By Yogesh Upadhyay and Manish Agarwal
India launched the auction of 141 commercial coal mines in the week before COP 27. Given the stigma attached with coal, it will be difficult to attract large developers, particularly those whose banks have pledged to not support businesses associated with the sector. At COP27, India rightly called out the step-treatment of coal among fossil fuels, underlining the fact that much of the developed world has access to affordable oil and gas, along with hydro or nuclear power. However, there is a lot more to be done domestically to make coal cheaper and less polluting.
The Indian coal sector suffers from three problems. Mines do not produce enough. Our logistics are in a mess. Coal mining, transport and usage is very polluting. All three problems share a characteristic: there is no single solution. We liken them to three Ravanas. The three multi-headed demons can’t be killed by one arrow each.
India imported 24% (by weight; more by calorific content) of its coal requirement. The problem is not our coal reserves, but that the rate at which we mine coal is quite slow. While Coal India reminds us that annual coal production has grown 8X since the nationalisation of the sector, the government of India was urging power plants to import coal to avoid shutdowns.
Though domestic coal is cheaper than imported coal, it is still expensive because of the inefficiencies and rent-seeking across the value chain. Inefficiency in coal mining is only one of the contributors to high cost. Coal logistics is the second. The landed cost of coal at Mettur Thermal Power Plant in Tamil Nadu, for example, is more than 5X the cost of coal at the mine. In the past, states wanted power plants within their boundaries, to have “energy security”. Though the transmission system across the country has grown and strengthened manifold, states are still reluctant to shut down these power plants. While India’s pit-head capacity has been growing, our coal transport need (in billion tonne-kms) has not been reducing. Considering the low calorific content of Indian coal, a large quantity of useless dust is also being carried across the country. Further, the freight rate increases by the Indian Railways over time have led to coal transport being among the most expensive. Rail transport is expensive, and insufficient—51% of coal is transported by road.
It is not the Railways alone that is pricing in its monopoly power. In the example of Mettur Thermal Power Plant, the cost increase due to transport is 3X. The rest is due to taxes and royalties, which cost as much as the mining costs. The duties and royalties, under various names, are collected by state governments as well as by the central government. The governments are so addicted to the revenue from coal that even the privatisation process is designed to maximise revenue to the government, and not minimise cost to the users. The winner of each coal mine is decided based on whoever offers to pay the highest share of their revenues to the government. Thus, there is an incentive for the government to enable the private miners to charge higher prices. Remember, the high transport cost implies that a competitive market for coal is not possible, except in small geographies; so, it cannot be left to the market forces to drive prices down. The notified price of public sector mines is expected to act as a cap on the pricing power of private mines.
Coal is implicated in climate change, being the largest source of carbon dioxide emissions. More visible, local and immediate is the air-pollution impact of coal. While Delhi regularly makes it to the headlines, air pollution due to mining and transport of coal impacts the health of millions of others. There are several ways to reduce this, which are not adequately deployed yet. Long distance transport of coal requires more fossil fuel consumption, leading to more carbon emissions. Old power coal plants not being shut down, nor being equipped by pollution control equipment, cause both more carbon emissions and more pollution.
Also read: Now bite-sized combo offer on insurance, too
There are loud voices in favour of a carbon tax, which will increase the cost of coal but will unlikely have any impact on coal consumption in the near term. But there is hardly any voice for reducing coal costs. The cost of coal reflects in electricity tariffs, which are kept high for industries and commercial consumers (the job creators), and low for constituencies that have political relevance. The distribution companies, who represent the electricity consumers in the electricity market, do not have the institutional credibility to be heard. The power generators are barely able to enforce coal quality assurance in their coal supply contracts, and happily pass through the costs in their tariffs.
Similarly, the voices for cleaner coal mining, transport and consumption are drowned out by the chant of no-new-coal. Coal sector investments need to be de-stigmatised, so that private investments can flow into more efficient mining and combustion of coal.
The authors are with AskHow