WHILE Chinese coal imports are shrinking sharply because of new rules framed by the government to cut air pollution, India is emerging as a major importer of the commodity. Global coal miners are increasingly expecting India to step in and fill the gap caused by declining consumption in China.

Worried about the impact of air pollution in cities including Beijing and Shanghai, the Chinese government is discouraging the import of coal, especially low-grade ones. But India has been facing a massive shortage of coal, with more than half the thermal power plants not even having a week’s stock of coal.

India’s coal imports have soared in recent months. Last year, the country produced more than 570m tonnes of coal and this year production is not expected to go up much. Domestic consumption added up to nearly 740m tonnes last year, resulting in imports of about 170m tonnes. This year, imports have already topped 150m tonnes and may surpass all previous records.

Last week, the Indian Supreme Court ordered the closure of most of the 214 coal blocks that had been allocated illegally by various governments between 1993 and 2010 to private players. After the nationalisation of coal mines, the sector was dominated by state-owned Coal India Ltd, which however, is an inefficient behemoth, producing low-quality coal.

When India launched its reforms programme in the early1990s, the then government was reluctant to go in for radical reforms by scrapping the Coal Mining Nationalisation Act. The government realised the need to boost coal production to meet the growing demands of the power sector.

So it tinkered with the rules and adopted a half-hearted approach to reforms, and arbitrarily began allocating coal blocks to businesses that had strong links to politicians, encouraging crony capitalism. This process continued since 1993, but gained notoriety about five years ago, when the government failed to auction the blocks, and handed over the mineral resources to favoured businesses.

The then Comptroller and Auditor General came out with a damning indictment of the United Progressive Alliance government headed by former prime minister Manmohan Singh, accusing it of showering favours on friendly business groups. The coal mining scam — and the earlier 2G telecom scam — both of which saw a notional loss of trillions of rupees to the exchequer — was one of the major factors contributing to the defeat of the government in general elections in May.

Last month, the Supreme Court declared that more than 200 coal blocks allocated to private parties by the government since 1993 were illegal. Delivering its verdict last week, the apex court provided relief to only four blocks allocated to public sector companies. About 40 blocks that are operational have been given six months additional time, though they will have to compensate the government by paying Rs295 a metric tonne of coal mined.

The government had pleaded with the court, urging it not to scrap the allocations, as it would endanger investments of over Rs2trn in the power and steel sector. States such as Jharkhand, Odisha, Chhattisgarh and Madhya Pradesh — where most of the coal blocks and mines are located — had also appealed to the central government to advice the apex court not to reallocate the blocks.

But the Supreme Court said that since the allocations were illegal and arbitrary, there was no need to come to the rescue of the miners. All those whose mines are operational were told to pay to the government a fine of Rs295 a tonne for the coal that they had already mined. The government can also auction the blocks, or hand it over to Coal India, declared the court.


THE uncertainties dogging the coal industry over the past few months have impacted the power sector greatly. Billions of rupees have been invested in new plants, but the independent power producers are being forced to import coal to operate them.

The power producers, many of who had entered into long-term purchase agreements with state-owned utilities (often quoting ridiculously low power tariffs) have been seeking a hike in the tariffs, citing the high cost of imported coal. But many state utilities have protested over the increase in tariffs and are demanding a roll-back.

But it is not just a question of shortage of coal. The existing infrastructure in the country — including ports and the railway network — are unable to handle the sudden upsurge in imported coal. Paradip, one of the major ports on the east coast, for instance, has been unable to handle the huge inflow of imported coal.

Coal consignments are piling up at the port, even as power producers are starved of the resource. The port authorities blame Indian railways for not providing adequate rakes to transport the coal from the port to the power plants.

Heavy rains and the consequent flooding in states such as Odisha have also impacted operations at the port. Adding to the woes of the industry, truckers in eastern India have also threatened to disrupt coal supplies following the government’s instructions to Coal India to curb e-auction of the commodity.

While the company sells coal to power producers under a fuel supply agreement — which also specifies that the coal has to be sent by rail — it has also been resorting to e-auctions, where the returns are much higher. E-auctioning of coal also fetches more profits to the company.

But the recent crisis in the coal sector has resulted in the government directing Coal India to drastically cut down e-auctions and to sell the commodity to other state-run companies.

About 5,000 truckers in Odisha are threatening to take action by disrupting coal supplies, if the government did not withdraw its orders relating to e-auction.

The government’s move to discourage e-auctions by Coal India has also been slammed by some international investors, who feel the decision is against the interest of other investors. But considering the enormity of the crisis on the power and coal sector, the government is ignoring all such concerns and wants the coal major to focus on supplying the resource to power plants.

The latest Supreme Court judgement will not provide immediate relief to the sector, but it will help in bringing about transparency in future allocations of coal blocks.

Published in Dawn, Economic & Business, September 29th, 2014

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