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
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.
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.
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
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.
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:
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
allotment of coal blocks and transparency in the procedure.
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
The method of
monitoring aimed at resolving initial issues so that the mine development
process takes off as per prescribed schedules of various milestones.
particularly in relation to assignment of mining rights in favour of Lenders in
case of defaults in payment of loan.
In case of groups
of companies being allotted blocks, there are issues of differing interests and
method to deal with these would be necessary.
Need for more
consulting agencies to carry out investigation and prepare mining plan.
for conducting investigations needs to be faster otherwise the whole process
gets stuck up.
procedure needs to be revisited.
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:
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.
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.
In the matter of
land acquisition the Ministry of Coal has a specific and definite role. The
procedure needs to be revisited and streamlined.
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:
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.
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.
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:
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.
developers have to themselves carryout the detailed investigations by different
agencies, the required vetting by CMPDI could again be a time bound procedure.
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
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.