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Coal: The most crucial and critical component of Indian Power Sector, Shri R V Shahi, Former Secretary, Ministry of Power

On 11th September, 2007, the Metaljunction in collaboration with McCloskey Group organized their annual event "The Indian Coal Markets - 2007" at New Delhi. Apart from presenting an address in the inaugural session, I had also been invited to chair the next session, which was "CEO's Round Table on Power Development Issues". This session took note of some of the important points which had been made during the inaugural session and also had panel discussions on some of the important questions which were raised.

The important observations of the inaugural session, which was addressed, among others, by Mr. Seth, Addl. Secretary (Coal), are summarized below:-

  • The Indian Coal Sector performed at an annual growth rate of 5% during the 10th Five Year Plan (2002-07).

  • To support the targeted growth for the 11th Five Year Plan it must perform at an annual growth rate of 9 to 10%.

  • In the year 2011-12 the production needed would be at about 730 million tonnes and import at about 30 - 35 million tonnes.

  • So far, 165 coal blocks have been allocated for captive coal mining. It is expected that in next five years the production of the order of about annual 100 million tonnes should be possible from these blocks. Developers will need to put required efforts for this.

  • The present system and method of coal block allocation needs a change and such a change is under consideration of the Government.

  • Demand Side Management (DSM) should form an important part of our coal management strategy. With technology upgradation and efficient consumption practices, upto an extent of 20% of coal consumption could be saved.

  • Coal exploration has so far remained confined to the Coal India subsidiary, namely CMPDI. There is a need to expand the coal exploring capacity for which private sector needs to be brought in.

  • There is a need for Regulatory Authority to take care of development of coal industry in the most cost effective and optimal manner and to take care of the interests of all the stake holders namely the investors, developers and consumers.

  • The country may need to import coal in the range of 40 million tonnes per year, depending on the actual needs during the 11th Five Year Plan.

A detailed presentation by Mr. Gerard McCloskey highlighted the demand projections and export opportunities for steam coal during the next few years. Some of the conclusions from his presentation are summarized below:

  • The projected exports to the Atlantic countries might decrease from over 226 million tonnes during 2006 and to 209 to 212 million tonnes during 2007 and 2008. The following Table gives the details.

Projected Exports to the Atlantic

Year Million Tonnes
2004 200.5
2005 206.3
2006 226.3
2007 209.1
2008* 212.6*

*Main Exporters: - Russia (46.4 MT), Colombia (67.3), South Africa (50.4), Indonesia (24.0)

  • The projected exports to Asia/Pacific might increase from 325 million tonnes in 2006 to more than 365 million tonnes in 2008. The following Table details year- wise projected export from different countries.

Projected Exports to Asia/Pacific

Year Million Tonnes
2004 277.8
2005 294.9
2006 324.6
2007 356.7
2008* 365.7*

*Main Exporters:- Australia (181.6), Indonesia (114.1), China (41.7), Russia (15.7), South Africa (17.9).

  • The current assessment of demand projections for the steam coal in Asian countries indicates a sharp rise. From a demand of 293 million tonnes in 2005 it is likely to increase to 362 million tonnes in 2008 as given in the Table below:-

Current Asian Demand Prospects

Year Million Tonnes
2005 292.5
2006 313.7
2007 345.0
2008* 361.5*

*Main Countries:- Japan (115), Korea (69), Taiwan (58), India (40), China (25)

Current Atlantic Demand Prospects

Year Million Tonnes
2005 213
2006 236
2007 219
2008 222

*Main Countries :- UK(35), US(32), Germany (29), Med. (51)

The current Atlantic demand as given in the above Table which is likely to be of the order of 219 million tonnes in 2007 and 222 million tonnes in 2008 has in fact substantially declined from 236 million tonnes in 2006. These very well correspond to the projected exports to the Atlantic as highlighted earlier in Table-I.

The presentations were followed by the panel discussions in the CEO's Round Table. The panelists included Mr. Ahmed Buhari, President and CEO of Coal and Oil Group, Mr. T. Mukherjee, Executive Director of JSW Energy and Managing Director Barmer and Mr. P. Sinha, Project Director of TATA Power. I had the privilege of chairing this panel. A number of issues were discussed in this session but I will like to confine to the following few issues and present the response to these issues.

  1. Issue: Land acquisition and obtaining environmental clearance are difficult obstacles. What can be done to ease the process?

Both these issues are really ticklish. India is a democratic society. It has to be sensitive not only to the legal process and requirement but also to the genuine feelings, expectations, aspirations and grievances of people. We cannot afford to ignore these and bulldoze to acquire land. In any case, such moves will only meet with a negative outcome. The Govt. of India has already come out with a comprehensive rehabilitation and resettlement policy. In the recent months it has also been announced that the package of compensation and rehabilitation could be further reviewed. All that the developers need to keep in mind is that identification of the people concerned with the development of the project would be a must. They must see, in these projects, a benefit to the country and to them also. Wherever this approach has been followed the things are comparatively easier and better.

Environmental clearance has been streamlined in recent months by proper re-engineering of the procedure. If the environment impact assessment study has been done properly, public hearing appropriately conducted; in most cases it has been possible to secure environmental clearance. However, forest clearance has been, and continues to be a major problem. In recent months this has been further compounded by a new development which requires each case of forest clearance a concurrence by Forest Advisory Committee and then a report to the Supreme Court before sanction is accorded. The Ministry of Environment and Forest of the Govt. of India is fully seized of this matter and is trying to have these procedures reviewed by the Supreme Court so that each case does not have to be reported to the Court. However, as of now, since this is a reality, we may only have to advance our cycle time for preparation and keep due cushion for such clearances.

  1. Issue: Acquiring captive coal blocks for non import stations. Is this process still not fully transparent and fair? And if so what can be done? What may be the reasons for very few captive coal blocks having been developed relative to many which have been awarded?

We need to appreciate the positive aspects of far reaching policy initiatives which have been taken by the Govt. of India. It may be recalled how difficult it was for power plant developers to have captive coal blocks allotments even till 2004. The matter was presented by the Ministry of Power to the Energy Coordination Committee presided over by the Prime Minister. The need for opening up of the coal sector was emphasized so that, in addition to the public sector coal companies, other agencies also contribute toward developing new coal mines. It needs to be recognized that intention of the Govt. has been to restructure the coal industry for which Coal Mine Denationalization Bill has been pending consideration of the Parliament for last more than seven years. It has, however, been recognized that in the present situation it might be difficult to push through this legislative change. Therefore, the government did the second best. Toward the end of 2004, it was decided that development of more mines and therefore more production of coal could be effected through an easier and more streamlined procedure for captive coal mining. NTPC was allotted a large coal block in the state of Jharkhand. Subsequently more power plant developers have been allotted coal blocks. The Energy Coordination Committee took a historic decision in the middle of 2005 that 20 billion tonnes of coal reserves could be identified and earmarked for captive mining. This would mean that if these coal blocks are developed, approximately they should be sufficient for almost 75,000 MW capacity.

Obviously, this major decision of the govt. was responded in a big way by a large number of intending agencies requesting for coal block allotments. As many as 700 applications, which were received, needed to be processed. Ministry of Coal is trying to evolve as objective and as transparent as possible the process and procedure. Sankar Committee which was set up by the Ministry of Coal has also made some specific recommendations. It has suggested that there should be well laid criteria which should include (a) networth of the company, (b) turnover, (c) status of preparedness for the project. When there are disproportionately large number of intending agencies, and the number that can be accommodated, keeping in view the limitations of number of blocks available, situations of disappointments and frustrations becomes unavoidable. This is not to say that the process and the approach does not need refinement and that there is no scope for improvement. It is also a fact a large number of blocks which were allotted a few years back have not been developed. In most cases there is no satisfactory progress. It is precisely for this reason that in the proposed dispensation substantial amounts of bank guarantees have been suggested so that non serious developers are excluded and defaulters are penalized.

  1. Issue: Awarding captive coal blocks to prospective power plants, in some sense, turns power plant developers into coal miners? This forces power companies to move away from their core business strength - producing power to mining coal?

Perhaps the arrangement that is expected to be put in place by the power plant companies has not been fully appreciated. As per policy, power plant companies need to put a minimum of 26% equity only into the coal mining company. What has been envisaged is that power plant companies should enter into joint venture arrangement with major coal developing companies, including with companies from all over the world. This should also have the advantage of bringing latest modern coal production technologies in India so that the productivity and efficiency is improved. Obviously, therefore, the power plant companies would not get into management of the coal production companies. Through minority equity stake they will facilitate, but their attention will not get diverted from their core business. It is only in due course of time that this type of a diversifications might see them, and that too with not definitive certainty, into managing coal business. This is a win-win situation that has been stipulated, and most likely this will lead to positive outcome and result.

  1. Issue: Most Indian power plants interested in using imported coal appear to only want to do so if they can take an equity position in international coal supply sources? Is this likely to continue or is it likely to change in the future?

As a matter of fact Indian Power companies, or for that matter Indian companies, have been slow into thinking on this strategic issue. In global context, energy security is high on the agenda of any country. There are countries which have taken prompt actions in procuring coal mines abroad just as many of them have procured oil fields and gas fields abroad. In India it is only in the last two years that this awakening has happened and some of the power companies and others have started looking at acquiring coal mines or taking equity positions in coal companies abroad. In most cases even these are at preliminary and exploratory stages. In fact these acquisitions should have happened long back. India's energy development programmes in general, and power development programmes in particular are unparalleled in the world. Even China, which has already expanded its capacity to a much larger level, may not need India's types of expansions in coming decades. Therefore, Indian power sector has to follow a twin strategy - a) serious attempts at acquisition of coal mines and b) coal supply supplemented through appropriate imports. Both these are logical and are based on weighty considerations.

  1. Issue: Is imported coal a swing supplier to fill gaps in domestic supply or will it change to be a more integral part of the overall energy mix?

The whole concept of Ultra Mega Projects, which was formulated by the Ministry of Power in early 2006, is based on a very thoughtfully conceived approach. India has, no doubt, huge coal reserves (approximately 260 billion tonnes). Of course all of them are not extractable. Yet, they can last and support India's power development programmes, may be, for more than 50 years. Even then, for the energy planners it is essential to see that all these natural resources are not exhausted in this manner. We must leave a lot of them for our future generations. It is therefore essential that India follows an approach under which it also supplements the domestic coal supplies with a substantial amount of import. This consideration led to the emergence of, besides pit head power plants, a chain of Ultra Mega Projects, along the costal line, both in the east and in the west. In addition to these Ultra Mega Projects, there would be a number of projects with somewhat smaller capacities to be developed at the initiative of the state governments along the coast. Therefore, dependence on coal from abroad is not just as a stop-gap arrangement or a quick response for solutions to problems of a temporary nature. It is, in fact, a well conceived strategy in our overall energy management.

There were a few other issues brought out during the panel discussions. These included (a) inadequacy of transport infrastructure, (b) financing of coal development programmes, (c) period and pricing approach for long term coal contracts. These have, however, not been discussed here to keep this paper short as also due to the fact that these issues were covered in the paper, I presented in this very conference.