The political imbroglio caused by the recent CAG report on captive coal mines? allocation, combined with the two massive electricity blackouts which preceded it, have firmly put the attention back on coal. For quite some time now, we have been proudly bandying around our coal wealth, and yet for decades we have managed to extract much less than we need. Our already deficient power generation capacity has often remained significantly unutilised for want of adequate coal of reasonable quality.
Interestingly, most of the currently perceived inadequacies of the Indian coal industry are ascribable to a 1973 statute that nationalised the production and marketing of coal throughout the country. The emergence of a government-owned Coal India Limited (CIL) has, unsurprisingly, resulted in all that happens when a behemoth monopoly is formed: limited production, arbitrary price setting, poor product quality, disregard for customer needs, and the deployment of outdated technology with no concern about future business prospects. It was this persistent inability to satisfy the demands of bulk consumers that led the government to conceive a policy of coal block allocation for captive consumption by power, steel and cement producers way back in 1993. It?s a different matter that coal is yet being mined from 10% of the allotted 216 mines, and that the allotment procedure has been faulted on the grounds of lack of transparency and revenue-loss to the exchequer.
While the outcome of the current political stand-off may or may not be an early general election the fractured opposition is hoping for, the ongoing nationwide debate on coal must to be gainfully used to address all that ails this industry. The foremost need of the hour is to deal with the regressive Coal Mining Nationalisation Act (CMNA). It has not served any worthwhile purpose during the last 40 years and has, in fact, been a major stumbling block in advancing our country?s GDP growth.
A Standing Committee recommended Bill to amend the CMNA has been before the Rajya Sabha since 2001. It must now be accorded the requisite Parliamentary approval. This amendment would permit commercial mining of coal and, ipso facto, bring much needed competition and efficiency benchmarks for CIL, while ushering in private resources and management into coal mining business. What might be required to be added to the pending Bill is providing for compulsory competitive bidding in all future coal blocks? allocation. This should apply to mines allotted for captive consumption as well as for wider usage, including all new assets sought by CIL. The template created for oil and gas blocks that was fairly successfully implemented in 9 NELP rounds can be suitably modified for the coal industry. Political parties that do not support such legislative changes would then appear less than serious in addressing issues that they are nowadays seemingly agitated about.
The long-debated suggestion for a coal regulator can also be made a part of this legislative change. Clearly, there is a need to separate the policymaking role of the government from implementation and the processes thereof. The requirement of an independent regulatory mechanism becomes all the more important under this proposed framework since the private players and CIL would need to be put on a level-playing field. This can best be achieved by letting a regulator prescribe the rules for bidding and conducting the award process.
To incentivise private investment in a capital-intensive, long-gestation industry, offering a remunerative price for the end-product is just as important as fair allocation of blocks. Given the huge (and continued) dependence on coal for meeting our energy needs, it might be premature to let free markets determine the price just yet. A price-setting role for the regulator, who adeptly balances consumer interests with those of producers, is therefore essential.
To show that it is well-intentioned, the UPA government should, in all seriousness, begin to recall the allotted coal blocks where malfeasance occurred in the allotment process or mining has not commenced. The CAG has counted 142 allotments as lacking in transparency. In all probability, most of these have already rendered themselves liable to cancellation by not commencing production in time, or by failing to take other effective steps such as getting mining plans approved, or securing required land and environmental clearances. The government?s bonafides would become stronger if it were also to invoke the bank guarantees for non-performance given by allottees in the last round of awards. These cancelled allotments would immediately make available a large number of blocks for re-awarding under the amended Act to both government-owned as well as private developers, including foreign mining companies. So far, global mining companies have been reluctant to come to India as contract manufacturers of CIL or as entities that undertake captive coal mining on behalf of domestic allottees whose core competence lay elsewhere.
Given that open-cast Indian coal is mixed with over one-third of non-combustible materials, the coal regulator would also do well to prescribe a minimum proportion of coal-washing before it can be laid onto rail wagons. For far too long now, CIL has blamed the Indian Railways for not carrying all that it pulls out, without conceding that along with coal, it also pushes along considerable quantities of ash and stones. Once coal-washing at mine-mouths is made mandatory, and the proportion of total produce to be washed is steadily increased year after year, substantial carrying capacity would get released on the existing rail system.
In the long run, we have to move to a system where all major developers of mineral assets make their own arrangements for carrying their produce. This is a global practice. A publicly-funded rail system must first be available to the public, and only the excess capacity, if any, should cater to commercial requirements of bulk producers like miners. This may not be as onerous a stipulation as it sounds, since most international miners are accustomed to owning and operating even long-haul trains. Only when such a responsibility is cast upon mine developers can a much higher portion of the geologically proven reserves of coal become commercially exploitable in India.
The author, an energy and infrastructure specialist, is a former secretary in the Union commerce and industry ministry