Road Map for Coal Sector Reform,
Shri R V Shahi, Former Secretary,
Ministry Of Power
Road Map for Coal Sector
R V SHAHI
The Indian Coal Industry, except for a few captive mining activities, is
controlled by Govt. owned companies namely Coal India Ltd., its subsidiaries,
Neyveli Lignite Corporation and Singareni Coal Company Ltd. (a J.V. of Govts. of
India and Andhra Pradesh). More than 80% of coal is consumed by the power
sector. Coal industry has witnessed a growth rate of about 5.2% in the 10th
Five Year Plan. In the 9th Five Year Plan this industry witnessed the
poorest growth rate of average 2.2%. The industry did reasonably well during the
periods of 6th, 7th and 8th plans, with average
growth rate varying between 6.5 to 7.5%. Obviously, since the Indian Power
Sector has predominantly coal based power generation, the growth of Indian coal
industry significantly influences the growth of the power industry. During the
year 2004-05, severe mismatches surfaced when a large number of power stations
became critical in their stock position; some of the power stations which had
been commissioned did not have linked mines opened up. It became quite clear
that unless coal supplies are augmented through imports, significant amount of
power generation capacity would remain un-utilized.
Concerned about the inadequacy of coal supply, the Govt. of India set up an
Expert Committee to give a road map for coal sector reforms with the following
Terms of Reference of the committee
Measures for meeting the demand-supply gap in Coal in the short, medium
How to improve productivity of man and machinery in Indian Coal Sector,
particularly in Coal India.
Introduction of cutting edge technology in Coal Sector.
How to convert CMPDIL into a center of Excellence for Planning and
Research in Coal Sector.
Restructuring of CIL to make it a World Class Company.
Other matters that the committee may consider important for the general
improvement in the functioning of the coal sector.
Examining the merits of opening up trading in coal.
Examining the current policy of providing captive coal mining, and
considering recommendations which might reduce the demand - supply gap.
This committee which was set up in December 2004 gave the first volume of its
Report covering short terms measures needed, in December 2005. It has drafted
the second volume of its report and has asked for comments from various stake
holders. Some of the important recommendations of the Expert Committee alongwith
brief comments are listed below:
Considering the present production and future programmes, it
appears necessary that 30-40 Million tone of coal needs to be imported every
year atleast till 2012. This is a well conceived suggestion. Experience of last
few years indicates that this approach has proved useful for both power sector
and coal sector.
Even though domestic coal production increases it would be
desirable to continue importing this much of coal so that it would provide
competitive pressure on Indian Coal Sector. This would again be in the national
interest and would enable the country to preserve this important national
resource for future generation.
Port capacities need to be enhanced to meet the requirement of
coal import alongwith import of other material. During the year 2004-05, 05-06
and 06-07, when we had to facilitate and motivate power utilities for importing
coal, these issues did require very close coordination with Ministry of Shipping
As an approach and strategy coastal Power Stations on imported
coal should also be developed. Ultra Mega Projects Policy initiated by the
Ministry of Power has been on this approach.
In order to expedite the process of clearances and sactioneces,
particularly the investment decisions for the coal companies for development of
new coal mines, Coal India Ltd. should be upgraded to Navratna category and the
Subsidiary companies to Mini Ratna category. This would enable them to make
investment decisions for a large number of their coal mines. Perhaps, only a few
large projects will then need to be taken up to the level of Public Investment
Board (PIB) and Cabinet Committee on Economic Affairs (CCEA). This
recommendation will facilitate much needed relief for quicker commencement of
25% of additional production from an existing mine may be allowed
without the necessity of fresh environmental clearance. This is such a
suggestion which needs to be implemented on immediate basis.
The process of environmental and forest clearance need to be
streamlined so that decisions could be faster.
The present pace of exploration of mines is very slow - two
billion tones per year. This must be increase to 10 billion tones per year. This
has been one of the most important reasons holding the process of expansion of
The drilling capacity of CMPDI should be increased from present 3
lac meter per year to 15 lac meter per year.
CMPDI should be allowed to independently hire sub contractors or
bid out exploration work.
These are valid recommendations. But, to expedite the process it
would be necessary that we allow more agencies to take up this work. Qualifying
requirement for such agencies in terms of their capabilities would, however,
have to be carefully structured. This has not been specifically recommended, but
needs to be considered and included in the Report.
There is a need to introduce exploration cum mining lease in coal
industry in line with NELP in the Petroleum sector. We will deal with this
The share of underground mining has reduced over last 30 years. It
should be increased from present 15% to 20% to the next five years. There is a
need to deploy state of the art technology of coal production through under
Since there are legal issues involved, opening of coal sector or
private mining is not permitted, role of captive mining should be enhanced.
Transparent and effective procedure of allocating captive coal
blocks should be put into implementation.
In case of default, in timely development, penalties for failure
should also be provided.
The committee has recommended detailed guideline on the qualifying
requirement of allocation of coal blocks for captive mining depending on the
size of the block and its annual production capacity the qualifying requirement
in terms of net worth of the company has been suggested. In order that the
parties which are allotted coal blocks developed these mines in a timely manner,
bank guarantees have been prescribed so that they take up this work with
In the light of the present market conditions coal prices need to
be regulated. This is an important recommendation; till coal market fully
develops, regulation of price will be essential.
The committee has also made a number of recommendations in
relation to matching speedy system of rail transport. It is also suggested that
railway tariff should be subjected to detailed review by an independent agency.
Power Ministry has been taking up this issue in last 2-3 years.
This report was subjected to a Round Table Discussion organized by Infraline
Energy and IDFC. I had the opportunity of convening and initiating the
discussion. Member, Energy Planning Commission chaired the round table and the
panelist including CMD Coal India Ltd. Director Operation NTPC and a
representative from Price Waterhouse Coopers and Shri T. L. Sankar, chairman of
the Expert Committee. A number of points emerged during the round table. Some of
them are worth mentioning:
Coal India Ltd. had practically no debt. It is highly under
leveraged. Obviously it could raise enormous amount of fund to launch upon a
massive expansion programme.
Beneficiation of coal by coal companies has been on a lukewarm
It has been established that for transportation beyond 400 km
beneficiated coal would be cost effective. While more than 70% of coal is moved
for more than 400 km, only 20% is washed.
Rehabilitation and resettlement for land requisition is emerging
as a very serious issue everywhere.
Purchase of coal mines outside India is no doubt a good strategy
but not much has been done on this.
R&D in coal mining technology has received very poor budgetary
support from the coal companies. Larger fund and better attention are needed.
Private sector investments in coal - special efforts are required.
Criteria for allotment of coal blocks must be made very clear and
the process should be transparent.
It was a general consensus that the Report is indeed very comprehensive. It has
covered all the aspects of this sector with reference to the terms of reference
given to the Committee, and recommendations, by and large, are action oriented
both with reference to short term and long term strategy. Some of the points
which would require marginal alterations or orientation changes and
elaboration are as follows:
It may be brought out in the report that Coal India Ltd, with practically
no debt on its balance sheet, is highly under leveraged and that it should
embark upon its massive expansion programmes for which there is no difficulty in
organizing finances with such strong balance sheet. Their financing strategy
should rely upon accessing debt market to fully utilize their net worth to
In respect of the sanctions and clearances for new projects, the Report
seems to have proceeded on the assumptions that projects got delayed only on
account of factors beyond the control of Coal India and its subsidiaries. During
the middle of the 10th Five Year Plan, a detailed study indicated
that even the Project Reports for a large number (15) of projects, the matter
was shuttling between the Subsidiary Companies and Coal India Board. Therefore,
a number of procedural changes are necessary within the CIL and subsidiaries
companies' jurisdiction, which have, in the past, contributed towards delayed
decision making on investments. This point needs to be clearly brought out that
in addition to the procedural changes, that may be necessary, for sanction of
projects at the level of government, major changes may be necessary in the
working of the Subsidiary and CIL Boards on important issues relating investment
decisions on new projects. As it is, the report appears to have captured only
While recommendations do cover the need for washed coal, a clear cut
guideline needs to be recommended saying that the coal companies must take
immediate action for supplying washed coal to power plants beyond 500 KM or so
from coal mines. In any case, recommendation has been made about fixing the
price of coal by regulatory mechanism. Such a system would obviously take care
of additional investments which are made for setting up coal washiers. Already
there are a few private sector coal washery companies and cost of washing is
generally available now to power companies.
There is a recommendation about the opening up of the coal sector in line
with NELP. While as an approach NELP has found favour across the Board, it is
now well known that it is fraught with a number of problems, for example the
reliability of the capital expenditure, fixation of price etc. Therefore, the
recommendation should bring out the difficulties, anomalies which are being
experienced in petroleum sector and should clearly spell out that necessary safe
guards must be provided so that there is an authentic estimation of capital cost
and in any case price needs to be regulated. A mere mention of NELP type of
approach may not be adequate, infact, it may perhaps be misunderstood. Exact
adoption of NELP approach may push up the cost of coal and therefore the need
for a word of caution for required safe guards.
Though it has been covered in the Report, perhaps a clearer articulation
may be helpful on the need for protecting the larger interest of consumers.
Opening up of the coal sector in general and during the interim period through
captive coal mining is the right strategy but the process should not lead to
escalation of cost. Therefore, any bidding approach which entails payment of
premium etc. may only increase the cost of coal that is supplied. The bidding
process in case of power sector aims at minimizing the cost of power supply. It
provides, a good basis. Any other requirement of bidding which inevitably means
jacking up of the cost of coal needs to be discouraged.
Allowing expert Consulting Firms also to do drilling and establish the
extent of extractible reserves would go a long way in this slow process being
expedited. Qualifying Requirements (Q. R.) for such firms should be carefully
structured. We should facilitate such expert agencies coming up.