Where Will Our Coal Come From?

| February 25 , 2018 , 10:36 IST

The recent Coal India Limited (CIL) commissioned study ‘Coal Vision 2030’ lays out that demand for coal in the non-regulated sector is expected to be higher than the regulated sector, and that even in the most adverse scenario the demand for coal in India, as a source of primary energy, shall expand until 2030 and perhaps even beyond.

In a nutshell, there will be a high demand for coal for India’s development. Overall coal demand is estimated to be 900-1000 million tonnes per annum (mtpa) by 2020 and 1300-1900 mtpa by 2030, according to the study.

It is obvious that a considerable amount of coal supply would thus be needed to meet such demand. This brings to the fore the question - where will this coal come from?

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In 2012, the-then Comptroller and Auditor General (CAG) had estimated a ‘notional’ loss of Rs 1.86 lakh crore to the exchequer from the UPA government’s earlier captive coal block allocation to private players. These figures were popularly erroneously perceived to be a ‘loss’ to the national wealth. And so on 25 August 2014, the Supreme Court ruled that all coal blocks allocated by the government between 1993 and 2010 were ‘illegal’. Within weeks, on September 24, the Supreme Court de-allocated all these coal blocks with the exception of those given to the government, and companies with no joint ventures. Thirty-eight of these blocks were coal producing blocks.

Such a retrospective amendment of law had caused mayhem amongst investors. Banks that had lent money to these business, panicked. Investor confidence in India dropped - foreign investors were aghast that Indian courts could just scrap 214 of 218 coal blocks duly allotted by the government to different companies over more than 20 years, without any investigation of individual cases. They feared what would be the guarantee that some court on the basis of some report will not scrap a deal sanctioned by the government in the future?

In 2015 the government announced the reverse bidding in the allocation of coal blocks and linkage – where the bidder who promises to charge least from the consumer wins the block.The stated aim of that move was to ensure that consumers get the benefit of low coal prices. However, the  reverse auction may not have lived up to those promises besides shrinking coal supply.

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In September 2017, CIL allocated long-term linkage of over 27 million tonnes of coal to 10 private power plants. Adani Power companies managed to secure more than a third of the total coal auctioned by CIL. Others in the bidding race were GMR Kamlanga Energy, GVK Power, Inland Power, Lalitpur Power, ACB India, KSK Mahanadi Power and Sai Lilagar Power.

All bidders in September 2017 made token concessions by offering to reduce current electricity tariff by 1-4 paise. In return, they got assured coal supply of over 27 million tonnes per annum for 25 years at CIL’s notified price, which is about Rs 726 per tonne less compared to the price they pay for the spot e-auction coal currently being used by these companies. Moreover these power plants should be able to bring down their generation costs by over 50 paise a unit, which is much higher than the concession of 1-4 paise that they have made. The end consumers, however, have not benefitted from this.

So where will the coal that our country needs come from? Not only has the retrospective amendment of law and the subsequent reverse auction of coal blocks distorted the market for private power producers, but it has also put investors in the sector on their guard, while barely benefitting electricity consumers either.