The perils of reforming a sector, which has for too long been hijacked by a cabal of vested interests, became all too apparent for the National Demoratic Alliance government when it tentatively began tinkering with the coal sector.

Forced by a Supreme Court directive, which last year ordered the government to cancel the allocation of 204 coalfields because of arbitrariness by the previous United Progressive Alliance government, the BJP-led government has adopted the ordinance route to push through reforms.

Last month, it re-promulgated the Coal Mines (special provisions) ordinance, allowing for the auctioning of coal blocks and also allowing commercial mining by private firms. The government had to take recourse to the ordinance route as a combined opposition in the Rajya Sabha (the upper house of parliament), where the BJP and its allies do not have a majority, crippled the functioning of the house, preventing it from introducing the reforms bills.

Last week, in another bid to stall the opening up of the sector to private miners, five major trade unions (including those affiliated to the left parties, the BJP and the Congress) launched a five-day strike aimed at crippling the power sector and the nation’s economy.

Half a million workers of state-owned monopoly, Coal India, and Singareni Collieries, went on a strike demanding that the government should not open up the sector to private players. The strike was called off within three days — but after causing a loss of about Rs4bn and a production loss of 1.5m tonnes of coal — after the government agreed to set up a joint committee, which would include representatives from the union, to look into their demands about not opening the sector to private miners.

According to Piyush Goyal, the coal minister, the government convinced the workers that its aim was not to denationalise Coal India. The unions have always been opposed to the sale of government stake in the monopoly firm, but appear to have relented a bit of late.

S.Q. Zama, general secretary of the Indian National Mine Workers’ Federation, which is affiliated to the Indian National Trade Union Cong­ress (INTUC), says workers are now willing to accept some of the changes that the government has pro­posed.

He admits that the workers lost out the last time when they did not subscribe to Coal India shares that were offered to them by the government, as they were opposed to the stake sale. But following the initial public offering of Coal India, its shares shot up on the stock market, depriving workers of substantial gains.

Zama says the union will not object to workers subscribing to the shares in the next round of stake sale of 10pc by the government in Coal India. However, the union is vehemently opposed to the entry of private miners.

The changes in the law introduced by the ordinance primarily allow private companies to mine coal for captive consumption by their power plants. But it also enables merchant mining in the sector, where the miner can sell the coal to third parties.

Zama says that this could result in the exploitation of workers once again. Coal India workers earn handsome wages of about Rs40,000 a month and enjoy several other benefits. But the private miners — who extract coal for captive consumption — pay a mere Rs7,000 a month to their workers.

By allowing private mining, the government would destroy Coal India, as the state-owned giant would not be able to match the lower price at which the commodity would be sold by the private sector, operating on reduced costs, thanks to lower wages.

With estimated reserves of over 300bn tonnes, India has the third-largest coal reserves in the world. But production has been stagnating, even as demand for coal — mainly from the power sector — has soared in recent years.

While India’s power generation capacity has shot up by 60pc over the last five years — to 255,000MW — its coal production has increased by a mere 6pc. Coal production adds up to 560m tonnes at present, though the government has ambitious plans to ensure that Coal India double its production in five years.

Currently the third-largest consumer of coal, India is expected to overtake the US by next week, when demand will surpass 900m tonnes. To bridge the demand-supply gap, India has increasingly been importing coal. Imports have been growing at more than 20pc annually; last year, it imported more than 170m tonnes of coal.

The power sector accounts for 80pc of the coal demand in the country. The government wants to raise the power generation capacity rapidly and many ultra-mega power plants have been planned.

But for most of the 100-odd power plants that depend on coal from Coal India, supplies are erratic and there is uncertainty till the last minute. For instance, at the beginning of this month, 42 power plants had less than a week’s coal stock, and 20 had less than four days of stock.

Imported coal is also expensive and many of the new power projects that are being put up have committed to sell electricity at rates far lower than even their cost of generation. Consequently, the independent power producers are reluctant to accelerate power generation, upsetting the government’s plans.

The shortage of coal has a cascading impact on other sectors. Many banks had advanced loans to the power companies, but in the absence of generation — and refusal of state-owned distributors to pay more for the electricity, generated by using expensive coal — there is a liquidity crunch.

The bad loans’ portfolio of banks is also rising because of the failure of the power producers to repay their loans.

The coal sector was nationalised by former Prime Minister Indira Gandhi in the 1970s because the private miners were not able to meet the demand for the commodity. Many of them were also accused of adopting unsafe practices, endangering the lives of their workers, forcing them to work long hours and refusing to compensate them adequately.

But after nationalisation, the situation worsened, with the emergence of a coal mafia in many eastern states. The government was also unable to deploy new technology and production stagnated.

Published in Dawn, Economic & Business, January 12th, 2015

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