Business

Capacity build-up in coal essential

The Shankar panel has recommended import of high grade thermal coal

AN EARTHY PROJECT: Dragline operation (to remove overburden) at an opencast coal mine.

INDIA WILL face pronounced coal shortages over the next four years, according to a committee set up to recommend measures to meet the demand-supply gap in this major energy source and also examine the current policy on captive coal mining besides the merits of opening up trading in coal and restructuring Coal India Ltd. The committee is headed by T. L. Shankar (retired IAS). J. J. Irani, director of Tata Sons, and P. K. Sengupta, former Coal India Chairman, are also on the panel.

The committee, which submitted the first part of its report recently (it will take up issues regarding CIL and the Centre for Mine Planning and Development of India later), has said that coal would remain India's primary energy source and the shortages were likely to become acute in the first two years of the Eleventh Plan as delayed Tenth Plan power projects get commissioned alongside the Eleventh Plan projects, already under construction. As a short-term measure, it has recommended import of high-grade thermal coal for about 30 to 40 million tonnes by 2011-12.

The committee has pitched for stepping up captive coal mining and wants special attention to incentivising and expediting production. It has also laid out an elaborate set of procedures to ensure a transparent mechanism for allotting coal blocks.

No long-term vision

Commenting on the structure of the coal industry, it said that the sector's healthy growth has been affected by the lack of a long-term vision for coal development and the linking of the industry's fortunes almost exclusively to the performance of the power sector.

It has been noted that the economic liberalisation policies and programmes initiated since 1991 have had no impact on the coal industry although captive mining was permitted for specified industries.

Since the Eighth Plan, coal production has been on target although the power sector's capacity additions have trailed targets. While steel, cement, fertilizers and paper and many medium and small industries depend on coal for their energy requirements, the power sector dominates the scene accounting for 75 per cent of the consumption of thermal coal. It is the main driver of coal demand. Another sector that has a bearing on coal demand is the small and unorganised sector comprising brick and ceramic industries. The demand from this segment is relatively large enough though infirm, as these small and unorganised users switch between fuels depending on relative prices and the availability of coal in the grey market.

Conservative targets

The committee has given due consideration to the issue of coal demand in the short and medium term and the extent to which domestic production, as planned now, can meet demand.

It has been found that against a total demand of 460.5 million tonnes, the Tenth Plan document had set a production target of only 405 million tonnes and planned for imports at 20.5 million tonnes, leaving a gap of 35.02 million tonnes in 2006-07, the terminal year.

According to the committee, no reason has been given for leaving this gap uncovered. In fact, the Plan target had assumed a plant load factor of 75 per cent for power plants whereas some plants had started operating at a PLF of 80-85 per cent. The out-performers, while relying on increased supplies through short-term linkages, also drew down on their inventories and operated with coal stock barely sufficient for a week. Increased use of washed coal added to the scarcity conditions. This reduced run-of-mine coal supply. Neither the coal industry, comprising two state sector players CIL and Singareni Collieries of Andhra Pradesh, nor the power sector took much cognisance of the large demand-supply gap highlighted in the Tenth Plan document. The committee points out that these facts were being recorded "merely to highlight the process of coal planning'' which needs drastic changes to meet the much higher targets and responsibilities likely to be entrusted to the industry in the coming decades.

The Planning Commission in consultation with the Coal Ministry upped the demand target for the current plan to 473.18 million tonnes during the mid-term appraisal exercise.

A sub-group set up by the committee for a more critical examination of coal requirements and the possible supply scenario concluded that in 2006-07, coal requirement for power generation would be 330 million tonnes. According to this sub-group, India would need to import some 60 million tonnes additionally over the import level of 2004-05 for supporting a projected demand of about 710 million tonnes by 2011-12. This would get reduced once the emergency production plan of CIL which has now got the CCEA nod, gets under way. Under this, an additional 68 million tonnes would become available through expansion plans.

While discussing the need for expediting project clearances, the committee says that it is necessary to improve project formulation to match international standards. In this context, it has suggested that CIL could be granted Navaratna status to bring greater delegation of authority with matching accountability and responsibility. However, on the issue on environmental clearances, which the committee has identified as an area of concern, it had suggested a permanent taskforce to monitor the progress of clearances.

Price reform

The committee has pointed out that its proposals are a package that need to be implemented simultaneously beginning this fiscal. It avers that the import option has to be kept functioning efficiently as an essential supply option along with price regulation, which will ensure coal at minimum cost to the power sector while allowing a competitive and transparent coal market for other consumers. It feels that in keeping with the size of India's deposits and the level of production/consumption, the sector should integrate more closely with the world market to emerge as a competitive industry. It now remains to be seen to what extent the government accepts the report.

INDRANI DUTTA

in Kolkata

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