Assess demand first to make CIL's $1 bn investment plan work, says Niti Aayog

A careful assessment of coal demand for power sector is needed so that the over USD 1 billion annual investment plan by CIL for raising its production capacity to 1 billion tonne is not stranded, the

government think tank Niti Aayog has said.

The think tank also suggested to spin-off Coal India's seven arms into independent firms and imbibe competition, saying the coal behemoth was supplying coal to consumers at higher prices.

"It has to strive hard to achieve the target of 1 billion tonne production by 2019. However, with subdued demand for coal, we may not require the production level envisaged above.

A careful assessment of demand for coal-based power is needed so that the over USD 1 billion annual investment being made by CIL, in raising its production capability is not left stranded," Niti Aayog said in its Draft National Energy Policy.

Looking to the fact that power demand is growing only at 5 per cent annum presently, the coal sector is allowed to respond autonomously rather than pursue a target-led strategy, it warned. Meanwhile, it said Coal India Ltd (CIL) is expected to remain the principal vehicle of coal production for the country in immediate future.

The draft policy also suggested to spin-off Coal India's seven arms into independent companies to compete with each other as the country needs to move away from opaque coal economy and introduce competitiveness.

The world's largest coal miner that accounts for about 80 per cent of the domestic output supplies the solid fuel to buyers at higher costs due to its monopoly. "We must corporatise the seven subsidiaries of CIL into independent companies and allow them to compete against one another in an open coal market," Niti Ayog said.Beyond a small e-auction market, India's coal economy is run almost entirely through administrative allocation.

There exist multiple prices associated with the allocations and the "methodology of fixing coal prices is arbitrary", it said.