Captive blocks that mined better than Coal India, to generate more power, should be rewarded rather than pilloried
The CAG?s reports on coal have raised a furore. The estimates of revenues lost by government are to a large extent notional and can be estimated in different ways. The methods by which some got the mines allocated might be faulty and that calls for investigation and prosecution if necessary. The delays in commissioning the mines should have been monitored by the coal ministry since allocation. They seem to have been due to land, environment, resettlement, and other issues causing delays. Leases that were transferred should be revoked. But coal allocated to power plants must be viewed more sympathetically.
India is short of power by between 8% and 11%. The shortage is due to inadequate growth of generation capacity, and lack of funds with state government-owned distribution enterprises, due to un-remunerative tariffs. This has prevented investment in generation by the private sector (lack of confidence that they will be paid) and by state governments. State governments have also been tardy in maintenance, modernisation and installation of new distribution lines. Almost 60% of generation capacity is with the states. Low efficiency of many plants, and high losses on account of theft, and technical losses in distribution, add to the shortage.
As the economy grew faster, electricity generation was also affected by the growing shortage of fuels. India has large coal reserves, third or fourth in the world. But coal is nationalised and the operator is principally the central government-owned Coal India. It is a monopoly and sets prices. Its technology is old. Mines are mostly open cast so that a lot of coal remains un-mined in the ground. Being a government owned and managed enterprise, there is rampant indiscipline, and large-scale theft of coal. Buyers many times have to separate large stones mixed with the delivered coal. Delivery schedules are rarely met and generators have consequently to hold extra stocks of coal. In recent years, Coal India has failed to ramp up production to meet the escalating demand.
The need for more power and the shortage of the principal fuel used, namely coal, led the government to allocate captive mines for power, as well as steel and cement. However, this article is looking only at power. Power tariffs are determined by independent regulators. Market-determined prices on the electricity exchanges account for a small fraction. If those who got captive coal mines for power sold the coal in the market, they violated the allotment and must be prosecuted. If coal extraction was delayed because of procedural bottlenecks due to government, the allottees should be helped to overcome the bottlenecks, mine the coal quickly and convert it into power. If they were able to mine more coal than Coal India might have done, and used the extra for generating more power, sold at regulated tariffs, they should be rewarded, not pilloried. If we do prosecute them, we are back to the days of Indira Gandhi?s license raj when production over licensed capacities was subject to prosecution.
Gas was the fuel that was to resolve fuel shortage and reduce carbon emissions. But ONGC, the principal producer for many years, has been found in a CAG audit to be inefficient and its production has peaked. Reliance was to be the saviour but has sharply reduced production. This has reduced power generation by gas-based generators. The situation may change if gas prices go up by as much as three times, raising power tariffs significantly.
The hope of this government that nuclear generation could meet the slack looks unreal. The sector is a government monopoly. Government does not have the resources to invest in considerable new nuclear generation capacity. There is no sign of nuclear engineers being willing to give up this monopoly. Present nuclear generation is opaque on information about costs, safety and other factors. Nobody can predict how competitive it is. In the foreseeable future, it will add marginally to power capacity.
Hydro power is limited to Himachal, Uttarakhand, J&K and Arunachal. The first two are well exploited. The latter have problems of geology and human safety. Renewables will add to capacity but, with low plant loads of a maximum of 30%, will not add large quantities of power. They also have issues of land, environmental clearance and water availability.
What can we conclude from this argument? We will continue to depend on coal as the principal fuel for power. We need to get it out of the ground as quickly as possible. We should provide all possible help for doing so, upgrading to the most modern equipment, improving productivity and cost, decimate the criminals who rule the coal mines, introduce quality standards, and have an independent regulator who will monitor production, productivity and cost, and determine coal mine allocations and tariffs in a transparent and public manner. Coal India?s mines should gradually also be allocated to private parties who will be more accountable and responsive to an independent regulator. All power projects should be bid for on competitive tariffs and the regulator in order to keep power tariffs low might determine a rebate for coal extracted by the project.
The idea that all allotments of coal mines for captive use must be cancelled is appalling. It does not give priority to maximise coal for power.
The author is former director general, NCAER, and was the first chairman of CERC