Coal PSUs fail to cash in on domestic wealth

COAL IMPORT DEPENDENCY: PART I

It is ironical that coal-rich India is importing coal, and that too when international coal prices are hardening. The coal-wealth is locked in inefficient public sector companies which dominate this nationalised sector. Business Standard brings you a two-part series on what is being done to increase domestic supply of coal, within the various political, financial and legal constraints that exist.

India is projected to import about 44 million tonnes of coal this year, almost 10 per cent of its projected demand of 470 million tonnes, despite the fact that the country is sitting on indicated reserves of a whopping 253 billion tonnes of coal and proven reserves of 95 billion tonnes.

While about half the imports are of coking coal, which the country does not have enough of, the numbers point to the inability of the government-owned Coal India Ltd (CIL) and Singareni Collieries to exploit the country's natural resources.

While the 10th Five-Year Plan had targeted an investment of about Rs 18,000 crore, and about 60 per cent of that has been invested so far, the investment required to optimally develop the coal reserves is a mammoth Rs 25,000 crore over the next 25 years.

Without this investment, India's coal imports could cross over 1 billion tonne by 2031-32, according to numbers crunched by the Planning Commission. That is 44 per cent of the projected coal requirement of about 2.5 billion tonnes, assuming the economy continues to grow at 8 per cent year-on-year. The country also does not have the infrastructure to handle coal imports of this quantum.

Clearly, it is not possible for the government-owned coal companies to make these investments. Their efforts need to be supplemented by the private sector.

Serious reform in this sector "" which is behind the bulk of the power generated (about 70 per cent) in the country "" would require an amendment to the Coal Mines (Nationalisation) Act of 1973, which is not possible given the political realities facing the Manmohan Singh government.

However, several "pragmatic" initiatives are under way within the current policy framework to ensure that increased investments from the private sector flow into coal mining, and production increases.

Private sector investment in coal is currently allowed through captive mining by power, steel and cement companies, the main users of coal in the country. This captive door is being opened a little wider by giving a nod to companies to mine "for" the three main user industries. While a formal legal opinion has been sought to allow that, initial indications are that the green signal should be forthcoming.

At the other end, the process of allocating these captive blocks "" 97 of the 148 identified have been allotted "" on an opaque variation of first-come-first-serve principle has been replaced by a more robust system which discourages hoarding of blocks for a future upside.

Those who are allocated blocks have to furnish bank guarantees (of Rs 5-20 crore), which would be forfeited if the production milestones are not met. Private companies which have allocations include Jindal Power, GVK Power, Tisco, Bhushan, Tata Sponge Iron and Hindustan Zinc.

The proposal to let the remaining coal blocks be allocated on a competitive bidding basis, for which a Cabinet note was also ready, has been superseded by a larger amendment to the Mines and Minerals Development and Regulation Act of 1957, which would open up "all" mineral blocks to competitive bidding.

Consultations are currently on with the law ministry but "don't expect the amendment to be moved in the current session", informs an official.