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Column: Cleaning the coal mess

Jan 15 2014, 02:54 IST
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SummaryCoal India can no longer meet industry’s needs—we have to accept that

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

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