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Coal India touched a new all time high of Rs 401 on news that the company will be broken up into smaller companies to boost output and cut imports. A Credit Suisse report had pointed out that the disappointing domestic coal output is one of the main reasons for the slowdown in India's investment cycle.
Coal output from the company has remained nearly stagnant over the past few years, with the company missing its target continuously. There are many reasons for a poor performance of Coal India and breaking the company into smaller manageable units might not solve the production issue.
Apart from governance challenges, inefficiency, allegations of corruption and lack of pricing power have also impacted the performance.
There is little doubt that breaking the company up into smaller manageable units and roping in the state governments will help improve production. Further, competition among the mines and states will also improve the quality of coal being sold in the market.
Following are five other issues that needs to be corrected in order to improve overall health of the coal sector and improve its availability in the country.
1. Administrative challenges
One of the biggest issues in increasing coal production are delays in getting all the licences. In the present legislative and regulatory framework, the allottee of a captive coal block has to obtain multitude of clearance and approvals with the environment ministry taking the maximum time (around 3-4 years). There are various state and central level agencies involved in clearing a proposal. Let alone private captive consumers, even Coal India has to wait in line to get its mines. A single window clearance is the need of the hour to increase production by starting new mines. Land acquisition is the other big reason for delays, mainly on account of local issues. Taking the state government into confidence and making the locals stake holders as prescribed by the Mines and Minerals (Development and Regulation) Bill, 2011 can help in solving this issue.
Having said that, mining companies including Coal India have been known to exploit environmental norms. According to a report titled 'Black and Dirty: The Coal Challenge in India -- Climate and Resources' written by Ashok Sreenivas of Prayas (Energy Group), 239 mines were found to be operating without proper environmental clearances for their expanded operations, while 558 out of 629 mines did not have the requisite environmental management systems. There was a backlog of over 12000 hectares in land-filling and technical reclamation across 7 out of Coal India's 8 subsidiaries.
2. Transparency
Coal allocation under the UPA government ended up in controversy. Intentions of the government were noble. The objective of allocating captive coal blocks was not to maximise revenue for the government but to rapidly increase coal production and reduce electricity tariffs. However no conditions were imposed on allottees to pass on benefits of cheap coal to consumers nor any monitoring on how the blocks were progressing. In the end, neither the government nor the country benefitted from increased production or lower electricity tariff. A transparent mechanism of monitoring allotted mines would have helped the sector immensely.
A 2011 report by the government appointed Committee on Allocation of Natural Resources pointed out that lack of transparency on how 'coal linkages' are granted lead to serious doubts about their merits. These linkages are granted by a multi-ministerial committee and as per the report, 1,500 coal linkages worth about 3,000 million tonnes per annum were pending compared to the projected production increase of 175 mtpa up to 2016-17.
3. Pricing
Coal India has almost no control on the price at which it sells its product. Pricing of coal was fixed by the central government until its deregulation in 2000. The right to fix the price was then given to Coal India and Singareni Collieries Company. However the Ministry of Coal interfered with the pricing on political grounds. As a result a D Grade variety of coal in India is sold at a discount of nearly $60 per tonne. Those importing coal are doing so at these higher prices, while Coal India is made to sell at lower prices to power companies.
4. Transportation and Infrastructure
Coal India management have always been saying that the issue of lower output is not related to production but to logistics. Coal stocks are lying at the mines waiting to be evacuated but are not been done on account of lack of proper transportation mode. Even though there are railway tracks there are not enough rakes available to clear the inventory. Road connectivity between consumers and mineral zones is either missing or is in a poor state.
5. Power sector reforms
The only reason Coal India is unable to increase prices of its product is the belief that its consumer -- power producer and power distribution companies cannot afford it. Power tariffs have been kept low due to political reasons and quality and uninterrupted power is denied to the consumers under the garb that they cannot afford it. However, states like Gujarat have proved that availability of power is more important than no power at all. Consumers are willing to pay the extra price.
Unless the power sector is completely decontrolled and be driven by market forces, coal sector will continue to feel the pressure. Nearly 75 per cent of coal produced is used for power generation thus it is important that the health of the consumer is improved along with improving the health of the supplier.
