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PASSING THE BUCK : PMO’S COAL SOLUTION

The Prime Minister’s office has removed the roadblock for India’s power sector. Now Coal India (--------) has been asked to sign long term fuel sharing agreement with the private sector power plants. Will this document be enough to meet the coal requirement for 50,000 mw of electricity generation? Does Coal India have capacity to dig that much coal? But that is an issue to be tackled by Coal India and the Coal Ministry. For the time being the load is off the back of India’s chief executive.

Take a look at what Coal India produces. CIL reported a 2.8 percent drop in production to 291.2 million tons in the nine months ended December 31. The statement came just few days before the government directive on coal supply was issued. Mining operations were curbed by heavy rains. The development of new mines was hampered by delays in land acquisition and environmental approvals. For the next fiscal year CIL has set a production target of 464 million tonnes. Judged by the capacity to produce, the instruction to CIL to enter into long-term fuel supply contracts with private power producers is difficult to implement. More important for CIL, it also does not make economic sense.

Production is just one aspect of the problem. Evacuation of coal from pit heads is another for which the government should ask its railway ministry to take charge. For example, thermal power plants commissioned in financial years 2010 and 2011 totalled 11,600 megawatt. These would need 48.8 million tonnes of coal per annum. CIL has over 70 million tonnes stacked up in its inventory, waiting to be evacuated by wagons which are no show. In October 2011, Coal India was asked to set aside an incremental 4 million tonnes of coal for supply to the power sector, but even this could not be picked up from the pithead, thanks to transportation bottlenecks. The government should ask its railway ministry to come to the rescue of the power sector not CIL.

Taking a cue from the delay on the part of Indian railways in creating evacuation logistics which have impacted incremental coal production in the country, the Centre has asked cash-rich Coal India to invest in rail infrastructure linking major projects. As part of the first such initiative, CIL will take up two rail connectivity projects linking Mand-Raigarh deposits - having a potential to produce 200 million tonnes a year - in Chhattisgarh through a joint venture with the Steel Authority of India Ltd (SAIL) and a few other PSUs. The total cost of the projects is estimated to be Rs 1,550 crore. “The Secretary, Coal Ministry, will hold a meeting to finalise the modalities of the joint venture,” AK Sinha, Director – Finance, CIL said during a media conference in Kolkata. CIL had earlier in the year reported how inordinate delay in completing three rail projects of 50-100 kms each were coming in the way of commissioning three large opencast projects (including Mand-Raigarh) capable of producing 300 mt annually.

According to Sinha, things have also started moving for implementation of the 100 kms of Tori-Shibpur-Hazaribagh rail project which should help mine 100 mt of coal by CIL, NTPC and others. “We are expecting this project to get the final forest clearances soon,” he said. CIL may fund this project too.

But investing in rail projects is only one part of the issue. Starting the new projects will still need some gestation. How will CIL meet the obligation till then? As per the PMO directive and based on the power plants that have been commissioned since financial year 2010, Coal India will have to make available around 120 million tonnes of coal. This, along with its existing supply of 304.8 million tonnes to the power sector, would mean that almost the entire coal it produces would have to go to the power sector if it needs to avoid a penalty. Which also means that the incremental 100 million tonnes needed to meet the 50,000 mw target of the PMO will need to be completely imported.

Out of the 430 million tonne of coal dispatched by the company, around 304.8 million tonnes goes to the power sector. The steel sector gets 9.3 million tonnes, cement gets 10 million tonnes and fertilizer 2.8 million tonnes. The remaining is distributed between aluminum and e-auctions (48 million tonnes). Coal India sells coal at the lowest price to the power sector at government notified rates and at higher prices to other sectors. CIL will be penalised if coal is not made available to private power producers. Predictably CIL would divert coal from other sectors who contribute the most to the operating profits. Other sectors will have to pay the price for pleasing private power producers.

Asking Coal India to import coal if it is not able to produce also overlooks the fact that the company was ready to import, but it was the same set of private players who had gone to the meet the prime minister complaining about the lack of availability of coal. They were not willing to buy it because the price was not right. It is a different matter that the PMO has no clue on how coal will be brought from the ports to the plants.

CIL also needs more clarity on who will foot the bill for any imports before it commits to major purchases needed to meet supply obligations to power producers. “Let us see what the policy says about import cost pass through,” a CIL official told a news agency. A significant number of the upcoming power plants do not have long-term power purchase agreements with distribution companies.

This means Coal India would not be under any obligation to sign supply deals with them immediately. Besides, technology used at many of power stations prevents them from going beyond a certain limit for blending local and imported coal. Therefore, the entire domestic coal shortfall can’t be met through imports and the plant load factor at many plants may remain lower just because they can’t use coal blended beyond a limit.

The way the PMO talked of its directive it gives the impression that the only road block between Indian power generation and fuel availability is the monster called Coal India. The magic wand in the form of instruction to sign fuel supply agreement will solve all the maladies. There will be uninterrupted power generated by India’s top industrialists like Tata, Ambani et al for the poor like Kalavati made famous by Rahul Gandhi. PMO has found its whipping boy. But will India have power as per the need?

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