Coal output is key to energy security

There is no alternative to developing more domestic coal mines, despite the difficulties involved. Imports are not sustainable.

To maintain India's growth, it is imperative that energy is readily available and is affordable. According to the Ministry of Coal, the gap in demand and domestic supply of coal has increased to 83 million tonnes (MT) in 2010-11 from about 50 MT in 2007-08.

With the shortage of coal, generation in different power plants is getting affected. As many as 18 power plants in the country are facing critical levels of coal shortage. Power utilities have already reported a generation loss of 8.7 billion units in 2011-12 (up to February 2012) due to shortage of coal. By the end of the 12th Plan (2012- 2017), which envisages the development of coal-based power plants, the projected gap between demand and supply is likely to reach a colossal 200 MT.

Buying coal from abroad to meet the demand deficit may make sense on paper but the very prospect of importing coal in today's circumstances is giving sleepless nights to many power producers. Traditionally, India has been sourcing its coal from Indonesia and Australia. The coal import scenario has drastically changed in recent times; while the steep carbon tax in Australia at 30 per cent has made coal imports unviable, Indonesia poses significant political and legal risks in the form of the changing regulatory framework for coal imports. The price of coal imports from Indonesia has already increased phenomenally after the local government's fixed coal prices. A further revision may be on the cards since the Indonesian government is considering imposing fresh taxes.

The situation on LNG is no better. The absence of new gas finds and declining production from Krishna-Godavari-D6 field is pushing the need for enhanced gas imports.

FUEL AVAILABILITY

Union Petroleum ministry data suggests that LNG imports in 2012-13 is expected to be at 69 million standard cubic metres per day (MSCMD), well over twice the quantity last year. From there on, the imports are expected to increase over 2.5 times to 184 MSCMD in 2016-17.

While a combination of high import levels and volatile international prices threatens to destabilise the financial structure of Indian coal and/or LNG-dependent energy companies, many States and their associated regulatory commissions are not reconciled to the twin facts about coal and LNG supplies. They refuse to believe that the country's coal production is in deficit and imports have been increasing each successive year. They also fail to acknowledge that gas supplies from domestic sources are dwindling and the gap would have to be met from expensive imported LNG. Since, power is a concurrent subject, these entities wish to avoid sourcing electricity based on imported fuels. However, avoidance is a temporary reprieve and cannot be sustained for long.

The question is: Can India do without energy? The answer is an emphatic “No” since energy is universally recognised as one of the most important inputs for economic growth and GDP. Economists say the growth of an economy hinges on the reliable availability of cost-effective and environmentally benign energy sources invulnerable to short- or long-term disruptions. India is no exception to this rule.

SUPPLY AGREEMENTS

It is estimated that in order to sustain a 7.6 per cent GDP growth, as per the Finance Minister's Budget announcement, India would need the power sector to grow by 9 per cent. The Central Government and the Planning Commission have also made necessary announcements about setting up approximately an additional 76,000 MW of power generation facilities.

However, simply setting up additional capacities without tying up the fuel requirements for the same is fraught with risks. The Government is well-aware of the problems faced by some of the UMPP projects and the ever-escalating import price of coal and gas. The need of the hour, therefore, is to immediately evolve a long-term National Energy Security Policy.

In its Energy Security Policy, the Centre must consider mediating and help resolve the pending fuel supply agreements for long-term fuel linkages in India and abroad. Mining of domestic coal must be accorded the highest priority. In fact, the Government should set up a single window inter-ministerial body for facilitating fast track clearances of coal mining projects.

The Government should also consider issuing guidelines on power tariff using bulk sourcing of both imported and domestic fuels. There is an urgent need for the government to fully liberalise the coal business and for Coal India Ltd to step up domestic production, as well as acquire coal mining companies abroad, if necessary.

Concurrently, the Government should introduce an independent coal regulator to oversee mine planning and development. The regulator and the Energy Security Policy would together create a conducive and enabling framework which would ensure adherence to investment plans and production schedules to build a road map for commercial mining.

COAL OUTPUT

In India, there are multiple unexplored coal blocks where energy companies – government-owned and private – can apply for captive mining. However, the inherent challenges are huge and can deter companies from applying. Even in areas which are known to have coal deposits, the distribution of minerals is often uneven and varies drastically from one region to another. Also, a large part of India's coal reserves may not be extractable with current mining technologies.

These problems are compounded by delays in approval of investments in the mining sector, infrastructure impediments, the often contentious issue of large scale displacement of tribal population, resistance of locals and environment issues.

These issues notwithstanding, as far as India is concerned, there is no alternative to developing more domestic coal mines.

While coal has been the mainstay for meeting more than half of India's commercial energy requirements, importing coal is simply not sustainable in the long run. Already, the world's coal reserves have dwindled to 4,200 BT from 10,000 BT over the last 25 years. Therefore, going forward, India's ability to import large quantities of coal will get increasingly restricted.

This is all the more reason as to why India should immediately adopt a National Energy Security Policy, look at removing the roadblocks and pave the path for ensuring long-term energy security.