Should PMO be crowing about arm-twisting Coal India?

‘PM’s initiative will help power plants with an estimated capacity of more than 50,000 mw. A two-year roadblock is cleared for power sector’, says a tweet from the PMO.

It cleverly does not mention the dead-end ahead after this roadblock is removed.

Not only is the proposal asking Coal India to enter into long-term fuel supply contracts with private power producers difficult to implement, it also does not make economic sense.

What the PMO’s diktat essentially does is pass the onus on to Coal India for all the future woes of the sector. It is now Coal India’s responsibility to make sure that power plants get their fuel over the long term and the targeted growth of GDP is achieved, as mentioned in another tweet of the PMO. The tweet says ‘Coal supply resolution will help in achieving power generation capacity targets for the 12th plan and targeted growth of GDP in India’.

That little thought has gone into drafting this solution can be seen from the fact that the move would not only result in penalising Coal India, but also damage other sectors that use coal. The issue with coal as a commodity is not just its availability in the country, but its evacuation.

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Take, for example, the fact that thermal power plants commissioned in financial years 2010 and 2011 totalled 11,600 megawatt. They would need 48.8 million tonnes of coal annually. Coal India has over 70 million tonnes stacked up in its inventory, waiting to be evacuated. It’s the railway ministry that has to be pulled up, rather than Coal India for coal not going to power plants.

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.

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[caption id=“attachment_216361” align=“alignleft” width=“380” caption=“Coal India has always said the only reason it has not been able to increase output is delays in environmental clearance for opening new mines.”]  [/caption]

Even if production is an issue, Coal India has repeatedly said that the only reason it has not been able to increase its output is delays in environmental clearance for opening up new mines. Here, another government ministry, the environment ministry, should be blamed for the delays.

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 aluminium and 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. If the company will be penalised if coal is not made available to private power producers, Coal India might be forced to 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.

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.

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.

As per the existing fuel supply agreement signed in 2009, Coal India is supposed to import coal and provide it at ports. Taking it from there to the respective plants is the private power producers’ responsibility.

The issue thus seems to be arm-twisting by government to provide subsidised coal. The government, on their part, has cleverly passed the buck to Coal India. As the state electricity boards are in no mood or financial strength to renegotiate their power purchase agreements (PPAs) with private power producers, Coal India is being made to pick up the tab.