Opinion Good coal economics
In a denouement of sorts this week,the Union Cabinet will end the plan for price pooling mechanism for coal which was a sort of throwback
In a denouement of sorts this week,the Union Cabinet will end the plan for price pooling mechanism for coal which was a sort of throwback to Soviet style pan-national distribution mechanism,yet was being rehashed as a reform for the sector.
The importer,Coal India (CIL) did not want anything to do with it; its key shareholders like The Childrens Investment Fund wanted less of it. States with coal reserves did not want it and the buyers including NTPC (on record) and private power generation companies (off the record) did not want it. The only reason it still was being knocked around is for two reasons.
There is no way as of now that coal mining can be de-nationalised. So CIL has to be the only supplier. But as per the governments own projection it cannot supply more than what it currently supplies to power plants,till 2015. Meanwhile new generation capacity is coming up,so by 2014-15 the coal ministry expects domestic coal supply will not be enough to meet even 65 per cent of the requirement of these plants. The power ministry has had to literally ban any fresh capacity creation. Pooling is the only option that keeps this absurd situation from imploding.
The other is the discomfort with raising the price of power supplied to the consumers. Pooling of imported coal with the cheaper domestic coal gives an opportunity to bypass the full extent of rise from the consumers of electricity.
The reason why the mechanism has failed is because each affected party including the states sought to preserve their self interest. The replacement,which will be considered by the Cabinet,finally recognises this self interest and switches to cost plus pricing. For public sector projects since this will be passed on to state discoms,this is okay with them. For private sector projects,mostly won as competitive bids the problem will be solved by the two ministries,power and coal admitting there is a change in policy and advising the power regulators to accept claims for power hike accordingly.
Of course coal will still be mined only by CIL,but the higher cost of electricity the public will have to pay is the price for keeping up the belief that nationalisation helps.
In the interest of pricing of natural resources in the country,this is a better option than pooling. It carries lessons for sectors like natural gas too,junking the effort to create a pan India price. Such a single price imposes stiff control requirements on the government to keep the system from falling apart and is hardly the face of reforms.
Subhomoy is a Deputy Editor based in New Delhi.
subhomoy.bhattacharjee@expressindia.com
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