August , 2020
Is Coal India going to face a crisis?
12:36 pm

Kishore Kumar Biswas


The Indian government is going to open the coal sector for private participation in commercial coal mining. Amitabh Kant, CEO, NITI Aayog, Government of India, has pointed out some reasons that support the decision of privatisation of coal blocks.

First, India has the second largest coal reserve in the world but it imports about 25% of its requirement. This cost India `1.7 lakh crore in 2018-19 as import bills. Second, it will lead to employment generation in tribal areas and for other local people. Third, revenue of the state governments as well as, the central government would increase significantly. Fourth, entry of the private sector would have immense backward and forward linkages of transport and physical infrastructure. This would help to achieve high growth. Fifth, this would pave the way for using the latest technology, which would have a spillover effect on other sectors. Sixth, with privatisation, India would be able to maintain a balance between renewable and fossil fuel power in the grid. Seventh, Kant does not consider that there would be significant adverse environmental effects as in India, the CO2 emission (2 tonnes per capita), is less than many other global economic powerhouses.

Some of the shortcomings of Coal India

India’s coal reserve is 326 billion tonnes (BT), the fifth largest in the world. It stands second in production. At the same time, India is the second largest importer of coal, importing about 240 MT. The country’s total demand for coal is around 1.5 BT per year. It is estimated that India needs to import about 500 MT of coal to replace the import of 240 MT of high calorific value coal. Coal India Limited (CIL) has about 54% of the country's total coal reserves but has been producing only about 600 MT.

Navin Jindal, former MP and Chairman, Jindal Steel and Power Limited, in a recent media article pointed out that the CIL has 346 operating mines. Out of these, only 96 are open cast (OC) mines and 230 are underground (UG) and around 38 are mixed mines. Significantly, 75% of CIL production is achieved from the thirty-five OC mines whereas 230 UG mines contribute only 5% to 6%. In this situation, more dependence on OC mines involves more environmental hazards. Moreover, for higher grade coal, one has to go for UG mining. But UG mines involve higher cost, difficult geo-mining conditions and also require higher skills. Jhindal also observed that almost 90% mines under the Eastern Coalfield Limited (ECL) and all mines under Bharat Coking Coal Limited (both CIL subsidiaries) have been suffering losses.

Would privatisation of coal mines help the economy?

There are many parts to this question. The first claim in favour of privatisation is cost minimisation. Jindal and Kant think that implementation of modern technology would increase efficiency, which would lower the cost of production of coal and will have a huge impact on the efficiency and competitiveness of the economy as a whole. Jindal thinks that in that case, the cost of power would come down to `2 per unit (kilowatt hour or KWH) and consumers can get it for as low as `3 per unit. Power consumption in the country may double to five to six units per person per day. But, according to a former Deputy Chairman of the National Thermal Power Corporation (NTPC) and a former Chairman of Damodar Valley Corporation (DVC), the simple calculation and estimation forwarded by Jindal ignores the fact that the cost of renewable energy has already come down to around `2.30 per unit. It is poised to come down further. In that situation, the price advantage of coal-based power is very doubtful.

Second, an important stakeholder in the power industry who did not want to be named, told BE that it is very difficult for investors to participate as there are huge uncertainties in land acquisition, environment clearing and setting up infrastructure including rail and road construction for coal transport, rehabilitation of inhabitants. According to him, it would take nearly a decade to start mining in a full-fledged way in the new coal blocks.

Third, the auction pricing may be suitable for some bidders but may not be so for many. The floor pricing has been kept at 4% of the revenue and each bid thereafter will be in incremental multiples of 0.5% till the revenue share touches 10%. After that bidding, it will be in multiples of 0.25%. To prevent under reporting of mined coal, prices will be calculated on the basis of the National Coal Index. It is reported that many investors seek easier norms for bidding of commercial blocks.

It is true that privatisation of coal blocks may not be an answer to deal with the power situation in the country. But in spite of that, the CIL must be prepared to change its own working to survive. Otherwise it would lose its own viability. In such a situation, a large number of CIL jobs may be at stake although private players are vying for more employment generation in the process. 


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