More than a coal problem

Synopsis: India’s primary coal producer can only be partly blamed for the coal shortage issue, other factors needs to be seen to avert current and further crisis.

Introduction

India is in the midst of a coal shortage and that has led to its power plants having very little coal. As per the report of the Central Electricity Authority, as of 21 October, the 135 coal linkage based power plants tracked had an average coal stock of 4 days.

Coal India Limited is being blamed for this crisis. But is it fair to just blame Coal India alone?

A brief history of coal sector in India

After independence, much of India’s coal production was privately owned. The growth in coal production was sluggish and was less than 2% per year before the 1970s.

Mainly for this reason, coal mining was nationalized between 1971 and 1973.

In 1993, the government decided to allocate coal blocks to both private sector and public sector companies for captive consumption.

The commercial mining of coal was allowed when the Parliament passed the Mineral Laws(Amendment) Bill in March 2020. Now, it is possible for a private company to produce coal andsell it commercially.

What has been the performance of “Coal India ltd.”(CIL)?

In 2020-21, the total coal produced by Coal India was around 83% of the total 716.1 million tonnes produced in the country, which came down marginally from 88.5% of India’s coal in 1980-81.

This monopoly of the Coal India firms has translated into huge operating margins(represents efficiency to generate profit). As per the Public Sector Enterprises Survey for 2019-20, the state-owned public sector coal firms had an operating margin of 37.1% in 2019-20.

What are the trends in demand and supply of coal?

Production/supply-The growth in coal production for the 10 year period ending 2019-20 stands at 3.4% per year on average.

The demand for coal on the other hand in the last 10 years has grown by around 4.8% per year.

Will commercial mining of coal help?

Commercial mining of coal is allowed now under the Mineral laws (amendment) Bill passed by the Parliament in Mar 2020.

But, the issues is that the private miners will face exactly the same problems that Coal India does, when it comes to setting up a new coal mine.

Along with the systemic issues mentioned earlier for Coal India, the lack of human resources will also limit the ability of private miners.

Commercial mining of coal might work out well in the long-term, but in the short- to medium-term the importance of Coal India and import dependence is likely to continue.

Can renewable sources fulfill the gap?

In 2020-21, proportion of coal based power was 53%. In absolute terms, almost twice more coal-based power was produced in India in 2020-21 than in 2005-06.

This dependence on coal is unlikely to change in the years to come. Coal India annual report states that the share of coal in overall energy mix is expected to remain high at 48-54% even beyond 2030.

What can be done?

The government needs to support Coal India in sorting out issues related to land acquisition and environmental clearances for both coal India and private companies.

The managerial capabilities of Coal India should be made free social objectives of the government.

Source: This post is based on the article “More than a coal problem” published in Livemint on 25th Oct 2021.