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The Coal Connection

Each time the fan sighs to a stop in East Delhi’s crowded Joshi colony, the people are paying the price for keeping employees of government-run coal companies happy.

In the past two years, in Delhi and other cities, the principal reason for the rise in electricity prices has been coal-related. Prices for most categories of consumers in India have been the same or higher than in most developed countries. But India has the third- or fourth-largest reserves of coal in the world. Why, then, are our electricity costs so high?

Most places in India face prolonged power cuts in summer. They are longer in smaller towns where the outcry is less audible. Distribution companies resort to cuts despite abundant supply because they are unable or unwilling to buy power at high prices. The story is largely the same whether one looks at state government-run electricity boards or private-sector distribution companies in cities like Delhi, Mumbai and Kanpur. They find it difficult to make consumers pay for the higher cost of electricity. Consumers can hardly be faulted for being annoyed when asked to pay more. By and large, power-generation companies in India are efficient — the bidding route through which they enter this sector makes sure of that. There is some slack at the distribution stage but the bigger issue is of high coal prices.

In short, end-consumers are subsidising the inefficiency of coal companies. The daily wage worker in towns pays a high price for electricity because of the political clout of

the unionised workers of the three government-run coal companies, Coal India Limited, Singareni Collieries Company and Neyveli Lignite Corporation.

So most of Tamil Nadu swelters because of the high cost of lignite from Neyveli Lignite Corporation and also to keep it from being disinvested — the last time the company came on the block, the state government moved Sebi to scuttle the sale and quickly rustled up the cash to buy its shares. Further north, as Telangana suffered from one of the worst heat waves ever, the state government was considering buying out the Centre’s shares in Singareni Collieries.

India produces coal at one of the most expensive rates in the world. The output per manshift, that is, the average amount of coal each employee digs out, of Coal India Limited was less than six tonnes, a third of the global average, in 2013-14. But, between 1974 and 2015, the minimum wages of the employees of the government-run coal mining companies have risen by a compound annual growth rate of 9.67 per cent.

This is the primary reason that, post-2010, the domestic coal sector had to raise prices sharply even though the rest of the world was slashing them. Often, a price rise has been unannounced because of low-grade coal being supplied or boulders being delivered along with the coal to power stations. It has forced many to keep spare money to buy imported coal. Since the government has been unwilling to open up the sector to competition, the lethal combination of low productivity and high wages has pushed up costs for power generators.

In the private sector, too, after the cancellation of the coal block allocations, the companies that used to run the mines have not been spared the cost of servicing loans. Each had taken loans upwards of a billion dollars to build their power plants. They still have to pay the interest costs of servicing these loans. The cost of disruption in supplies as the coal drama played out has also been considerable for government-run power generation companies. It is coal that has kept the price of electricity high for the end-consumer.

source: http://indianexpress.com