Thinking long-term

Import policy has to consider political risks and global price trends

The Indian energy sector is today at a crucial juncture of development. Increasing national incomes and population have contributed to the escalating demand for energy without a commensurate increase in supply. In view of this, the energy outlook and security of energy supply have become a reason for major concern in the near future.

Availability of coal assumed a serious proportion when large numbers of existing thermal power stations were running on low/critical stock in late 2011, and the coal ministry directed the coal companies to give top priority to power plants over other consumers. Given this precarious scenario, the provisions in the Union Budget 2012-13 to constitute an inter-ministerial group to periodically review the allocation of coal mines and make necessary recommendations for de-allocation, if required, is indeed a positive step towards addressing fuel supply constraints.

The Budget also highlighted that the CIL will be advised to sign fuel supply agreements with power plants that have entered into long-term power purchase agreements with discoms and would get commissioned on or before March 2015.

The Centre, in a rare move, also issued a presidential decree a few days back to force Coal India to guarantee long-term fuel supply to private power firms or pay penalties if it fails to meet 80% of the commitment. Other important proposals such as a two-year exemption on import duty for companies importing thermal coal, provision to allow external commercial borrowing to part-finance rupee debt of power projects, floating tax-free bonds of Rs 10,000 crore, exemption from basic customs duty and a concessional CVD (countervailing duty) of 1% on steam coal for the next two years would surely help improve the worsening state of the power sector.

However, while the financial support mechanisms are welcome, the fundamental issue of securing coal supplies—domestic or imported—is not being addressed. Coal India will not be in a position to honour any commitments/agreements if it does not have the resource. The issue of coal imports too needs a longer term vision which takes cognisance of political considerations in exporting countries, international price trends, import infrastructure and the like.