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Developing Captive Coal Block: Challenge and Mitigation, Shri R V Shahi, Former Secretary, Ministry of Power

India's power sector is heavily dependant upon domestic coal. Inspite of capacity additions through other routes such as gas, nuclear, hydro, wind etc., primacy of coal continues. Though in terms of installed capacity, coal based projects constitute about 50%, in terms of power generation it is more than 60%. In the near future of say, 10 to 15 years, the situation is not likely to change significantly. Even as per the Integrated Energy Policy, which has captured the period till the year 2032, since the need for capacity additions is massive, coal based power generation may still be on the higher side of 50%.

Electricity Act 2003 was legislated to transform the power sector to free it from the chronic problem of shortages to provide reliable, quality and affordable power to consumers. This would not have been possible unless radical changes were made in the structure of the industry and the institutional framework was overhauled which would facilitate deliverables through both private and public sector involvement. Post Electricity Act 2003, though the pace of change is somewhat slow, may be partly because of transition period teething issues, private sector involvement is on the increase. From less than 10% of installed capacity five years ago, it is 15% now. And, if we focus on the projects under construction, almost 28,000 MW out of 70,000 MW are from the private sector group. In the future, with Commissioning of Ultra Mega Projects undertaken at the Central level, and similar projects, but with lower sizes, initiated at the State level, the profile of Indian power sector in terms of installed capacity is bound to present altogether a different picture in which private sector would appear playing a very major role.

The momentum created in the power sector, with a reasonably high degree of committed interests, will require, for its sustained continuance, positive inputs from the accompanying sectors. Coal and gas together would constitute the most important input to fuel power sector growth. It has been recognised now that while in the power sector major changes have started happening, including radical structural changes, coal sector is not only stagnant, but is virtually untouched by any such transformational reforms and changes. This is proving to be a major disconnect hindering smooth movement and growth expected to be brought about by reforms and changes in the power sector. It may be recalled that Coal Mines Denationalisation Bill was introduced in the Parliament earlier than the Electricity Bill. Finally, we have an Electricity Act passed in 2003, but even after eight years of the introduction of the Bill we have not been able to have the new Coal Act. This is creating the disconnect mentioned above. It is essential that the main input which has to fuel the power sector growth i.e. coal must have compatible reform, if power sector has to move forward.

For an optimum and effective growth of energy sector, which is the most essential contributor to overall economic growth, each segment of energy viz. electricity, coal, petroleum and nuclear has to move forward. For this to happen, it is essential that the pace of their movement, legally and institutionally, have to be aligned to each other because, any misalignment among them may not deliver the desired outcome. After the Electricity Act 2003 followed by National Electricity Policy 2005, we did experience that private sector investments in power, caused by overwhelming response of developers, may not fructify into development of new capacities, unless the coal sector provided the requisite support which was not possible under the existing dispensation. The new UPA Government set up an Energy Coordination Committee under the Chairmanship of Prime Minister himself with the objective that required coordination among the various Energy Groups is achieved. In this Committee it emerged that considering the dynamics of political alignments, it was unlikely that the new Coal Act would be a reality atleast in the near future. From the Power Ministry, it was brought out that opening up of the coal sector was a must and for that the new Coal Act was essential. However, if that was not practical, atleast the captive coal mining policy and procedures should be streamlined and be made developer friendly in order to achieve the desired results in the power sector, even though this might be only the second best solution. Accordingly captive coal mining was agreed to be taken up on a much bigger scale and with a streamlined procedure. Four years down the line since then, a stock taking of the implementation of this decision reveals that there are a number of issues and constraints which need to be addressed in order to get the best out of the new policy.

IDFC and Infraline Energy organised a Round Table on "Captive Coal Mining : Way Forward" on 1st April, 2009. I had the occasion to coordinate and moderate the discussions, and we had two comprehensive Presentations from the Managing Director of AES and Vice-President of GE Capital. In my opening remarks, I brought out the following issues:

  • The Policy of captive coal mining is only a sub-optimal solution for a desired acceleration in power development programme. In view of the compulsions of political considerations, mainly on account of the position of the Left Group, the new Coal Act (Coal Mines Denationalisation Bill) could not become a reality.

  • It has been the intention of the Government that the provisions relating to captive mining should be implemented in a liberalised manner and that the procedure should be streamlined so that the speed of captive coal mines development is accelerated. However, the experience of last four years indicates that there are a number of problem areas which need to be resolved.

  • NTPC was one of the first few which had been given a large coal block in the State of Jharkhand near Ranchi. Even this organisation has been unable to make the required progress, though almost four years have passed. In the initial stage they had problems relating to getting comprehensive and authentic geological data from CMPDI and subsequently got into long and protracted process in respect of land acquisition. These two issues - (a) Geological reports and data from CMPDI, and (b) Land acquisition, which requires direct intervention of Ministry of Coal, have posed to be common problems in most cases of captive coal blocks.

  • Environment and Forest clearance are issues which are experienced in almost all cases of project development and not necessarily in case of coal mines. However, it is a fact that most of the coal mines involve huge forest land and therefore the process of forest clearance inevitably gets delayed considerably.

  • There is a perception, which has got generated in last couple of years among the captive coal allottees, that since Coal India was reluctant to part with a number of coal blocks which have now been de-linked from them and have been earmarked for captive developers, they have been less than supportive for any input that is needed from them. This perception is in relation to the CMPDI which is a fully owned subsidiary of Coal India.

  • Unless active support is provided by the CMPDI and by the Ministry of Coal, captive coal mine development may continue to face serious difficulties. The assistance and support of CMPDI and Ministry of Coal is necessary even for approval of the Mining Plan.

  • I examined the issue whether approval of Mining Plan by the Ministry was at all necessary and whether this could be left to the developers. While a large group for captive mine developers have this opinion, I found considerable merit in the argument that if it was left totally to the captive mine developers, it might end up with sub-optimal exploitation of natural resource. They could take an easy way out, extract whatever is more profitable and leave out the rest, which may not be in the national interest. Therefore, vetting of the mining plan appears necessary.

  • Approval by Ministry of Coal is normally based on the examination of CMPDI. It is here where the perception of developers disturbs them. In their opinion, because of the background under which the Government decided to take away coal blocks from the Coal India companies to allot to other developers, the approach of CMPDI is not always very positive and encouraging. While this perception may not be entirely based on correct position, it may perhaps be desirable that Ministry of Coal is advised on Mining Plans by an independent agency. Alternatively, CMPDI could become an agency directly under the Ministry of Coal rather than a subsidiary of Coal India. Either of these alternatives will inspire greater level of confidence among the coal mine developers.

The two comprehensive Presentations followed by questions, comments and clarifications highlighted the following main issues:

  1. Likely mismatch between power plant capacity commissioning and coal mine development either way - (a) power plant ready but coal mine delayed or (b) coal mine ready but power plant delayed.

  2. Criteria for allotment of coal blocks and transparency in the procedure.

  3. How non serious agencies could be dealt with by cancellation of allotment and what should trigger such cancellation, are issues which need to be properly decided and notified.

  4. The method of monitoring aimed at resolving initial issues so that the mine development process takes off as per prescribed schedules of various milestones.

  5. Lenders concerns particularly in relation to assignment of mining rights in favour of Lenders in case of defaults in payment of loan.

  6. In case of groups of companies being allotted blocks, there are issues of differing interests and method to deal with these would be necessary.

  7. Need for more consulting agencies to carry out investigation and prepare mining plan.

  8. Forest clearance for conducting investigations needs to be faster otherwise the whole process gets stuck up.

  9. Land acquisition procedure needs to be revisited.

  10. Development of infrastructure relating to transportation is creating uncertainties.

The above issues will need to be addressed and perhaps we may deal with them in terms of the authorities and agencies which are best suited for the purpose. Ministry of Coal, Ministry of Power, Coal India including CMPDI and the developers themselves will have to address the issues, in some cases individually and in some cases collectively.

Let us first identify the issues which Ministry of Coal may need to resolve:

  1. A high level monitoring mechanism may be put in place with participation from Ministry of Power and Central Electricity Authority. It may review the progress and, in so doing, identify specific areas which hinder the progress. The purpose of such a review will be primarily to resolve the constraints - relating to geological investigations, getting the reports and data from CMPDI, preparation of geological and mining plans, land acquisition, environmental clearance etc.

  2. In case, on such a review, it is found that the agencies which have been allotted the blocks are less than serious in developing these projects, suitable warning systems should trigger right at appropriate stage culminating in cancellation of allotment but with due notice.

  3. In the matter of land acquisition the Ministry of Coal has a specific and definite role. The procedure needs to be revisited and streamlined.

  4. In each area, there is a need to develop a Master Plan so that it could provide the required infrastructure for connectivity and transportation of coal. An agency may be set up which could deliver this.

Ministry of Power has a crucial role and it could consider doing the following:

  1. It could set up an Inter Institutional Group (IIG), or perhaps revive the earlier one so that financial closure of these projects could be expedited.

  2. In the process of these discussions, issues such as environmental clearance, forest clearance etc. could come up, and Ministry could co-ordinate with the Ministry of Environment and Forest, on a periodic basis, say every three month, so that the project execution could be smooth.

  3. One of the problems which every developer is facing is the forest clearance. Even for initial investigation for which certain drilling exercise is essential, forest clearance is needed. The procedure for this permission needs to be made less stringent, so that developers could go ahead with investigation within a period of couple of months rather than waiting for months together.

Coal India, and more particularly CMPDI, have a very direct role and, given the appropriate support from them in the initial stage, the captive coal mine development could be made a very convenient exercise. The following three steps may go a long way:

  1. In all such cases where CMPDI have done the studies and prepared the Geological Reports the process of making these Reports should become a routine procedure. Right in the beginning it could be notified by the Ministry of Coal what reasonable payment need to be made to CMPDI.

  2. Whereever developers have to themselves carryout the detailed investigations by different agencies, the required vetting by CMPDI could again be a time bound procedure.

  3. Coal India subsidiaries may allow to share and use their infrastructure. There may be a system to pay for it for which Ministry of Coal and Ministry of Power may evolve a formula.

Finally, developers themselves have to demonstrate their commitment and seriousness. In some cases it appears to be lacking. Particularly the coal block allotment to a group of companies makes this exercise somewhat more difficult. But, methods have to be found out so that the whole group functions in cohesion. Their response to a monitoring by Ministry of Coal or Ministry of Power should be prompt and positive.

One of the issues, which would require legal dispensation, relates to the assignment of rights to Lenders in case of default in payment of loan by the developer. This is a genuine concern of the Lenders. Ministry of Coal and Ministry of Power could consider exploring various options, so that it is addressed to the satisfaction of Lenders.