Coal and correction

Solutions to the sector’s problems are known but require political will to implement.

Written by Ashish Gupta | Updated: June 3, 2014 8:11 am
Power producers must not be seen as coal miners. Mining is not their core competence. Coal blocks should be given to specialised coal mining companies. Power producers must not be seen as coal miners. Mining is not their core competence. Coal blocks should be given to specialised coal mining companies.

Solutions to the sector’s problems are known but require political will to implement.

All coal mines were nationalised in 1973 through the Coal Mines (Nationalisation) Act except a certain few, like the Tisco mines. Following this, Coal India Ltd (CIL) was formed in 1975 and entrusted with coal production and distribution. This is the origin of CIL’s monopoly.

But soon after this monopoly was created, coal production became inefficient. For instance, between 1972, when coking coal mines were nationalised, and 1991-92, the number of contracted unskilled workers increased dramatically. Many people were employed due to political pressure. Even after the economy was liberalised in 1991-92 and the way paved for private participation in many sectors, there were huge shortages of coal in the country. In 1993, the government thought of opening the sector for private players to operate captive mines — wherein they would be allowed to mine coal for their own consumption. But several private sector firms applied for mining licences and coal blocks without understanding the complexities of the sector. It seems that the idea of enhancing production through private sector participation in this way has also been set aside.

The suggestions of various academics, think tanks, analysts and private companies to revisit the regulatory framework in coal block allocations and other areas in order to create a level playing field have not achieved much. But the restructuring of CIL and privatisation of coal mining must be given serious thought.

Given the shortage of coal and the vexing question of how to increase CIL’s productivity, the idea of hiring a consultant to suggest reforms was mooted in early 2013. But while a consultant was engaged, the report is not yet out.

Governance of the energy sector in general and the coal sector in particular has to radically change if India wants to take advantage of its vast coal resources. The reform of the sector must be given priority. It must be understood that coal is the only fuel that India has in abundance and it must be exploited to the fullest. This will not only save vital foreign exchange but also help electrify many villages.

But how should CIL be restructured? The solutions are known but require political will and capital to implement. Start with the basics. First, make CIL subsidiaries independent and allow them to pursue their own goals. The practice of managing inefficiency through cross subsidisation among subsidiaries must stop. Second, the new government must focus on devising a framework to make the sector more competitive. Engaging private players is the best way forward. The question is how this should be done. To start with, power producers must not be seen as competent coal miners. Mining is not their core competence. Coal blocks should be given to specialised coal mining companies — including global mining giants. Not only are they capable of bringing in the required capital but they can also infuse modern technology into the sector.

Third, the reduction of unnecessary workers is a highly sensitive issue and must be dealt with very cautiously. Reducing staff will mean a huge loss of employment, especially because CIL’s subsidiaries are overstaffed. Trade unions will naturally oppose such a move. While the new government will have to tread carefully and must keep the interests of the workers in mind, a rationalisation of the number of employees will increase productivity a lot. Fourth, a reduction of the number of offices that have a say in coal policy will be in line with the prime minister’s slogan of “minimum government, maximum governance” and will certainly help in reducing unnecessary delays and red tape.

Fifth, a second look at the recently set up coal regulator is required. It is not clear whose activity it will regulate, given that the sector is monopolistic. If at all, the regulator must be given a say in pricing so that the intended objectives can be achieved. Sixth, the Central Mine Planning and Design Institute Limited must be reimagined as the technical arm of the coal ministry along the same lines as the Central Electricity Authority.

Seventh, a single window clearance approach is required. Separate local offices at the state level that have representatives from various ministries should be empowered to give clearances. This will help bring in transparency and speed up the entire process. Last, in most cases where a coal mine has to be set up, a large share of the land belongs to the state government. The Centre must try to encourage and facilitate the quick transfer of land from the state government to the mining project owner.

The new government seems well aware of the problems and also seems to understand the importance of the sector. The restructuring of CIL in a real sense is the need of the hour. It is to be hoped the new government will be up to the task.

The writer is associate fellow, energy, Observer Research Foundation, Delhi

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  1. A
    Jun 4, 2014 at 7:06 am
    it seems all the solutions given is english verbose.
  2. V
    Jun 4, 2014 at 2:12 am
    Very well written, the restructuring of CIL is the topmost priority. Apart from its inefficiency, do we know the amount of corruption that goes on in CIL? IT's unthinkable with many "dadas" occupying posts of GM, Directors in the same.Apart from the CIL restructuring, foreign investments and inviting private players is also very significant and I think Modi would surely encourage that to ensure better efficiency and productivity. Allotment of coal blocks is also a vital issue, UPA had to face the wrath of corruption through that. People would be surprised to know that not a single block of coal was alloted online, on a genuine basis.
  3. R
    Jun 3, 2014 at 6:54 am
    Indicated Reserves are 270 Billion Tonnes & Proven Reserves are in excess of 100 Billion Tonnes. It is learnt that the the Indicated Reserves are getting converted @ 1 Billion Tonnes every year. We produced 510 million Tonnes & imported over 180 Million Tonnes last year. In spite of multi various options, COAL is & will be the major option for producing over 80% of India's energy requirements. India needs an installed over 500,000 MW's of Power by 2025 & we need to add 45,000-50,000 MW's every year. Clean Coal via Coal Sequestration systems etc., (that is a huge chapter, I don't want to digress!!) is the most important battle to be won by Modi & his Team. Jai Hind & Vande Mataram
  4. R
    Jun 3, 2014 at 6:48 am
    W comprehensive restructuring of the Coal Sector is needed. Piecemeal reforms are not adequate & will fail.
  5. R
    Jun 3, 2014 at 6:59 am
    e.g., the 4000 MW UMPP were planned on the basis of imported Coal & the bids were won @ Rs. 2.19-2.35 per Unit of Energy supplied. ALL Coal Suppliers have increased their rates by 200-250% knowing that each of huge projects (Rs. 16,000-18,000 Crores each) are critically dependent upon such supplies. Most of these Projects are shut down with GOI to take a call on the increased rates. Imagine the situation if we can produce such quality Coal ourselves - then, subject to environmental issues being sorted out, we can have many more UMPP also!!
  6. S
    Srini Balan
    Jun 2, 2014 at 11:06 pm
    The writer is ociate fellow, energy, Observer Research Foundation, Delhi express@expressindiaHis / Her name is missing.What is it , please?
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