Will privatisation help the cause of coal industry?

The first step towards privatisation came in 1993, when coal users such as power plants and steel mills were allowed to mine coal for captive use. Coal production became pivotal in 2003, when the government announced its mission...

In one of the most important policy decisions since the nationalisation of the coal industry in 1973, the Union Cabinet has allowed the private sector entry in coal mining for commercial use, something that the unions in the coal belt had feared since 2014. Despite the coal minister’s assurance that “It will increase competitiveness and allow the best possible technology into the sector,” past governmental policy has made it difficult for Coal India to modernise its technology.

Coal was a violent and corrupt business, largely run by mine-owners with the help of the coal mafia, until the coal mines were nationalised in 1973. Nationalisation of mines resulted in better technologies, higher wages for the labour, reduction in corruption and thievery and a sharp increase in coal production. Today, India produces 554 million tons of coal as against 79 million tons in 1973.

The first step towards privatisation came in 1993, when coal users such as power plants and steel mills were allowed to mine coal for captive use. Coal production became pivotal in 2003, when the government announced its mission of providing power to all by 2011. Soon, the government also realised that the gap between demand and supply of indigenous coal would most likely be 70 million tons by 2011.

The rising demand resulted in an increase in coal-based power capacity, which went up from 76 gigawatts (GW) to 130 GW in five years, from 2008 to 2013 — a growth of 71 per cent. During the same period, the amount of coal used for the power sector went up from 423 million tonnes per annum (MTPA) to 508 MTPA — an increase of 20 per cent. As a result, the imports of coal by the power sector surged by about 510 per cent between 2007-08 and 2012-13 — from 10.2 MT to 62.5 MT.

The shortage of indigenous coal and the rush for imports whetted private sector’s interest in it. Imported coal is normally more expensive than the locally-mined variety and as the Coal India cannot meet the expected demand, imports are expected to rise. According to the ministry of coal (MoC), there are pending linkage applications from the power sector for about 600 GW of capacity (requiring about 2,700 million tons of coal per year). This is about five times India’s current installed coal-based power capacity. Such a high requirement opens up a Pandora’s box of questions about how this can be done, the temptation for corrupt practices and the likelihood of a scandal more widespread than

the “coalgate” which brought down the previous government.

A March 2014 study, The largesse that wasn’t: The story

of coal shortages in India by a Pune-based non-profit think tank, Prayas Energy Group, has a sharp view of the matter. Analysing the reasons for the coal shortage it says, “All indications clearly showed that imports would be required to meet the … commitments. However, the government did not take any policy measures to address this eventuality. Other stakeholders, particularly power plant developers and their financiers, ignored the very realistic possibility of coal imports and based their business plans on abundant availability of domestic coal, which was never promised.”

The cost of mining coal in India is lower than international practise because 90 per cent of the coal mined here is by open cast mines as compared to a worldwide average of 40 per cent — the figure is just 10 per cent in China.

While the cost of removing the coal from these huge pits is only around one-fourth of the more traditional underground mines, the environmental devastation they cause is much higher.

Significantly, most of the mines given to the private sector were open cast mines.

The fact that private mines are able to sell coal at lower rates than Coal India doesn’t imply that they are more efficient than the state-owned mining company. It’s just that they make their profit by paying workers one-third of what public sector coal workers get, and spend even less on checking the damage caused to the environment. The miners’ pay package of an average of `40,000 a month is the result of several decades of hard bargaining. In the labour-heavy coal-mining business, mineworker costs now account for around half the pithead price of coal.

This implies that under the present scenario coal could become a major import, like oil, and make us even more dependent on energy imports.

A study of the balance sheet of the Coal India Limited (CIL) shows a profit before tax at Rs 22,900 crore — the figure is onethird of its net sales. It is also a generous employer — the employee cost of `27,800 crore is half of its total expenses. Unfortunately, the government is so intent on getting a high dividend (290 per cent or `18,317 crore in the year 201314 of which 90 per cent went to the government) that it is just not investing enough. Its capital expenditure during 2013-14 was just `4,330 crore, less than five per cent of gross sales. Little wonder that the annual increase in its production has been less than five per cent in recent years.

The CIL has 148 ongoing projects with capacity of 486 million tons and capital expenditure of `32,800 crore, most of which have got environmental and forest clearance. If a sensible coal use policy is followed this will be sufficient to meet future demand.

Another shortcoming in the company is the abysmally low investment in research and development (R&D) — less that `23 crores go into R&D.

This means that the company has not been able to develop the technology needed to increase the production, especially in the underground mining, something that could allow them to increase their output to more than double their existing value, that too from an average extraction rate of 30-70 per cent.

Instead of relying on a very high dividend to help curb its budget deficit, most of the company’s substantial profit should go into investment in developing new mines. The available resources would make the privatisation of coal mines unnecessary.