Saturday, Nov 29, 2014

Coal and correction

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.
Written by Ashish Gupta | Posted: June 3, 2014 12:25 am | Updated: June 3, 2014 8:11 am

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 continued…

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