Coal for power

Even if the government does manage to resolve the Dabhol issue soon and then is able to get more investors to set up power plants, it is unlikely that the crisis in the country's power sector will go away.

The reason is unrelated to the problems faced by the state electricity boards and the politicians' penchant for uneconomic pricing of power, and has to do with the availability of fuel.

Over 60 per cent of the country's power plants use coal, and the current shortages here range between 15 and 20 per cent.

The power-starved Maharashtra State Electricity Board says coal shortages are responsible for the current daily power shortage in the state of around 3,000 MW, and says it is planning to buy a coal mine abroad in order to protect supplies from sharp price fluctuations.

Was this shortage situation avoidable? Yes, if the government had been able to implement its plans.

While the 10th Plan projects a 12 per cent shortage in coal supply by 2006-07, compared to the projected demand of 460 million tonnes, this pre-supposes that 83 million tonnes of additional production will come from fresh capacity created by the government-owned Coal India Limited, which is slated to invest Rs 24,000 crore in such projects.

If the past is any indication, however, these numbers are unlikely to be achieved. Of the 85 million tonnes of increased production targeted in the last Plan period (till March 2002), just 36 million tonnes got produced, and only a third of the fresh capacity planned actually got sanctioned.

While imported coal is a solution to the demand-supply mismatch, the fact that the railways overcharge on such freight often makes this an unviable option.

On average, the railways' earnings from moving just coal are 70-80 per cent of what they earn by carrying passengers!

With India's coal reserves expected to last another 40 years, based on the levels of technology with Coal India, it is obvious that the way forward lies in allowing serious private players into the business.

Coal India's productivity levels are a fraction of what is achieved by Australian companies. So it is possible that private sector entry will drive down coal costs, and hence power costs.

One problem with tapping Indian coal is that around half of India's 240 billion tonnes of coal reserves are at depths of over 300 metres, after which open-cast mining becomes uneconomical.

Here too, the answer lies in allowing private players with the best technology to tap the reserves. But while private players have now been allowed into the sector, this is only for captive production/consumption, which for all practical purposes restricts entry and supply.

Another issue that will come up if the government allows the private sector to do non-captive mining is that the best mines are already with Coal India.

There may be a case, therefore, for establishing an independent body to allocate coal blocks, along the lines planned for the petroleum sector.