal supplier, given that its actual reserves may be lower than stated. Coal imports, mainly in the form of high-grade thermal coal are already close to 25 per cent of total consumption. If the findings of the report are true, India might have to reconcile to imported coal becoming an even more important part of the total fuel mix in the foreseeable future. Forewarned is forearmed!

First Published: Thu, March 24 2011. 00:15 IST