India’s Coal Supply Security: Pushing Imports at the Expense of Domestic Reforms?

  • Ashish Gupta

Coal India Ltd. (CIL) has not been able to supply the committed quantity of coal to the powerproducers, forcing them to source coal from other countries. Apart from this, many coal blockswhich should have been in operation by now are yet to come on-stream.

Coal mining in India is almost 220 years old. It was started way back in 1774 by Messrs Sumner & Heatly of the East India Company in the Raniganj coal field on the western bank of river Damodar in West Bengal. Coal mining continued after Independence and at the beginning of Independent India’s first Five Year Plan in 1951, coal production was 33 million tonnes (Mt) which rose to 73 Mt in 1970 and 313.4 Mt in 2000. It currently stands at 535 Mt.

Until 1970 most of the coal mines were exploited by private parties. In 1970, the Government felt the need for nationalizing the mines as not enough capital investments were coming from private miners. The condition of the labourers in these mines was also a cause for concern. The Government first nationalized all the coking coal mines through the Coking Coal Mines (Emergency Provision) Act, 1971, and followed with the nationalization of all mines in 1973 with the Coal Mines Nationalization Act. Till the Sixth Plan period (1985-86), fuel for electricity generation in the country was shared equally by coal and hydro. In the following years, the share of hydro declined and it currently stands at less than 15 percent (2010-11) while coal dominates with more than 69 per cent in terms of generation. In terms of energy generated, the difference between the two sources is more than 450 billion units.

After liberalization in the 1990s, the hunger for power increased significantly but the public sector was not able to keep up the pace with the supply of coal. The Coal Nationalisation Act was amended in 1993 for allowing private sector participation in captive coal mining for generation of power, washing of coal and other end uses as notified by the Government. After the re-introduction of the private sector it was felt that coal supply constraints would ease but unfortunately that has not been the case. Currently 117 coal blocks have been allocated between Public Sector Units, State Public Sector Units and the Private Sector for the power sector with an estimated geological reserve of 24.5 Billion tonnes (Bt) having the potential of producing 100 Mt per year. Production from these mines now stands only at 25 Mt (2009-10) as most of the blocks are not yet in operation due to several factors.

Further, a draft report by the Auditor General of India leaked to the media has created a furor. The report states that there were irregularities in allocating coal blocks from 2005-09 and that the process adopted for allocation was not competitive. The report estimated a loss of 10.7 lakh crore Rupees (US $213. 47 billion) to the exchequer. The controversy is still simmering and investigations are going on. This development has certainly disrupted many coal blocks from coming into operation. The coal shortage estimated for the current fiscal (2012-13) year is 60 Mt which includes demand from imported coal based projects as well. According to some companies, the demand for imported coal will increase on account of Coal India’s inability to fulfill even their committed coal supply assurance. Many companies are looking to source coal from other countries. But how securing imported coal will ease the problem of shortages, especially in the light of the increase in fuel cost that cannot be passed on to final consumer, is unclear. It is also unclear at this point if the emphasis on imports will add to project feasibility.

This paper aims to examine a few serious questions:

a) Is there an ‘absolute scarcity’ of coal in the country?;

b) If not, what are the barriers to domestic coal production?;

c) Are large projections for imported coal justified? <BR/ >