Issues in the coal sector are beyond allocation and auction

The coal situation in India reminds me of the famous line, "Water, water, everywhere, but not a drop to drink!" India, with estimated coal reserves of 280 billion tonnes, is said to be the fifth-largest in terms of reserves. Of this, 110 billion tonnes are "proven" reserves. At our current rate of production, just the proven reserves are enough to carry on for more than 100 years. But even then, our coal production falls short of actual requirements and India needs to import coal.

So, we have 280 billion tonnes of coal reserves, but inadequate availability! With demand for electricity greater than supply, the Indian economy is on the verge of a power crisis. A principal reason for this is inadequate availability of coal. Coal, as a fuel, accounts for almost 59% of India's total power generation (132 GW of a total 226 GW of electricity output is from coal). Coal is also an input for a large number of other industries, like iron and steel, cement, fertiliser and so on.

In 2012-13, total domestic demand for coal was 773 million tonnes while production was 569 million tonnes. The deficit was largely met by imports and almost $16 billion worth of coal was imported from Indonesia, Australia and South Africa. This has been happening every year and such imports are aggravating the current account deficit, one of the reasons why the rupee has been depreciating against the dollar.

Coal is primarily mined and controlled by Coal India ( CILBSE 0.64 %), but the current level of mechanisation at the public sector behemoth is inadequate, compromising the productivity and efficiency levels and resulting in shortage of coal. Thus, the scarcity is absolutely artificial. It is difficult to take a call on which route for assigning coal blocks is better: allotment or auction. The government of India had allotted coal blocks on a project-specific basis, but little support was extended to them in terms of enabling them to start mining.

 

Not being able to start mining effectively leads to cancellation of allotment. On the other hand, it has been argued that coal being a finite, nonrenewable natural resource, auction is a better option. But auction of a key raw material like coal is bound to have an inflationary impact across the board, be it agriculture, industry or service sectors. So, allocation of coal blocks must be dealt with in an intelligent manner, keeping in mind in mind the interest of the general public.

 

Today, lack of state-of-the-art technology prevents prospecting of the quality of coal before allocation or auction of coal blocks. Until the right industry has the right quality of coal at its disposal, it makes little sense whether they get a coal block via an auction or allocation. The ash content in coal determines its suitability in various industries.

For example, steel needs coking coal that has minimum ash content, whereas for power production, coal with high ash content is good enough. Coal produced in India is primarily non-coking type and has high ash content, in the range of 25-35%. Thus, India has enough domestic reserves to meet its power sector demand for centuries, but will need to rely on import of coking coal for steel plants.

The government should usher in state-of-the-art technology in the mining processes through the publicprivate partnership route. The involvement of the private sector, especially international mining players with a proven track record, will bring in fresh investments and technology and expose this sector to globallyaccepted best practices. The private sector expertise needs to be leveraged to bring in higher efficiency and productivity and enabling production of this critical natural resource in in a cost-effective manner.

 

We should create a national data bank of coal blocks and the quality of coal available there. Based on that data bank, mapping should be undertaken to provide coal linkages to the entities so that they are able to source coal from the nearest possible block. This would also ensure that costs in terms of logistics remain low. Move away from both allocation and auction of coal blocks and, instead, embrace a policy of providing coal linkage on a case-to-case basis. For the power sector, priority should be accorded to projects that have already achieved financial closure.