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Sunday, December 22, 2013

Buyers raise alarm over poor quality of Coal India supplies

A top executive of Coal India had once rued during an informal conversation that everyone seemed to take the state-run mining company as their "most favoured punching bag". He must be feeling vindicated with the Competition Commission of India, or CCI, having imposed a penalty of Rs 1,773 crore on the company for alleged abuse of its position as a monopoly supplier of coal.
The fine was imposed through a directive issued on December 9, after CCI found merit in Maharashtra State Power Generation Company (MahaGenco)'s accusation that Coal India was routinely supplying coal of poor quality.
The quality of coal is judged by measuring the gross calorific value, or the capacity of the coal to produce energy. Earlier, gross calorific value was determined by taking the average after testing samples at both the loading and unloading points. Under a new system, the gross calorific value is now measured only at the loading end and not at the destination. The Maharashtra power producer contends that there is serious erosion in the gross calorific value between these two points.
MahaGenco Managing Director Asheesh Sharma had earlier told Business Standard that in the old system, the slippage was only 20-40 per cent, but this had reached 100 per cent in the new system. And since, under the provisions of the fuel supply agreement, MahaGenco has no say on the matter, it had been forced to take the case to CCI.
Taking note of this concern, CCI has said in its order, "Coal India may also consider and examine the feasibility of sampling at the unloading-end in consultation with power producers besides adopting international best practices."
Coal India Chairman and Managing Director S Narsing Rao did not offer any comment on the verdict. However, the company which accounts for 80 per cent of the coal produced in the country is all set to challenge the order which, besides penalising the company, has also directed it to rework with various parties within 30 days to ensure "parity between old and new power producers as well as between private and public sector power producers".
Even earlier, the National Thermal Power Corporation, or NTPC, the largest customer of Coal India, had raised the issue of coal quality. Rao had then countered that it was the Railways that ferried the coal and Coal India couldn't take responsibility for the quality of coal after it had been dispatched from its collieries. "How can anyone ask Coal India to ensure quality at the unloading point, when transporting it is not its responsibility" he had asked.
The NTPC-Coal India quarrel was resolved after the two contenders agreed to put in place a mechanism of joint sampling as well as third-party sampling, but only at the loading point. Coal India was still not ready to take responsibility for the transit of coal.
The quality of coal supplied by the miner remains a concern. Experts say much of it has to do with the way mining is done in the country. Coal is produced through underground mining, opencast mining without drilling or blasting, or by opencast mining involving drilling and blasting. Former Coal India chairman and managing director Partha Bhattacharyya says: "Eighty-five per cent of the coal is produced from opencast mining with drilling and blasting. Unfortunately, contamination is bound to take place during blasting."
The immediate solution, Bhattacharyya suggests, lies in setting up washeries. "Coal has to be washed. This will improve the quality," he says. "The problem is that will increase the price and consumers should be ready to pay extra."
The truth is Coal India already has 17 washeries with a capacity of 39.40 million tonne per annum, or about 8 per cent of Coal India's production. There have been talks of setting up 20 more washeries with the capacity to improve the quality of 111 million tonne of raw coal, but this project had been delayed many times. Whenever asked about the washery project, Rao maintains that there is hardly any demand from consumers for washed coal. "Coal India is consumer-centric and not supplier-centric. It cannot do anything if there is no business proposition for it," he says. The additional cost of washing domestic coal would put its price close to that of international coal, and power producers would rather buy the latter.
Experts, therefore, says that the real solution lies perhaps not in the hands of Coal India, but with the policy makers because the CCI order against Coal India essentially highlights the need of a complete reform of the sector and the infusion of competitiveness.
Referring to measures like introduction of public-private partnership for mining or the setting up of a coal regulator, CCI's order says, "There is an imperative need to carry forward this reform momentum further by restructuring the sector by introducing more number of players so that it can reduce the dominance of any one player and can facilitate competition."
There is no denying that the economy is now ravenously short of coal to fire its power plants. Power generation capacity of about 50,000 MW that has come up over the over the last five years is either stranded or operating far below capacity because of lack of coal. The Planning Commission estimates that coal imports could go up to 185 million tonnes at the end of the 12th Five-Year Plan ( 2012-17) based on total coal demand of 980 MT and domestic supply of 795 MT. India's coal imports surged from 73 MT in 2009-10 to 135 MT in 2012-13. With one of the highest coal reserves globally of over 250 billion tonnes, the country perhaps deserves better.

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