A powerful need

A strong domestic coal production and delivery system is important to achieve energy sufficiency and long-term energy security. Also, an independent coal regulator is required to create confidence of private investors, writes A Shivkamal.
 
India is the seventh largest country in the world with a total land area of over 3,287,260 sq km and with a growing population of 1.22 billion that has put severe strain on the Indian infrastructure. In the past decade, India has witnessed rapid urbanisation and unprecedented growth in the rural areas. This has led to unimaginable developments in housing, industrial and infrastructure needs, which in turn has placed a huge demand on the energy needs of the country and the demand for electricity is continuously growing on a daily basis.

While the country's power deficit is at around 8.5 per cent, the demand for electricity is continuously growing; however, supply is unable to keep pace with the demand, primarily due to fuel shortage. 

The International Energy Agency estimates that India needs an investment of at least $135 billion over the next five years to provide universal access of electricity to its population.  
The electricity consumption per capita for India is just 571 kWh, according to the World Bank and it is far below most other countries or regions in the world. Even though 85 per cent of villages are considered electrified, around 57 per cent of the rural households and 12 per cent of urban households, ie 84 million households in the country, do not have access to electricity. Electricity consumption in India is expected to rise to around 2,280 BkWh by 2021-22 and around 4,500 BkWh by 2031-32.

As of December 2012, the installed capacity of the power sector in India stood at 210.951 GW, world's fifth largest while captive power plants generated an additional 31.5 GW. While non-renewable power plants constitute 88.55 per cent of the installed capacity, 11.45 per cent is contributed by the renewable energy sector. With this, India generated 855 BU (855,000 MU ie 855 TWh) electricity during 2011-12 fiscal. In terms of fuel, coal-fired plants account for 56 per cent of India's installed electricity capacity.

Coal and lignite combined accounted for about 57 per cent of India's installed capacity. Thermal power plants account for over 65 per cent of India's generated electricity. India's electricity sector consumes about 80 per cent of the coal produced in the country. India expects that its projected rapid growth in electricity generation over the next couple of decades is expected to be largely met by thermal power plants.

The total installed capacity of thermal power in India stood at 140,206.18 MW, which is 66.99 per cent of total installed capacity, as of October 31, 2012. With Maharashtra being the largest producer of thermal power in the country, the current installed base of coal-based thermal power is 120,103.38 MW which comes to 57.38 per cent of total installed base.
 
Role of coal
Coal is the most important and abundant fossil fuel in India, which accounts for 55 per cent of the country's energy needs. We all know that rapid industrialisation and urbanisation has today led to global warming world over. In terms of per capita equity, India is 145th in the world with a release of 1.25 t CO2 per annum. Though coal has the maximum global warming potential followed by natural gas and others, coal forms an important source to generate electricity, along with other clean technologies. To provide energy security to the country, guaranteed supply of coal with improved quality is a primary requirement. However, for India, like most developing countries, the cost of producing electricity has always been a concern.

The country's industrial heritage has been built upon indigenous coal. Energy consumption for commercial purposes has grown by about 700 per cent in the last four decades. “More than 50 per cent of India's installed generation capacity is coal-based. Over the last five years, the demand for coal has been growing at an average rate of 8-9 per cent annually as compared to a 5-6 per cent increase in domestic production. This has widened the demand supply gap, leading to growing dependence on imported coal. In 2011-12, the country imported around 100 million tonne of coal (including thermal and coking coal),pointed out T Narayan, Managing Director, CLL Logistics, a major trader of coal for power companies in India. The Ministry of Coal has planned to increase the coal production by an average of 36 million tonne per annum in the 12th Five Year Plan. It is estimated that coal production will grow at a CAGR of around 9 per cent from 2011-12 to 2013-14. It is also anticipated that the demand for thermal coal by power and steel sectors respectively will gain momentum in near future. The size of Indian coal industry is estimated at Rs 800 billion by the end of fiscal year 2012.
 
Indian coal is undoubtedly a unique eco-friendly fuel source for the domestic energy market. With hard coal reserves around 246 billion tonne, of which 92 billion tonne are proven, hard coal deposits, spread over 27 major coalfields, are mainly confined to eastern and south central parts of India. 

It has been estimated that at current levels of consumption, the proven reserves of coal will last for 80 years and if all the inferred reserves also materialise it can last for over 140 years at the current rate of extraction. “To meet the energy requirements, India is seeing an upward swing in the coal consumption, whereby its current coal reserves will last for only a few years more. If domestic coal production continues to increase at a rate of 5 per cent, the extractable reserve will run out in around 45 years, observed Ashok G, CEO, SLN Mining Consultancy.  
 
Operational difficulties
Having said this, it is difficult to predict the long term demand for coal owing to rapid changes in the prices and availability of other fuels, technological advancements and new policies. With the coal deposits in India concentrated in the eastern regions, setting up of a coal fired power plant in western or north-west India makes it difficult to transport coal over distances exceeding 1000 km, which is sure to increase the price of power generation. 

According to a Credit Suisse report, it is estimated that the coal deficit in India will increase to 400 million tonne in FY 2017 from around 50 million tonne in FY 2011. Further, as per the Planning Commission report it is expected that demand for coal will rise to around 937 million tonne by 2021-22 and to more than 1,415 million tonne by 2031-32. With this, power generation companies will be forced to look at offshore coal, either through mine acquisitions or buying coal from international markets. Also, experts say offshore coal is not an easy alternative for power companies to meet their requirements in India, as cost of mining, acquisition of leases and shipping costs will add to the power generation expenditure.
 
So, what are the factors that play a crucial role?  
Dr TH Hanumanthaiah, a well-known geologist and member of the Geological Society of India, lists out several reasons that can work for or against the power sector in India if there is an over dependence on coal.

• Dependence on imported coal is technically not viable as old power stations cannot take the heat generated from more than 10-12% international coal blending  

• Mine acquisition is not easy for India as most of the deals have been sealed by China leaving India with very few options (large scale mining operations that are capable of supporting and supplying coal demand for the private sector players).

• Government and environment clearance issues are the major hurdles, both in India and other reserve-rich countries.  

• Countries such as Indonesia, Australia, and South Africa are considering giving priority to their local needs.  

• India does not have sufficient infrastructure such as ports and rail network, which is a bigger challenge to transport imported coal.

The overall responsibility of framing polices and strategies in respect of exploration and development of coal and lignite reserves, sanctioning of important projects and other decision-making rests with the Ministry of Coal. 

“It is easy to say for the private sector to say that they will try to secure coal supplies from other countries. But look at what happened to them Only a few have been successful in acquiring coal blocks in Australia and Indonesia. The coal supply is not even sufficient to fire their plants in India. We are stuck in a neutral zone. Rapid reforms to exploit existing coal deposits in India is the only way forward, adds Dr Hanumanthaiah.

The PSU Coal India (CIL) is the largest contributor accounting for 81 per cent of the country's coal production. Of the remaining balance, 9.5 per cent comes from Singareni Collieries Company (jointly owned by the Central Government and the state government of Andhra Pradesh) and the remaining comes from privately operated collieries and the captive coal mines. Small mines in the north-eastern state of Meghalaya also add about 6 million tonne to the total production.  
 
Way forward
There is an urgent need to completely deregulate the coal sector in India if the country has to meet the ever growing energy needs. Though the government claimed that it had deregulated the coal sector in 2007 itself, the results are not positive. 

This is the first time since economic liberalisation that CIL has failed to keep up with the Plan (2007-12) targets. But during the last five years, private capital, for the first time, played a significant role in India's massive 55,000 MW capacity addition. Naturally, the shortage in fuel supply had hit investors' sentiment.

As coal shortage remained a persistent issue for industry, a Working Group headed by the then Steel Secretary PK Misra, observed that the government should deregulate coal sector and allow commercial mining to bring in competition and thereby improve efficiency.
The Group, which had other 46 members from ministries including Coal and Planning Commission, noted, “As a first step, captive block owners, who have surplus coal after meeting the full normative requirements of their end-use plants should be allowed to sell the excess coal to registered end-users at a fair price to be determined by a regulator. A market platform where all the captive block owners (as sellers) and end-users (as customers) may trade needs to be created. Over a period of time, sale of coal should be allowed freely at market determined prices.”

The Group, set up by the Plan Panel, will form basis of policy formulation for steel sector in the 12th Plan (2012-17).
 
Captive Mining Policy
The Captive Mining Policy was introduced in 1993 as an interregnum to full and unrestricted opening of coal sector to private investment. Despite the government allocating over 200 coal blocks for development by private/public entities outside the government-owned coal companies, the progress has not been promising. When we look at the numbers, a mere 30 odd mines have commenced production that contributed to just 36.30 million tonne in FY 2010-11 against a target of 104 million tonne.There is an urgent need to bridge the widening demand-supply gap of coal. The government should take steps to increase domestic coal production for long term energy security. 

To achieve energy sufficiency and long-term energy security, a strong domestic coal production and delivery system is important. An independent coal regulator is required to create confidence in the mind of private investors.