Releasing the Draft National Energy Policy on Tuesday, Centre’s think-tank Niti Aayog has recommended that the seven subsidiaries of India’s largest coal miner Coal India Ltd should be converted into independent companies and be allowed to compete against each other in the open market.
In the draft of the policy, which aims to chart a way to achieve the energy security targets announced by the government, Niti Aayog has criticised Coal India setting prices “that are significantly higher than the implicit cost of mining by the independent power producers”. “Given its monopoly on coal, CIL is able to pass higher costs to coal buyers and thus has no incentive to contain costs. In the medium to long run, it is essential that we move away from this opaque coal economy and introduce greater competition in it,” the draft policy said.
Apart from corporatising Coal India’s subsidiaries, it has also pushed for higher production from private coal miners, for which it has suggested comprehensive reforms in allocating coal blocks on commercial lines to independent firms specialised in coal mining. “These two steps will replace the current system of administrative allocation of coal by a vibrant coal market with prices performing the function of allocation. The resulting competitive pressure will foster efficiency and bring about substantial reduction in coal price. It is entirely conceivable that our coal industry will emerge as an exporter of coal,” Niti Aayog noted.
However, it has also highlighted a potential downside of a market-determined coal supply in form of adverse impact on electricity rates for “vulnerable customers”. Our assessment is that reductions in coal prices due to increased efficiency and competition are likely to lower rather than raise the price of coal for generation companies. But even in the unlikely event that the price of coal for generation companies rises thereby necessitating a temporary rise in their sale price of electricity, we must protect the vulnerable electricity customers through direct benefit transfer,” it said.