For each wagon of coal that Sajjan Jindal sends to his steel plant in the Bellary belt of Karnataka, it takes four layers of committees at the central government to clear the consignment.

But he can consider himself lucky. Had he bought the coal from the market, as hundreds of small-time sponge iron manufacturing units do, there would be five committees in the decision process.

The world of Indian coal mining is dominated by government committees that label each kilogram of coal extracted from the mines till the mineral becomes ash (see diagram alongside).

In the process, India?s second largest listed firm Coal India (CIL), cannot expand production, the power sector faces a crisis of coal that is getting worse each day and captive coal mine owners face long jail sentences if they sell coal to the power plants.

How difficult is the coal shortage that haunts the power sector? Planning Commission data show two-thirds of the coal mined every year in India is burnt at power plants. So shortage of coal hits the downstream power sector the hardest. A power ministry note shows coal shortage would mean production of 26,000 mw less electricity in the country in 2011-12 (that?s 12.3% of India?s 1,71,000 mw of installed capacity). Capacity addition of another 12,555 mw would not happen as developers would cut back investments in the absence of coal linkages.

Is it any surprise Prime Minister Manmohan Singh has begun reviewing the production and supply situation of coal each month? CIL?s production target in 2011-2012 is flat at 452 MT against the 433 MT it produced in 2010-2011. The figure is unchanged since 2009-10, and even the marginal rise for this fiscal is more a victory for hope than hard-headed estimate. The consequent coal shortage for the economy projected for the fiscal is therefore 142 MT.

“Private power companies have therefore begun seeking out international coal assets. All the major power sector players, including Tata Power, ADAG, Adani, Lanco, GMR, JSW and GVK, have made equity investments in coal assets abroad with long-term supply agreements at preferential rates.

Shubhranshu Patnaik, senior director, Energy & Resources, Deloitte Touche Tohmatsu India Private Limited, said with the projected stagnation in CIL production and the increasing acquisitions of assets abroad, the supply from imports could soon outstrip the domestic capacity of the company.

An analysis by a government panel led by former finance secretary Ashok Chawla shows India is rapidly becoming import dependent for coal supply to power plants, even though its domestic reserves are expected to last for another 50 years and if mined well, another 25 years.

The committee system in coal mining is so endemic that even a government dominated one like the Chawla panel has had to term it as non-transparent. Translated from bureaucratese it means nepotism. For instance, it points out that even to do an e-auction, the nearest thing to a market mechanism that exists in the sector, there are three levels of committees, through which the coal consignments have to pass.

Chawla is, however, not in favour of e-auction. The panel has cited as its chief argument the phenomena of companies not lifting the coal they have purchased, long after they have won the bid. (see coal mining recommendations, alongside)

Nationalisation problems

But beyond those issues the biggest problem for the sector is that there is only one large public sector supplier for coal, ie CIL. To ensure it charges a fair price, the coal ministry has drawn up an elaborate dual pricing policy that discriminates in favour of bulk purchasers like power and fertiliser plants and compensates that by charging more than the market price from just about everything else.

The gridlock is so tightly drawn that CIL?s next door neighbour in Kolkata, public sector National Mineral Development Corporation cannot bid for mining coal in blocks where CIL does not compete, despite having the best ability in India to do so. The Chawla committee has asked for these restrictions to be lifted.

Meanwhile, the Planning Commission and the Central Electricity Authority have proposed that CIL become the nodal agency for importing coal for everybody else. It can thereafter pool imported coal along with domestic coal for selling in India. This would reduce supply constraints and CIL would be able to make an average pricing putting domestic and imported coal together. This would enable users to get imported coal at much cheaper rates.

Recently retired CIL chairman Partha S Bhattacharyya initiated the process of tying with foreign producers for long term supply of coal. His successor at the corner room, NC Jha points out there are 27 proposals from 16 companies for getting imported coal on a ten-year term contracts. But finalising these would take at least another four months and imports might start only by the end of this year. So these plans would not help the power sector now gasping for breath.

According to a CEA report, the country?s thermal generation fell 4% short of target between April 2010 and February 2011 to 503.9 billion units kilowatt hours. Capacity utilization of thermal power plants fell from a level of 77.49% in 2009-2010 to 74% in 2010-2011 and the situation is aggravated with more than 32 power stations across the country having coal stocks for only seven days; 18 of them have stocks for less than 4 days. The industrial norm for a stock pile is for 21 days.

The Chawla panel thinks it has the answer. The big bang recomendation of the committee is to let go of CIL monopoly but without getting involved in a messy change like amending the Coal Nationalisation Act.

Instead, it has suggested that captive mine owners should be allowed to market their coal. This will mean relaxing the end use restrictions. For instance, at present any coal a captive mine owner like Tata Steel or SAIL must be used only for their plants. Any thing produced in excess has to be surrendered to the government, in effect CIL.

This is one of the principal reasons why captive production is a fraction of the possible output. Only 15% of the allotted mines are in production and they are producing just 4% of the possible peak output of the allocated mines.

So there is coal underneath our feet that can be brought up without any environment hassles but the price discovery is so poor coal mine owners prefer to keep it buried.

Statistics show, very few of the 208 coal blocks allotted for captive use have gone to production. The Eleventh Five- Year Plan projected 104 million tonnes of coal to be extracted from the 93 captive mines by the end of the plan period. 15% of that would mean only 15 million tonnes is coming into the system. Incidentally, the target too has got scaled down to 81 million tonnes in the mid term appraisal.

The common refrain from the government is capitve mine owners prefer to import coal, as the differential between those and domestic prices have got whittled down substantially.

The solution, therefore, is to de-link the mines from the projects for which they are allocated. This would mean the huge reserves that Tilaiya and Sasan ultra mega power projects have got can come into production fast, without waiting for the power projects to become operational. Taken together the two projects have about a billion tonnes of coal under their feet. ?Given the current shortfall in domestic supply, private mining companies are more likely to increase rates of extraction quickly and and efficiently?, notes the Chawla panel.

According to the Union power ministry data, India has added 34,460 mw between April 2007 and March 2011 and the committed coal supply for that is 343.5 MT, at least 60 mt short of the actual requirement. In fact, CIL during the start of the 11 th plan period committed 343.5 MT to the power companies including the added capacities by the end of the plan period and by March 2009 it supplied 306 MT, when newly added capacities were less than 15,000 mw. So for the rest 19,460 mw, CIL has only 37.5 MT, which really speaks of a horrible state.

Now for the long term, when the country is envisioned to add 1,63,000 mw by 2017, there is no clue from where the coal would come to run these capacities. Power capacity addition is expected to increase pace from 2012 but if coal supply is not ensured, the programme of capacity addition might have to be absolutely halted, feared a power ministry official.

Bhattacharya said if the government was only thinking import as a substitute, then import requirement by 2017 might touch CIL?s present production level of 430-435 mt. This does not look feasible in view of global condition of coal pricing compared to India?s discounted way of pricing. The Indian power sector, for the last 60 years has been getting coal at a deeply discounted price. An absolute shift to import parity prices or global prices in five years time, would be something tectonic and dampening to the economy as well.

His formula; move to an import parity pricing regime and ratchet up the quality of domestic coal with washeries to match import quality. But the plan of washeries too faces green hurdles.

Environment hurdles

If you thought this made up a fairly complicated tale of missed opportunities and shooting onself and other cliches, the bigger hurdle that has emerged is environment concerns.

The biggest hassle for the sector is the CEPI. The Comprehensive Environmental Pollution Index has made a large percentage of the coal fields unusable. While the impact on CIL is clear, with its production stagnating, others too are no better.

Seven coalfields ? Chandrapur, Korba, Dhanbad, Talcher, Singrauli, Asansol and IB Valley ? fall under the CEPI moratorium of the ministry of environment and forests. The list has got pr-uned in February this year when Jairam Ramesh lifted the moratorium on 16 coal projects but the long term impact is visible.

The go and no-go issue has come as a major stumbling block to CIL in increasing production. It is primarily for this issue that CIL?s target of producing 520 MT by the end of the 11th Plan period has been brought down to 453 MT. According to CIL officials, go and no-go and comprehensive pollution index had straightaway knocked off 20 MT coal production in 2010-2011. Out of 484 CIL blocks, 55 are under no go area. But the ministry of environment and forest (MoEF) has clustered 602 coal blocks in nine coal field areas across the country and it has green nod for 396 only. The rest 206 blocks, which till recently did not have any green nod, was locking an estimated reserves of 660 mt. But the MoEF after re-defining the no- go boundary has now locked 141 blocks under no go area. This re-definition will actually increase the go area from 59% to 64%.

In addition, if the government ? as proposed in its land acquisition Bill ? leaves 70% of the required land to be acquired by the companies and the rest 30% by the government, it would surely add to the woes of the mining companies.

Logistics has come as another problem to a company like CIL, whose 80% of the production goes to the power sector. CIL?s pit head stock has gone up from 42 MT in 2007-2008 to 70 MT in 2010-2011 and this has bee mainly due to non availability of the required number of railways rakes.

Recently, according to NC Jha, there has been an increase in supply of rakes and the average rake supply has gone up from 158 per day last year to around 180 per day this year. This would clear 25% of its existing pit head stock this year. But CIL needs 190 rakes per day to maintain a balanced supply, he added.

Naxalite problems has also come in the way of coal production since many coal blocks come under naxalite strong hold area.

In fact, a Central Coalfield Ltd report pointed out that there was no production for 85 days in 2010-2011 for naxalite problems. So other CIL subsidiaries must of have more or less faced the same problem. But the government has not really so far said anything in terms of tackling this issue.