Coal India’s recent move to award 23 discontinued underground mines to the private sector under generous revenue-sharing terms marks the culmination of the series of steps taken over the last few years, to “democratise” the sector. The liberalisation process began with the upending of the Coal Mines (Nationalisation) Act, 1973, for long a political hot potato, in February 2018. Commercial mining by the private sector is now largely unrestricted under composite licence. This has added incremental pace to domestic production of the dry fuel, with captive mines registering a share of 15% of the total coal output in FY24, up from less than 10% in FY21. Populating the coal mining segment with more players, including those technically equipped to undertake the high-reward-high-risk underground mining, and coal gasification ventures, is the need of the hour, given the widening demand-supply gap in the power sector.
In just over a year after the National Electricity Plan (NEP) 2022-27 was announced, the government is feeling constrained to review it. The country’s peak power demand is expected to touch 260 gigawatt (Gw) in September this year, sharply up from 184 Gw registered in FY20, power secretary Pankaj Agarwal said recently, adding that the demand would “easily cross 400 Gw by 2031-32”. The peak demand has risen by an average of 7% in the last five fiscal years, a steep 20% over the last two, and by 9% upon an elevated base in the first quarter of the current year. Since the trend is expected to continue, even the 900 Gw power capacity envisaged for 2031-32 would fall quite short.
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Given the intermittency of renewable energy, the capital-intensive nature of storage, and non-viability of gas-based power, the country would need to fall back on coal for its medium-term energy needs, in even greater degree than assumed earlier. That’s why the government recently invoked an emergency clause for stranded gas-based power units to operate. Coal-based units have been asked to use full capacity, and continue to use fuel blended with imported coal till mid-October. Also, power companies have been reportedly asked, in a rare move, to place equipment orders worth $33 billion for coal-based capacity. The Cabinet approved a Rs 8,500-crore scheme in late January to promote coal/lignite gasification projects. Coal India has since announced a couple of synthesis gas projects, and also struck separate deals with Gail and Bhel, for capital-intensive projects.
While global majors are still to invest in coal mining ventures in India, Vedanta, Adani Group, Tata, and GMR are indeed scaling up investments. Production from captive mines has risen by over 120% between FY21 and FY24, while Coal India raised its output by 30% on a much larger base. Domestic coal production, on an aggregate basis, grew by an impressive 39% to close to a billion tonnes in FY24. Yet, demand is outpacing supplies. The government’s stated objective to eliminate imports of (locally substitutable) coal in another two years is creditable, but at odds with ground reality — imports rose from 215 million tonnes (MT) in FY21 to 265 MT in FY24. Given that private capex, constrained by restricted financing of fossil-fuel projects, can’t be expected to surge all of a sudden, the state-run firms would still have to play the dominant role in boosting coal supplies, in solid and gas forms. Apart from energy security, the country has a lot to gain from coal ventures which have strong backward and forward linkages.