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Inadequacies of Coal Supply: Way Forward, Shri R V Shahi, Former Secretary, Ministry of Power

Indian power sector is heavily dependant upon the domestic coal supply. The debate between the power generating utilities and the Indian coal companies about the inadequacies of coal supply is not something which is new. When the size of the power sector in India was small, 20 years back, even then the controversy used to happen. But, it must be clarified, at the very outset, that by and large Indian coal Industry has been able to meet the requirement of power sector, may be with the marginal and supplementary inputs that the power sector needed through import of coal. This has been the story till now when the capacity addition programmes of the power industry were at somewhat low key. In the last few years, however, when the power industry has been able to attract private sector in a big way and also the capacity addition programmes of public sector companies have acquired a larger profile, anxiety about adequate coal supplies has inevitably enhanced. As compared to less than 25,000 MW in a Plan Period of five years, we are now executing more than 60,000 MW which might increase to 80,000 and then to 100,000 MW in the same time frame. Obviously, the concern of the power sector has to be appreciated in the context of such a large scale expansion of the power industry. The concern get further accentuated because of the difficulties that the domestic public sector coal companies keep expressing about couple of major issues viz. land acquisition and forest clearance, which they are invariably confronted with.

It is under this background that IDFC and Infraline Energy organised a Round Table discussion, which I coordinated, on 2nd February, 2010. In view of the importance and criticality of this issue the Round Table attracted wide participation. The Panelists included Mr. S. Sheshadri, Member, Central Electricity Authority, Mr. T.K. Chatterjee, Executive Director, NTPC, Sanjeev Aggarwal, Director, Business Development, AES, Mr. R.B. Mathur, President, JSW Energy, Mr. D.N. Abrol, Executive Director, Jindal Steel & Power and Shri Surya Sethi, Former Principle Advisor, Planning Commission.

In the opening remarks, I made the following observations, suggesting that the presentations and discussions could centre around certain specific issues.

  1. In spite of all efforts that are being made, keeping in view the global warming concerns, to enhance the proportion of non-fossil fuel based power generation in the country, as per the Integrated Energy Policy, covering a 25 year period upto 2032, coal would continue to be the most dominant fuel in the fuel mix of electricity generation. This was considered to be so because of the massive expansion this industry needs - upto 800 GW by 2032. Even though all other energy sources could be fully exploited and deployed, the proportion of coal in the overall power generation profile is unlikely to be less than 50% by the year 2032. Thus, not only dependence of power industry on the domestic coal industry will continue to be substantial, but also power industry will be the largest consumer of Indian coal sector to the extent of more than 75% of its total production. Accordingly, growths of both these industries are intensely interlinked.

  2. It is, therefore, essential that reform of coal sector has to be in synchronism with that of the power sector. However, there is a major phase difference on this score. Coal Denationalisation Bill was introduced in the Parliament in the year 2000, earlier than the Electricity Bill. It is still remains pending with the Parliament. There have been, no doubt, a few Policy changes during this period. But, to make the coal sector movement compatible with the power sector, which is essential, nothing short of major legislative reform followed by accompanying several Policy initiatives would meet the requirement. We have talked about an interim reform initiative, together with the initiative on captive coal block allotment, that is about the Coal Regulator. It has not happened so far, though it has been overdue. Gratifyingly the new Coal Minister has made some positive announcement in this regard.

  3. For 8 to 9% growth in power generation, which is what is being targeted to support an economic growth rate of 9 to 10%, coal production must correspond to a similar growth profile of 8 to 9% annual increase over next 10 to 15 years. If domestic coal production has to follow this type of a growth, several initiatives will be required.

  4. Captive Coal Block Policy, which was reviewed and made more liberal during the period 2004-05, has been responsible for allotment of more than 200 coal blocks to various power and steel producers. This was a major step with the right direction, as the second best alternative to the new Coal Act. However, for variety of reasons, the progress on development of coal mines under this category has been slow. Its contribution towards supplementing the domestic coal supply has been rather marginal.

  5. In the coming few years, even though production by the public sector coal companies as also by the captive coal developers has increased, it would be reasonable to assume that the demands for coal would increase much faster than the increases in domestic coal production from all these sources. Accordingly, the coal demands will have to be partly met through imports. It is estimated that more than 75 million tonnes of coal may have to be imported by the year 2011-12. This would have a number of implications. We need to do a reality check on the capabilities of the ports to handle this size of import, in addition to the demands on them from other commodities. Even more importantly, we need to evaluate the evacuation arrangement through railway network or through roads from these ports to carry imported coal to different power stations. I recall, during the year 2005-06, even preparation for 20 million tonnes of coal imports for power sector revealed inadequacies at a few concerned ports in terms of handling facilities and also in terms of ability to transport coal to power stations. These problems, obviously, would be experienced on a much larger scale once Indian power sector needs to import coal in the range of 50 to 75 million tonnes annually. Another implication of such a large scale import would also be on account of the impact that it would create on the prices of coal.

  6. Though it is claimed that India possesses huge coal reserves, of the order of 270 billion tonnes, there are many who believe that extractable reserves are significantly less. Without going into controversy of what exactly is the extent of coal that can be extracted, one thing is clear that it is not unlimited. Secondly, even though we may have very large reserve, we need to preserve for future generations. It is, therefore, necessary that the process of acquisition of coal mines abroad, a decision which was taken in the Government as early as in 2005, is expedited. Some of the private sector companies have done a better job in this regard and the progress on public sector front has been rather slow. This issue is also highly co-related with long term energy security for the country.

  7. Lastly, there has been considerable discussion in the recent months about the proposed Policy of the Government on auction of coal blocks. The view of the Power Ministry in this regard, as also my own professional opinion, has always been that it would be desirable that the coal sector also adapts the approach of the Power Ministry, which has demonstrated to be very effective, in respect of Ultra Mega Project Scheme. This has led to highly competitive tariff in the larger interest of consumers. Any Policy to select coal mine developers which is based on minimising the cost of coal supply could be in perfect harmony with the Scheme being followed for the power sector in line with the provisions of the Electricity Act 2003. Any Policy under which the Bidding criterion aims at maximising the premium for the Government, to be paid by the coal mine developers, would work exactly counter to the objective of minimising the cost of power. Whether it is public sector or it is the private sector power producing organisation, ultimately it is necessary that the price of power is within limits for Indian manufacturing industry to be globally competitive and also for the common man to get power at affordable rates. Though it is not clear, at this stage, what the Bid evaluation criteria would be, but there is a perception that one of the important criteria is the premium that the developer would be expected to quote. If it is so, it is definitely not harmonious with the overall objective of the Electricity Act.

Important points made by the Panelists are outlined below:

  1. According to CEA capacity additions in the year 2010-11 and 2011-12 are likely to be of the order of 21,000 MW and 10,000 MW respectively, from the coal based Thermal Group. The coal demand supply gap is likely to be of the order of 75 million tonnes in the year 2011-12.

  2. In spite of the expansion programmes of the Coal India subsidiaries, power generating utilities will need to import. The thinking in the CEA is that the existing plants may need to import to the extent of 8% of their requirements and the new projects may need to import as much as 14% of their requirements.

  3. No doubt, coal production will continue to be an issue, but there are examples where railway transportation is also proving to be a bottleneck. For example, coal available in Mahanadi coal fields in Orissa cannot be moved to power plant at Kahalgaon in Bihar.

  4. Private as well as public sector power companies, which have been allotted captive coal blocks, are also facing similar problems in respect of land acquisition and forest clearance, like Coal India subsidiaries have been experiencing.

  5. In the Twelfth Plan, problems are likely to accentuate further, because, as per Central Electricity Authority, more than 52,000 MW thermal capacity meant for Twelfth Plan are already under construction, and this is likely to increase as many more projects are likely to be taken up.

  6. A recent development, prohibiting the development of coal mines in a few coal blocks of Chhattisgarh, on the ground of environment and forest, will mean depriving power sector to the extent of almost 100 million tonnes of coal per year. Obviously this type of intervention is likely to dampen and neutralise the efforts of various captive coal block developers.

  7. Though the number of captive coal blocks allotted to various companies is much larger, for the power sector number of blocks allotted are as follows - Central Public Sector Undertakings - 13, State Utilities - 38, Ultra Mega Projects - 6, Private Developers - 31. In many cases, several companies have been allotted jointly the same block.

  8. By and large, the experience of joint allotment of coal blocks to a number of power companies has not been very satisfying. The companies get into protracted negotiations on formation of joint venture. In many cases their time schedules of power projects are different and, therefore, priorities differ.

  9. In case of NTPC, which has been allotted several coal blocks, there has been considerable delay in production of coal even from their first coal block in Jharkhand. Now the company has projected that from the year 2012-13 production will start in all the five coal blocks starting from about 20 million tonnes, which will increase to 28 million tonnes (2013-14), 34 million tonnes (2014-15), 36 million tonnes (2015-16), and 38 million tonnes (2016-17). According to NTPC the initial delays are primarily on account of issues related to securing Geological Report, land acquisition and forest clearance.

  10. Though there are examples of lack of commitment on the part of some power project developers, who have been allotted coal blocks, in development of coal mines, there are genuine project developers who face such difficulties which can be addressed only through a co-ordinated action on the part of the State and Central Governments. For various coal field areas, there is an urgent need for developing and implementing Master Plans, providing for railway and road connectivity. These obviously cannot be expected to be developed by each coal mine developer. Land acquisition requires a different type of dispensation in the case of coal mines, because this process is governed by a separate Law. There is a lot of scope to improve the present procedure to expedite land acquisition. Forest clearance can be streamlined if only the Ministry of Environment and Forest identified and declared, for once, the "Go" and "No-Go-Area". Because of a less than organised and somewhat irrational approach of the Ministry of Environment and Forest not only a number of coal mine developers are in difficulty but, in fact, it would lead to a substantial set back to both coal and power industry. The example is the Hasdeo Arend Group of coal mines in the State of Chhattisgarh in which the targeted production, according to CEA sources, is of the order of 100 million tonnes per year, and unfortunately Ministry of Environment and Forest has put a hold on the entire process and progress.

  11. It is also true that all the blocks, that have been allotted to a number of private developers may not materialise, atleast in the time frame stipulated, even though we allow for some reasonable delays. Therefore, the system of cancellation needs to be made effective, so that genuine and committed developers get an opportunity and are in a better position to meet the need of the industry.

  12. Since the Government decided to allocate coal mines to various States, a number of them have got these allotments. It is understood that many of them are only negotiating the price with various agencies to hand over these mines, in an indirect manner, for development. This is obviously not a very healthy practice, and should be discouraged.

  13. While certain amount of dependence on imported coal is inevitable, we also need to keep in view the likely legal and regulatory restrictions that these countries, from where we import, might impose. Recently, the example of Indonesia has emerged as an area of concern because a large number of Indian power and coal developers have been trying to acquire, and many of them have already acquired, coal mines in this country.

  14. There are a few examples of block allotments to steel and sponge iron producers. In view of the market situation, some of them are wanting to shift to power. Since power shortage is a reality and additional capacity is needed, this type of a flexibility in approach can be useful for the power sector and, therefore, for the economy.

  15. State Governments support, including political support, is a must if we wish to make the Captive Coal Policy, in fact, the entire coal development programmes, succeed. The experience shows that in the few States where India has good reserves of coal, State Governments support is somewhat less encouraging.

  16. While the approach of the Central Electricity Authority suggests that even the Pit Head power stations may need to import coal, in the opinion of many this is a highly ill-conceived strategy. We need to have the ability to identify which power stations in the country need to import and those which should depend on domestic sources. Financial and commercial implications of such an approach can be duly taken into account through appropriate regulatory policies.

Finally, keeping in view these presentations I framed the following five issues to generate consensus.

  1. How to increase production within Coal India structure.

  2. How to make Captive Coal Mining Policy work.

  3. What is required for a cost effective coal import.

  4. What further needs to be done for coal acquisition abroad.

  5. What should be the appropriate strategy for auction of coal blocks.

On the basis of discussions that followed, we were able to generate consensus on these issues.

  1. Even within the Coal India set up, we need to upscale technology and try to develop large mines with latest technologies and process comparable with the largest and the best in the world. Coal India has genuine problems in acquisition of land and in securing forest clearance. A regular interaction between Ministry of Coal and Ministry of Environment and Forest to see that the process is expedited could partly mitigate this problem. As mentioned earlier, it is time that the Forest Department in the Ministry does a comprehensive notification of areas which need not be touched (No-Go-Areas). Obviously, this has to be done on the basis of a transparent and comprehensive process of debate and not in an arbitrary manner. Subsidiaries of Coal India could be empowered much more than they are, so that for all practical purposes they function as totally independent companies, make quicker decisions, and are made accountable for performance.

  2. Captive Mining - Joint allocation of coal blocks has created a number of problems. For blocks already allotted, a mechanism could be set up to resolve the issues. In the future, this approach may not be followed. Captive coal developers may be allowed to sell surplus coal to Coal India. Master Plan for each coal field and development of common infrastructure like road/rail connectivity needs to be coordinated by the Government. CMPDI should be made independent of Coal India. This might inspire better levels of confidence among captive coal developers. The process of cancellation of coal blocks in respect of non-performers, in a transparent manner, could be done expeditiously, so as to signal a correct message. The mechanism of review of the progress of each coal mine should invariably consist of State level discussions in the State Headquarters rather than in Ministry of Coal. This might lead to better response and results, particularly for land acquisition and other local issues.

  3. Coal Import - One co-ordinating agency, preferably Coal India could function as the nodal agency for import. However, any attempt to arrive at a pooled price alongwith domestic coal must be discouraged. Larger imports will require expansion of ports, development of new ports and consequent arrangements for transportation beyond port. Power Ministry and Coal Ministry need to co-ordinate with Ministry of Port and Shipping and Railways.

  4. Acquisition of Coal Mines Abroad - Private sector is already going ahead. In case of public sector a co-ordinated approach is required. Necessary up-gradation of capabilities at ports to take care of coal supply from mines acquired abroad also will have to be factored in to make this whole exercise effective and successful.

  5. Auction of Coal Blocks - This Policy should be patterned on similar lines as Ultra Mega Project Policy of the Ministry of Power. The whole objective should be to evaluate the Bidders on the basis of price of coal that the Bidder offers. Success of this initiative will, however, depend on how best the initial preparatory exercise including Geological Reports, land acquisition and various clearances are processed and secured. A reasonable and aggressive price could be expected from the Bidders only if the initial preparations are of quality and high degree of credibility. An approach to structure the Auction Initiative based on premium to be offered by the Bidders will not only be counter to the approach of optimal price of coal, but in fact it would not be in the interest of power sector and, therefore, not in the interest of consumers at large.