There is a crisis in the coal industry
of regulatory and reputational issues, have zero incentive to take new risks in the coronavirus disease (Covid-19) world. Smaller Indian companies simply do not have access to credit or cash on hand to open new mines.
The third nail in the coffin has been the deliberate weakening of Coal India’s financial position. In addition to the usual royalty payments, cesses, taxes, and other fiscal contributions reasonably expected of Coal India, there has been a concerted effort to extract cash from the organisation. Between inflated dividend payments, unnecessary share buybacks, and questionably useful corporate social responsibility contributions, Coal India has transferred tens of thousands of crore to the central government in various ways. Coal India’s cash could have been used to further diversify the company, reinvest in new operations, promote research and development for alternative uses of coal (like the coal gasification mentioned in the stimulus package). Coal India could have been strategically repurposed as a vehicle of industrial investment to help coal-bearing regions (where it has operated for 50 years) diversify their economies. Instead, it appears to have become a victim of a larger strategy to weaken the Indian public sector. Not surprisingly, Coal India’s market capitalisation is less than a third of what it was in 2014.
The fourth and final nail in the coffin has been the spectacular rise of the mine development operator (MDO) mode of mining. Subcontracting of mine operations has been a major feature of the coal industry for more than two decades now. It has also brought considerable financial and operational efficiencies to Coal India. But as the demise of coal mine operator EMTA showed, the MDO model remains rife with problems related to transparency, undue transfer of gains to private entities and a general deterioration of social contract in mining regions. In fact, the retreat of Coal India from the front lines and the increasing use of various forms of subcontracting has led to a much harsher face of mining in India today. The MDO model also creates an incentive mismatch; why would a large mining company take the risks of buying a mine if they could make good money subcontracting for coal block owning public sector units instead?
To be clear, the status of coal as India’s energy incumbent in the power sector will not be evaporating any time soon; this will be a decades-long process. But with the coffin nailed tightly shut, it may not be reasonable to have any new dreams about India’s coal industry. We might just have to settle for decades of stagnation until its ultimate decline.