PMO mugs Coal India to help private power producers

A cash-starved, solutions-challenged UPA government has just identified its next victim - a cash cow that can help it avoid hard policy choices in energy.

The anointed sacrificial animal is Coal India - producer of 80 percent of the country's coal, and, more importantly, a public sector company whom bureaucrats can order around to cough up cash where it is politically needed. As on 30 September 2001, Coal India had Rs 55,000 crore of cash on hand.

The PMO, under the watchful gaze of Manmohan Singh's Principal Secretary Pulok Chatterjee, is eyeing the moolah.

News reports on Thursday said the government has asked Coal India to sign up 20-year fuel supply agreements (FSAs) for upto 50,000 mw of private sector power plants being put up by the big guns of Indian industry: from Ratan Tata to Anil Ambani and Gautam Adani.

 PMO mugs Coal India to help private power producers

Coal accounts for more than half of power generation by India, Asia's third-largest economy. Reuters

According to BusinessLine, Coal India will be rewarded if it meets 90 percent of its FSA commitments, and penalised if it falls below 80 percent. If it does not have enough coal of its own, it can import.

A brilliant way to solve the coal shortage and get power plants up to speed? Why did no one think of it before?

Trust the government to opt for a solution that isn't really one.

First, there isn't enough coal available with Coal India even to supply those it it already committed to - like NTPC. So how is it going to supply an additional 50,000 mw of new capacity?

Second, even if the answer is imports, the question is, who will pay the higher prices? If the answer is the power producers, they can well import it themselves. So why should Coal India get into the act - beyond being a facilitator?

At Coal India's current production rate of around 440 million tonnes, the annual coal shortage is nearly 142 million tonnes. That's a 30 percent gap which has to be met from imports - which are far costlier.

So the idea of signing long-term FSAs means Coal India could be signing away a lot of its profits since the imported coal will have to be subsidised. The subsidy will come from profits on domestic production. Unless Pranab Mukherjee steps up to the plate (ha!) and offers a direct budgetary subsidy on imported coal.

The first shot in the effort to use Coal India's money to avoid energy pricing reforms - the right solution is to get bankrupt state electricity boards to hike tariffs and pay commercial rates for coal - was fired last month when it was ordered to pull back prices based on gross calorific value (GCV).

Now, with Coal India being forced to sign up what could be adverse FSAs with power producers, the intention is clear.

What the PMO's bright sparks have done is draw up a plan to mug Coal India and hand over some of its money to private producers.

Just as ONGC, Gail and Oil India have been forced to bear 38 percent of the oil subsidy burden, in Coal India we now have a new bakra to subsidise power plants.

In the power sector, we will now have Coal India playing ONGC. It is the new bakra.

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Updated Date: Dec 20, 2014 06:33:11 IST