Policy hurdles to coal output

Submitted by VK Gupta on Mon, 09/04/2012 - 6:03am

Policy hurdles to coal output
PRATIM RANJAN BOSE
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There is no coherent plan in place to step up coal output.
It is unfair to blame just Coal India for failing to meet the needs of the power sector.

The Presidential directive on Coal India Limited (CIL), to enter fuel supply pacts with power producers, displays an element of resolve on the government's part, in removing hurdles to the Indian growth story. It is common knowledge that to guarantee availability of cheap energy sources, India should optimise its domestic production. The expectation is that, having put aside the financial interests of CIL before ‘national interest', the government will seek to ensure the growth of the beleaguered coal mining sector.

Who is to blame — CIL, or a want of foresight and coordination among the ministries concerned?

COAL REQUIREMENT
The government has little option besides getting its act together. That the coal availability in the country was falling dangerously short of the requirement, was clear as daylight for the last three years. A latest Fitch report suggests that during 2008-10, India added 16 GW (Giga Watt) of thermal power capacity. In contrast, the non-coking coal production grew by a mere 13 million tonnes (mt) a year, enough to fire 2.3 GW capacity.

It would be fashionable to point a finger at CIL for letting the country down. If measured against the “original” Eleventh Plan (2007-12) target of producing 520 mt of coal a year, CIL ended 2011-12 with a production of 435 mt — depriving the nation of 85 mt of additional coal, or approximately 17 GW of power. In reality, however, the monopoly commercial producer had been consistent in drawing the attention of the Centre towards wider issues — like non-availability of environmental or forest clearances; delay in land acquisition and slow pace of creation of coal evacuation facilities by the railways — throttling its growth.

In an apparent appreciation of the problems, the government had also scaled down the Plan Production target by at least five times, during the last three years, to 447 mtpa. Based on this revised target, CIL should be blamed for failing to produce 12 million tonnes of coal annually, adequate to fire 2.4 GW of generation capacity, instead of 17 GW.

PRODUCTION TARGET

It is often said that while drafting the National Coal Distribution Policy (NCDP) in October 2007 — making only CIL responsible for meeting the demands of the country, if necessary, through imports — the Coal Ministry went by the pattern of past failures of the Power Ministry in attracting investment in the power sector. The projections of power sector requirement, it is believed, went wrong, as did the projections on coal output.

The coal major might have opposed the move, to assume total responsibility for supplying coal to power producers, on the ground that it was contradictory to the captive block allotment policy. In 1993, the government distributed 215 captive blocks, on a speedy basis, on the ground that CIL alone couldn't meet the growing demand for coal! To put it straight, the NCDP was, in essence, contrary to the basic tenets behind allotting captive blocks.

But a key issue, perhaps, is that there was no clear road map for stepping up national coal production either.

Everyone knows the importance of comprehensive planning to develop mining assets, more so in India, where review of an application for forest clearance often takes as much as three years, and key rail link projects for evacuation of coal, take as many as 10-15 years to complete. But, did the government take the trouble of putting the system in place before giving CIL the responsibility of fuelling the energy needs of the country? The answer is a clear ‘No'.

Take the case of demarcation of captive blocks. In an emergency measure, first in 1992, and then again early in the last decade, CIL was asked to identify the idle blocks. Assets were offered to industry, largely the power sector, free of cost, without many strings attached.

The result is telling on the utilisation ratio. A total of 28 billion tonnes of captive reserves produce 40-45 mt coal — nearly 60 per cent short of the original Eleventh Plan target. Many of the blocks, offered on a first-come-first-served basis between 1993 and 2004, are yet to come into production. Citing non-performance of the captive segment and the responsibilities placed on the company by NCDP, CIL wrote to the Coal Ministry in 2007, for the return of 138 blocks awaiting distribution to captive users. No decision has been taken in this regard as yet.

The slow pace of asset utilisation in the captive segment strengthens the theory that there was little or no cohesive approach between different ministries of the government for providing growth of coal output.

REMOVE HURDLES
The North Karanpura coal reserve in Jharkhand, spreading across 100 kilometres from Ranchi to Hazaribagh, is a case in point. While the Coal Ministry washed its hands of it by distributing nearly 28 blocks, most of them to captive users, for nearly 15 years, the area couldn't be connected by a rail link. While Railways cite non-availability of due clearances from the Ministry of Environment and Forests for the delay, the Power Ministry does its part by turning the heat on the coal ministry for providing necessary coal supplies to power producers.

Apparently, the government may take the easy way out by passing the buck to CIL, as they did while drafting NCDP. And that, perhaps, calls for strengthening the cause of corporate governance at CIL, as is raised by The Children's Investment Fund Management (TCI).

The CIL board should explain the rationale behind issuing letters of assurance to the 50-odd power stations, as per the recommendation of the Standing Linkage Committee, in 2008. It was these letters which will now be converted into firm pacts.

The government should answer why the fuel supply pacts shouldn't include transport commitment from railways, as was originally proposed in NCDP.

Until that happens, CIL should take the easy way out, to keep penalties for non-fulfilment of FSA commitments low, and divert the coal to e-auction, so as to make a net profit more than the payment of penalties. The Presidential Directive will prove to be another piece of paper, failing to achieve the desired means.