India has only 10% of the world?s coal reserves. The country?s reliance on imported coal has reached 15% by now and could go up to 30% in five years. The Planning Commission pegs the power sector?s non-coking coal imports at 45-50 million tonnes this year. With international prices breaching $110 per ton, input costs of power generators have flared up. Tata Power, developing the Mundra UMPP, has already sought a tariff hike. Reliance Power has held back its Krishnapatnam UMPP. Most new projects will have to rely entirely on imported coal. Many are forced to blend 10 to 30% imported coal.
Last year, Indonesia pegged its coal prices to international levels. Coal sourcing from African mines has been limited for want of freight capacity and port berths in South Africa. Spot prices in Australia have also gone up since local floods last year.
Coal stocks of many plants are in the critical and super-critical phase, i.e. holding stocks of less than seven and three days’ requirement, respectively. Though the coal ministry blames this on transportation, pressure on coal supply will continue. Nearly 40,000 MW coal based projects are coming up in the country.
The government, based on the energy coordination committee opinions in end-2004, decided to allocate 20 billion tonnes of coal reserves for captive coal mining, attracting 800 applications. These coal blocks, when developed, should be sufficient for 75,000 MW capacity. The process of allotment of captive coal blocks is complex. Any process or procedure, such as bidding or auction, which has the potential to increase the cost of coal, may not be the right approach.
Instead, setting up coal washeries should be made compulsory. Coal producers must process coal, reduce the ash content by 8-10% and then despatch coal. This will reduce the load on railways and increase its handling capacity. The shift could be implemented in phases: (i) for plants located 1,000 km or more away, compulsory within next year; (ii) for plants located within 500 km, in three years; and (iii) for the rest in five years.
Private sector participation in coal mine development will require comprehensive policy guidelines, including appropriate price fixing formulas. Since the price of fuel will be pass through to the electricity boards, a comprehensive mechanism will be essential to fix up the price of coal produced by private mining agencies. Without that fuel supply agreements will be delayed, leading to delayed mine development and aborted schedules.
Coal and power industries in India have moved concurrently and their growth is inseparable. The power sector cannot have a sustained momentum unless domestic coal industry propels it.
The allocation process of captive coal blocks needs to be more transparent. Only difficult coal blocks are being identified for captive coal mining agencies and the better ones are being retained for public sector coal companies. An agency under the department of coal, independent of Coal India, may address the issue adequately. It is time that the coal mining was allowed by various agencies independent of captive coal mining. Considering a possible gap between what public sector coal companies could do and what is required, it is necessary to allow private development of coal mining in addition to captive coal policy.
The author is professor of economics & energy at anagement Development Institute, Gurgaon