FE Editorial : Open up coal market

Dec 03 2012, 01:58 IST
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SummaryWhile the debate over whether Coalgate was a scam worth R1.86 lakh crore continues, the larger issue remains that of tackling its root cause, the huge shortage of coal in India and the near-complete monopoly of the public sector Coal India Limited.

Coal India’s monopoly is costing us too much

While the debate over whether Coalgate was a scam worth R1.86 lakh crore continues, the larger issue remains that of tackling its root cause, the huge shortage of coal in India and the near-complete monopoly of the public sector Coal India Limited. A recent report on coal by PricewaterhouseCoopers has some interesting facts that are worth looking at. While India’s coal production has increased from around 431 million tonnes in 2006-07 to around 554 million tonnes in 2011-12, this is still way short of the demand that is around 600 million tonnes. While imports make good the gap, keep in mind imported supplies are around $60 per tonne more expensive—that kind of a price difference, in turn, raises power costs by about R1.32 per unit. Given the political economy of power prices and the difficulty in raising tariffs, that’s a significant contributor to overall loss levels.

What makes the situation all the more worrying is that India has the fifth-largest reserves of coal in the world. Not all the problems, it is true, can be laid at Coal India’s doors. According to Coal India, 179 forestry proposals are awaiting clearances and if all approvals are secured on time, it can more than double its output to 1,132 million tonnes. It is the same lack of approvals, for instance, that ensured that captive mines have been able to produce only 36 million tonnes in 2010-11 as compared to the target of three times that amount.

But surely private sector efficiencies can be brought in by allowing professional mining companies in? In 1980, India had 11.5 billion tonnes of iron ore reserves and Australia 15 billion; in 2005, India was 13.8 billion and Australia 40 billion. Not surprising when you consider that the $174 billion Australia had invested in mines in April 2011 was a 31% hike since October 2010. We’ve seen a similar hike in oil/gas reserves once ONGC/OIL’s monopoly was broken. In the case of diamonds where Australian firm Rio Tinto is prospecting in India, it’s interesting to note that, as compared to 12 kimberlites (rock formations in which diamonds may be present) discovered by various government organisations in India between 1980 and 2004, Rio Tinto has found 22 kimberlites between 2000 and 2003. What’s unclear is what is so strategic about coal that Coal India’s monopoly can’t be broken.

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