Column: Cleaning the coal mess

Updated: Jan 15 2014, 08:24am hrs
It is indeed a cruel irony of fate that India, a nation with the fifth-largest reserves of coal in the world, is staring at supply deficit of this critical mineral resource. For a nation that is reeling under a severe power shortage in many parts, a slowing economy and a lack of adequate manufacturing growth, this is a worrying development.

Given the multi-fold power and industrial growth in the previous decade, it is no longer feasible for national monopolies like Coal India Ltd (CIL) to cater to the varying and rapidly increasing demand for coal from units across India. In any economic milieu, the presence of a monopoly distorts the market and accentuates the abuse of power. The risk of fuel supply agreements (FSAs) being terminated over disagreement of coal quality has been a major bone of contention for private power producers. The Competition Commission of India (CCI), in a recent ruling, has very categorically stated that in a sector which is devoid of both the regulator and alternate coal suppliers, the near monopoly enjoyed by CIL, through its subsidiaries such unilateral termination (of FSA) is patently unfair and gives the buyers (private players) no recourse to either an alternate commercial arrangement or independent redress by a statutory body. Such a situation severely dents the investment confidence in the power sector, which constitutes the primary consumer of thermal coal.

It is well appreciated that the allocation of any natural resource should incentivise its production, be governed by the principles of free market and its extraction be done in an environmentally-benign manner. The only way to ensure an increased role of private participants in the coal mining sector is by creating a level-playing field from what is currently a system skewed heavily towards the interests of a single nationalised monopoly.

The umbilical cord between the Central Mine Planning & Design Institute Ltd (CMPDI) and CIL needs to be broken and the former be given genuine autonomy. Internationally-acceptable standards such as JORC/UNFCC should be adopted. It is equally important that statutory environmental and forest clearances, mining leases, and land acquisition be strictly time-bound and streamlined with the intent of expediting coal production.

The hauling of coal across vast distances through railways is not only constrained by the lack of available capacity but is highly inefficient owing to the fact that much of the shipped volume consists of unwashed low calorie grade D, E and F coal. The creation of adequate railway lines, particularly to coal-rich regions, and along with provision of sufficient railway rakes, commissioning of washing facilities at the coal-loading centres need to pursued with alacrity.

Though India is gifted with a vast network of natural waterways, this mode of transportation has remained largely untapped. Not only would this be more economical, it would also ensure a much lower carbon footprint. Using subsidised diesel to transport coal at shorter distances on road is a needless squandering of countries precious resources. It is high time that a more nuanced and energy-efficient transportation of this commodity be worked out to ensure that only beneficiated/washed coal is moved around between production-demand centres.

Despite Indias total coal production in the previous fiscal being the third-highest in the world, aggregating at 575.71 million tonnes, it still fell short of the total demand by around 160-170 million tonnes. An import of 100 million tonnes, which is expected to balloon up to 250 million tonnes by the end of the 12th Plan, puts an undue strain on our foreign reserves. Even though China remains the worlds largest importer of coal, Indias pockets are simply not deep enough to address this surge in imports. And not to forget, Indias power sectorthe biggest coal consumeris not economically equipped to absorb these imports.

Ficci has been reiterating that Indias labour productivity falls woefully short of international benchmarks. For example, CILs output stands at 1,000 tonnes per employee as compared to 36,000 tonnes per employee by Peabody Energy, US. Indias largely manual digging and loading operations in open cast mines are to be blamed for the lethargic pace of production. The introduction of technologies such as longwall mining, remote-controlled load haul dumpers (RCLHD), high capacity conveyor belts and seamless integration with railway freight is imperative to increase production. This naturally requires a much greater private sector investment. If urgent corrective steps are not taken to effectively de-monopolise the coal sector, our future will be as black as the resource we are digging to fuel our economy.

And though the introduction of PPP in coal mining is a positive step, it needs to evolve towards a comprehensive risk-reward framework between partners preceded by phased auctioning of coal blocks akin to the oil and gas industry. The sale of surplus captive coal should be permitted with due safeguards, to boost domestic coal supply.

Sidharth Birla

The author is president, Ficci