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Thermal: Fighting a coal war

A top executive at a leading infrastructure financing entity said he would not lend even “one rupee” to the power sector. His company is not alone in giving the sector a wide berth. The power sector, particularly the coal-fired thermal segment, which accounts for more than 65 per cent of generation, is in a logjam.

It is not hard to see why. Power plants are not getting enough coal; production cannot be raised because environmental concerns have stalled new mines; and imported coal is costly. The only way out is to produce more coal.

In January this year, Prayas Energy Group released a report on coal mining in India. In the sea of statistics and information the report provides, one bit stands out. It says that in 2011-12, installed coal-based power capacity increased 19 per cent, while domestic coal production rose by a mere one per cent.

The report goes on to note that power plants were promised far more coal than could be produced. “By April 2011,” it says, “coal linkages equivalent to about 270 million tonnes a year had been granted to new power plants, while the most optimistic production increase in the 11th Five Year Plan was only 250 mtpa.”

The reason for that mismatch lies in the 10th Five Year Plan period (ended 2007). The Government drew flak as the country’s installed power capacity increased by about 22,000 MW, less than half of the target for the period.

In the next plan period (ended 2012), the achievement of about 55,000 MW was again well short of the target, but not a number to be scoffed at. Except for one thing: coal linkages. The Prayas report talks of “serious shortcomings in co-ordination across ministries” and decries the “lack of transparency” in the process of granting coal linkages.

This “lack of transparency” is the root cause of the saga involving scams, de-allocation of mines, missing files, snipes at the Prime Minister (who was briefly the Coal Minister), Comptroller and Auditor General’s indignation, and so on.

In June, for the second time, the Government issued a “directive” to Coal India Ltd, ordering it to sign ‘fuel supply agreements’ with various thermal power plants, which together had a capacity of 78,000MW.

What good a directive will do when there are structural issues in producing coal is a moot point. A PwC study released this June notes that it takes four years just to secure a “forest clearance”.

In the short term, the only answer seems to be imports. Last year, India paid Rs 81,012 crore, about $15 billion, to import 137 million tonnes of coal. With the rupee’s decline, that bill will shoot up. It is not surprising that financiers are shying away from the sector.

Source: The Hindu Business Line