Open up India’s Coal Sector

For power projects in India without captive coal mines, it is cheaper to import coal 

On 26 October, Finance Minister Pranab Mukherjee described the Government’s sale of shares in Coal India Ltd (CIL), a Navratna, as an ‘unqualified success’. The Centre’s coffers sure look better. But more interesting is how coal has transformed itself in popular consciousness. Not long ago, it was always part of some exploitation story, be it Yash Chopra’s 1979 film Kaala Patthar or Rakesh Roshan’s 1997 film Koyla, whose only allowance to globalisation was in the form of a tune lifted from Michael Jackson’s They Don’t Really Care About Us.

Now, suddenly, it’s all about power generation. Coal-fired plants will account for over half the additional electricity generated in India over the next decade or so. It is the most cost-effective, as made clear by the supercheap bid (Rs 1.19 per unit) made in 2007 by Reliance to grab the Sasan mega-project, which comes along with its own coal pithead. For power projects that do not have captive mines, though, the cost of hauling coal across India is so high that it makes better sense to import it. Tata’s plant at Mundra, Reliance’s at Krishnapatnam and Essar’s at Salaya are all coastal projects, with ports, for this reason. “Domestic production, growing at a rate of 5-6 per cent per annum, cannot support the requirements of coal based power producers,” says Arvind Mahajan, an energy expert at KPMG. 

CIL is a monopoly seller of coal, and its annual output of 431 million tonnes, while 80 per cent of India’s overall figure for 2009-10, was not enough to meet Indian market demand. Some 65 million tonnes needed to be shipped in. Foreign coal is of better quality too, allowing the use of supercritical technology that yields more electricity per tonne (with fewer emissions). No wonder producers have been busy buying coalmines abroad lately—mostly in Indonesia. “Besides getting long term supply security,” says Mahajan, “acquisition of coal assets abroad also gives them a hedge against volatility of coal prices when their power tariffs are fixed.”

India’s own coal reserves, estimated at 276 billion tonnes, of course, are temptingly vast. And if coal is to complete its transformation in Indian consciousness—as something that illuminates rather than exploits—the Government should give the sector a boost: open it up to private competition.

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