Planning Commission report on surplus coal banking next week

Report to lay out roadmap for implementing controversial idea of allowing corporates hand-over surplus production to another entity to address mismatch

The government’s key policy advisory body, the Planning Commission, will submit its final report on the crucial proposal of surplus coal banking from captive mines next week. The report will lay out a roadmap for implementing the controversial idea of allowing corporates to hand-over surplus production to another entity to address mismatch in demand and availability.

 

The current captive coal mining policy strictly debars companies, whether private or public, to sell coal mined from the captive blocks. Surplus production, if any, has to be transferred to the nearest Coal India (CIL) subsidiary at a transfer price decided by the government, it says. The new policy would have to be approved by the cabinet and may require amending the Coal Mines Nationalization (CMN) Act 1973 and the existing 170-odd Letters of Allocation.

 

“The draft of the report on the surplus coal policy has been prepared by us. We have shared it with the stakeholders for comments. The final report will be submitted to the coal ministry within a week,” a top Planning Commission official told Business Standard. He added the report will make it clear whether, under the new dispensation, surplus production lying with a captive miner will have to be transferred to CIL or private entities.

 

Coal India, the state-owned miner, had recently expressed reluctance to be a part of any coal banking arrangement. The commission had then initiated discussions on the possibility of allowing one private company to transfer coal to another. The official said the details of the arrangement, including the pricing, volume and the mode of transfer, have been worked out.

 

Companies in the thermal power generation sector consume a bulk -- 75% -- of India’s annual domestic 558 million tonne (MT) production. The power ministry has asked for allowing a rate of return in the range of between 20% and 25% for captive miners willing to bank their surplus coal. The idea is to reasonably incentivize production to bridge at least a part of the 135 MT gap in the demand of supply of coal domestically.

 

The government has allocated a total of 218 captive blocks to companies between 1993 and 2011. Of these, 47 blocks have been de-allocated. Captive coal mining companies were expected to produce 100 MT by the end of the last five year Plan period in March 2012. However, production from captive coal mines has remained stagnant at a level between 30 MT and 36 MT over the past four years giving rise to a historic coal availability crisis. CIL’s production has grown at 4.8% to 452 MT during the same period.

 

The idea of coal banking was floated by the Association of Power Producers (APP), an industry body representing 20-odd top power companies. According to the original APP proposal, CIL should be made the custodian of surplus coal output which is expected to be close to 28 MT by the end of the current Plan period in 2017. The banking proposal will allow companies -- which are experiencing delays in the commissioning of the end-use project but have developed coal mine – to transfer coal to another company where the end-use project has been commissioned before the coal block and receive the coal at a later stage.

 

Only 31 coal blocks allocated to 25 companies have come into production so far in the country. So far, there has not been any case of large-scale surplus production. The government had allowed Reliance Power Ltd in 2008 to divert surplus coal from the coal mines attached to its Sasan Ultra mega Power Project (UMPP) to another of its nearby project, Chitrangi. The decision was questioned by the national auditor in its report last year.