Coal news and updates

The government is looking at opening up coal mining to international competition with a proposal to price domestic output on a par with imports ? a move that will increase the cost of power. But the plan comes with a built-in stabilization fund to cushion consumers from possible adverse impact.

 

Sources told TOI the decision to examine the proposal was taken at an inter-ministerial meeting held on June 10, which was attended by finance secretary Arvind Mayaram, expenditure secretary Ratan Watal and coal secretary Sanjay Srivastava.

 

If the move goes through, the entire pricing mechanism for the fuel will undergo a change, and will be similar to the one used for petrol, diesel and cooking gas, where rates are adjusted periodically. Apart from international prices, changes in exchange rate will also have a bearing on domestic coal prices.

 

The sources said the idea behind the proposal is to boost output, incentivize efficiency, induce competition and attract large international mining companies who would help induct latest technology and best mining practices in the industry.

 

The other motivation is to promote underground mining, which has less impact on the environment than open cast mining but requires higher degree of technological expertise.

 

Domestic coal is 40% cheaper than imports after adjusting for heating value, or quality. Since coal-fired plants account for 60% of the power generated in the country, the move to import parity pricing would tell heavily on consumers by way of tariff spikes.

 

The coal ministry was asked to examine the feasibility of implementing the import parity pricing on the model of revenue-sharing with the government. The ministry would now prepare a note to be discussed by a panel of secretaries.

 

Admitting this aspect, the meeting said the import pricing should be examined with the provision of creating a separate kitty on the lines of price stabilization funds. The government's revenue share could then be parked in this account and used to offset the higher fuel costs for producers ? in other words, subsidize power. Admittedly, the proposal is at a nascent stage and would require many rounds of discussions at various levels in the government before, if at all, the proposal becomes a policy.

 

But industry experts TOI spoke to ? all on condition of anonymity ? were unanimous in their opinion that this is at best only a half-baked idea and won't work on the ground.

 

The government has to pass the Coal Mines Nationalisation Repeal Bill, pending since 2004, before it can offer blocks for commercial mining. "At that time, there were doubts about Coal India's ability to survive private competition as it had huge accumulated losses. But there is no such worry now and it has the muscle to compete," a former Coal India executive said.

 

Global miners in any case now come in as MDOs (mine developer and operator) for private power projects. "It is not clear what the government wants to do. If it wants to open up coal mines for commercial mining, then why import parity? In such a case, market force should be allowed to drive the price. Coal India as the big brother can act as moderator. You can also let the proposed regulator set the price or have a tax grid to stabilize prices," a representative of one private power company said.

 

China, with 330 billion tonne of coal reserves today miines some 3 billion tonnes a year. India with 300 billion tonnes reserve, produces around 600 tonne. India imported over 80 million tonne of coal last fiscal. Nearly 50 million tonne of the imports went to meet shortfall in supplies from state-run monopoly Coal India, which produced some 475 million tonne against a target of 562.

 

Power production has been hanging precariously for years as growth in fuel supplies failed to keep pace with rising demand for power and rapid expansion of coal-fired generation capacity. The UPA-2 government's dogmatic approach towards granting green nod for opening new mines only exacerbated the problem by setting the clock back by several years.

 

 

Source: ToI