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Coal Sector To Gear Up for Powering India's Power Programmes, Shri R V Shahi, Former Secretary, Ministry of Power

McCloskey & mjunction organised their Annual International Coal Conference at Delhi between 6-8 October, 2009. Shri B.K. Chaturvedi, Member, Planning Commission, Government of India, was the Chief Guest in the first Session and I was expected to speak in this Session on "Powering A Giant : An Update Report on Indian Power Capacity Expansion". Shri Chaturvedi had to speak on "How much India's economic growth is being restricted due to power shortages". In absence of the Secretary, Ministry of Coal, Mr. Mandal, Advisor, spoke on behalf of the coal industry. It has been conclusively established that when electricity generation growth has supported the manufacturing sector and the service sector, we have been able to achieve a much higher GDP growth rate. In recent years, the GDP growth rate achieved during 2006-07 is an example when the country achieved the highest ever growth rate of 9.6% propelled primarily by the highest growth rate in electricity generation which was 7.3%.

There is a direct, and rightly so, co-relation between the two. Obviously, therefore, if there are shortages in power supply, not only does it affect the general public because of inconveniences caused on account of frequent load sheddings, but also all the economic activities - manufacturing, service sector and agriculture - get adversely affected. Some years ago, I recall, an attempt was made to determine the economic impact of electricity. An empirical relationship was established to suggest that electricity generation worth Rs. 1 crore has an effect in economy worth Rs. 20 crores. Whether such a strong influence of electricity, to the extent of power driving economy by twenty times may be true or not, it would be definitely safe to say that this statement is near about true.

Just as electricity drives economy, in Indian context, coal drives electricity. Impact of shortage of coal is immediately experienced in power plants. The coal stock position in different power plants of the country is monitored at the highest level in the Cabinet Secretariat. Normally, if coal industry could make the supply to power sector comfortable, this type of a close monitoring on weekly basis may not have been necessary. Often there are statistics to suggest that the number of power stations having critical (less than 7 days) and supercritical (less than 3 days) stocks have been on the increase giving uneasy moments to power plant managers. Having said this, I must also say that Indian coal industry has contributed significantly to the growth of the Indian power sector. Almost 60% of power capacity (if we also include captive plants), is based on coal. Secondly, in the last couple of decades performance of coal based thermal power plants has improved considerably in terms of capacity utilisation (PLF), thus demanding higher amount of coal supplies. Both these could not have been possible if coal industry did not support this type of growth and performance.

While it may be right to continue to put required amount of pressure on the coal sector, power sector also has to learn to live with a small proportion of coal import to supplement the domestic supplies. I have no hesitation in saying that sometimes reluctance of a number of power utilities to recognise the ground realities and effect imports to run their plants optimally, has also contributed to sub-optimal performance of these power plants. When the mindset has changed, there are good examples of improved performance at power plants where domestic supplies have been partially supplemented with imports.

Problems of power sector as also of coal industry are many. What I propose to do is to highlight a few of them which I consider are important to be attended to on a priority basis. And this is what I did in the Conference, mentioned above. The issues that I discussed in the International Conference, could be classified into three broad heads - (a) Legal including Regulatory, (b) Technical, and (c) Administrative/Policy.

  1. The most important legal issue is that while electricity sector reform is progressively centering around the historic legislation viz. Electricity Act 2003, there is total stagnation in so far as structural reform of coal sector is concerned. Three important constituents of energy sector viz. coal, petroleum and gas, and power have to move concurrently. And, growth of each other is so directly interlinked that progress of one cannot be divorced from the progress of others. Reforms steered through Electricity Act 2003 and the accompanying policy initiatives can deliver much better and much faster if commensurate initiatives are also launched and implemented in the other related sectors. It may be recalled that Coal Bill was placed in the Parliament earlier than Electricity Bill. It is almost ten years now that we do not have the changes in the Coal Act. It also needs to be recognised that just because we get an Act we don't get the results immediately. There is an inherent gestation period which one has to go through before the benefits of legislative changes start becoming visible. It is time that a comprehensive legislation on coal sector is enacted. In the previous UPA Government, perhaps this was not possible because the Government depended substantially on the support of the Left Group. Now that the new UPA Government is much better placed in terms of political grouping, it would be important to bring back the Bill or have altogether a new Bill to deliver the Coal Act. Imperative of such a legislation becomes even more predominant if we consider the long term expansion of energy sector. According to Integrated Energy Policy when India gets to 800 GW of installed capacity by 2032, almost 60% of the capacity would be on coal, up from 55% as at present. Predominance of coal is inevitable. We also know that more than 80% of coal that is produced in India is consumed by power industry. Therefore, we need to restructure this industry in a manner that it is not only compatible with the pace of reforms and initiatives in the power sector, but also it accelerates the pace in power sector and delivers what is expected of this most vital energy segment.

  2. Realising that a National Legislation on Coal (amendments to the existing Act), may be difficult to steer through in the previous Government, as mentioned above, Ministry of Power made a suggestion in the Energy Co-ordination Committee presided over by the Prime Minister that in case the amendment to the law was not possible, we could liberalise the policy and procedure on allotment of coal blocks as captive to power plants. This was agreed in 2005 and during the period 2005-06 and 2006-07, and of course substantially as well, a lot of progress can be seen by way of allotment of captive coal blocks. We will deal with the policy and administrative problems relating to development of captive mines subsequently. In so far as legal issue is concerned, the scope of "captive block" could be extended within the existing policy. It had been ascertained that so long as the specific consumers are identified, the coal block could be developed by any agency as captive to these consumers, and, therefore, it would not be necessary that coal block must be allotted only to power developers. Next extension of liberalisation of Captive Coal Block Policy could be effected on the basis of this approach. This could be a better interim solution and would lead to coal sector liberalisation, though short of opening up of the coal sector through a new Act or through amendment to the existing Act.

  3. Integrated Energy Policy has suggested that even though coal sector has not opened up fully, there are issues, such as optimal development of coal mines, pricing of coal etc. which need to be examined and decided by an institution different from the Government. We have Regulatory Commissions in the power sector with the objective that they decide various issues taking into account the interests of consumers as also the growth of the industry. Similar approach is needed in the coal sector. Though this has been accepted in principle, operationalising the institution of Coal Regulator is over due. Our experience in India has been that in whichever sector we have put in place regulatory mechanism, with the task of important decision making away from Government, they have followed a more transparent approach and, therefore, these decisions have secured wider acceptance. At present coal producers, almost all of them in Government sector, believe that coal is under-priced. On the other hand, consumers of coal believe that the industry is not being run in an efficient manner and, therefore, cost of production is higher than in most other countries. These consumers believe that coal prices are on the higher side. Who decides what is the correct position? It is precisely for these reasons that quasi - judicial regulatory institutions are the most appropriate agencies to handle these issues.

  4. There are a number of technical issues which need urgent attention. However, I propose to briefly highlight only five of these technical issues. They include supercritical technology for power generation, coal beneficiation, Integrated Gasified Combined Cycle power plant, Coal Bed Methane and increasing the proportion of underground mining. Firstly, the supercritical technology. Though, India has large coal reserves of the order of 257 billion tonnes (there are different schools of thought on extent of reserves claiming that reserves are substantially lower than being projected), we need to pay proper attention on efficiency of utilisation of coal. Power technologists have not been able to improve the fuel efficiency in coal based generation beyond 42% even with supercritical technology. In India the average efficiency of old and new power plants put together is not more than about 33%. Large subcritical systems have been delivering fuel efficiency in the range of about 38%. It is precisely for this reason that when the Ultra Mega Projects were being conceived, supercritical technology was made as an essential condition. In fact, almost all the large power plants being developed are going to deploy supercritical systems which will lead to improved efficiency of coal consumption. Over a period of time there is a need to re-visit the systems deployed in older plants as and when they are due for major renovation and modernisation.

  5. All of us do recognise that Indian coal has the greatest deficiency of containing largest amount of ash content as compared to coal anywhere else. While the domestic coal has this great disadvantage, it has an advantage over others by not having high sulphur content. Giving due regard to the weaknesses and deficiencies, which are inherent, what is needed is to make best possible efforts to process the coal at the mine end in a manner that the power plants are supplied coal, if not as it is supplied to power stations in the world, atleast in the best possible manner as it can be made. In this regard washing of coal has been talked in the past over couple of decades. Indeed some progress has been made, but even today not more than 25% of coal that is supplied to power industry is washed. This should be made an essential requirement. Necessary support and facilitation needs to be provided for developing fluidised bed power generation systems based on coal rejects that come out of the coal washeries. Gratifyingly this has started happening. What is, however, needed is that it should become a part our policy.

  6. On IGCC and Coal Bed Methane, some progress has taken place. Both power equipment manufacturers like BHEL and power plant owners like NTPC have been working on this for sometime, but the progress is rather slow. Responding to the concerns of climate change, it is time that we undertake extensively our own research linked to the coal that we have rather than waiting for other developed countries to support us in this regard. We need to target a substantial capacity based on IGCC systems in next five to ten years. Similarly, the process on CBM needs required acceleration.

  7. We all know that in last 25 years massive expansion in coal mining operations has been largely based on Open Cast mining. There was a time, may be about 30 years back, when coal from underground mines used to be 75% and balance 25% from Open Cast mining. Today, the proportion is reversed. In fact, coal from underground mines constitutes less than 25% of the total. This has obviously affected, rather severely, the quality of coal that consumers get. Besides, there are many other disadvantages as well. There is a need to re-visit this approach.

  8. After dealing with a few important technology related issues, I would like to now discuss a few administrative and procedural issues. As mentioned earlier, Captive Coal Block Policy was liberalised to supplement the expansion efforts of Coal India subsidiary companies. It took sometime to streamline the process. However, some of the important issues which are hindering the progress of captive mine development, need urgent attention. In a large coal bearing area, a number of companies have been allotted coal blocks. None of them would be able to carryout common infrastructure activities such as road connectivity, railway links etc. It is important that when coal blocks are being planned to be allotted to a number of companies, a Master Plan, particularly bringing out in detail the layout and development programmes of common infrastructure, is prepared well in advance. There is a need to institutionalise development of Master Plan and also implementation of common infrastructure. Cost could obviously be shared by all beneficiaries.

  9. Coal mines development requires huge areas of land. Invariably they would also have forests. Land acquisition whether by public sector companies or by private sector captive mine developers has emerged a major issue. The proposed changes in the Land Acquisition Act, which stipulate entrusting the responsibility of land acquisition to private developers, may make things even more difficult. The matter needs to be discussed to find out the difficulties faced by various companies which have been given coal blocks. Unless we realistically assess the ground realities and take remedial measures, the captive Coal Block Policy, even though liberalised, may not yield the desired outcome.

  10. One of the approaches which the Ministry of Coal adopted was to allot a number of coal blocks jointly to a number of companies. While there could be valid reasons for doing so, experiences indicate that in a number of cases this initiative is not working out to be effective. We need to understand the issues involved and make mid-course correction, so that the remedies could lead to positive results without losing further time.

As mentioned earlier, there are, and in the future there would be, many issues relating to coal sector expansion. I have confined myself to some of the burning issues which need immediate attention. The new Coal Minister has already undertaken some of the initiatives and it could be expected that coal industry and power industry together could formulate Policies and Procedures which will lead to optimal and better outcomes.