Lack of institutional capacity for developing coal blocks, limited availability of sound contract miners, and procedural challenges faced by the captive coal block owners are major issues haunting the coal mining in India. Dealing with these challenges is important for improving sector supplies, rather than privatisation, writes Dilip Kumar Jena.
The long-term demand of coal is directly linked to the performance of the end-use sectors. In India, the end-use sectors primarily include electricity, iron and steel and cement. The report of the Working Group of Coal and Lignite for the 12th Five Year Plan projects the coal demand to grow at a 7.1 per cent per annum and reach 980.5 million tonne (mt) annually by 2016-17 under realistic demand.
India has the fifth largest coal resource size in the world. Of the total reserves, nearly 88 per cent are non-coking coal reserves while tertiary coals reserves account for a meager 0.5 per cent and balance is coking coal. Results of geological exploration are reported up to a maximum depth of 1,200 m (Table 1).
The coal supplies in India are primarily dominated by state owned entities namely Coal India (CIL) and Singareni Collieries Company (SCCL). In 2011-12, CIL and SCCL together accounted for more than 80 per cent of supplies in the country and met around 73 per cent of total coal demand. Rest of the supplies included coal from captive coal blocks and imports. The unmet demand for the sector was around nine per cent. The Table 2 presents the supply position in 2011-12.
The performance of CIL in terms of raw coal production have been dismal with only about one per cent increase valued at 435.84 mt in 2011-12 over 2010-11. The performance of SCCL, on the other hand, was good. It produced 52.211 mt in 2011-12 against the target of 51 mt.
In the current financial year 2012-13, during the first six months (April-September), India's coal production rose by 8.14 per cent to 237.66 mt from 219.77 mt in April-September of 2011-12. The production during the first half of current financial year was, however, 5.48 per cent lower than the target of 251.43 mt since the production of CIL, SCCL and captive coal blocks was lower than their target. Also, the import during the first six months of 2012-13 stood at 24.97 mt, which was 28.66 per cent lower than the target of 35 mt. However, imports during the first six months of current financial year were up 19.42 per cent compared with 20.91 mt imported during the corresponding period of 2011-12.
The projected demand and supply gap is set to increase to 185-266 mt by end of 12th Five Year Plan and 271-466 mt by end of 13th Five Year Plan under different scenarios.
Impact of coal shortages
As presented above, approximately 57 per cent or 118.7 GW of India's total installed generating capacity of 207.9 GW is coal-fired while over two-thirds of electricity generation is from coal-based plants. At a global level, coal accounts for 30 per cent of the world's primary energy consumption (Source: Coal Controller's Organisation, Ministry of Coal, Govt of India).
The average plant load factor (PLF) for coal plants (which is a function of coal availability, repair and maintenance and connected demand) was 61.30 per cent. Part of this can be attributed to the fact that only 89 per cent of the total requirement of coal (30.6 mt of coal against the demand of 34.4 mt) was available in September 2012.
At the end of September 2012, 35 coal-based power plants had less than seven days of coal stocks. This was due to the following:
- Twenty-two of these occurrences is due to no, inadequate or delayed receipt from CIL or one of its subsidiary firms.
- Ten of these instances are due to plants running at above-planned PLFs.
- Five instances are due to inadequate import of coal.
Similarly, for the first half of 2012-13, the average PLF of coal-based plants has been 68.27 per cent, as opposed to 71.20 per cent for the same period a year ago. Approximately 12.3 BU of generation shortfall in this period is directly attributable to the shortage of coal.
Considering the above facts, it is clear that the shortage of coal has lead to installed capacity remaining unutilised and shortfall in power generation.
In such scenarios increasing coal supplies in country is important. In following paragraphs we have analysed the coal imports.
Coal imports and challenges
Since FY 04, India's coal import has grown at a CAGR of 15 per cent (25 per cent for thermal coal) and India's coal import requirement will be more than 200 MT by the end of the 12th Five Year Plan.
The challenges and risks in the coal import market are increasing. Under the DMO obligations, in Indonesia, miners need to prioritise meeting domestic demand and thus the quantum of coal available for export from Indonesia is expected to face a hit. Further, Indonesia has moved to the market linked price (HBA index) to be used by coal producers for all future spot and term contracts. On the other hand, Mineral Resources Rent Tax (MRRT) with effective rate of 22.5 per cent and Carbon Tax of AUD 23 per tonne of carbon have come into effect to coal projects in Australia.
Also, India is facing stiff competition for coal imports from other Asian economies like Japan, South Korea and China as the key sources of imports remain the same, ie, Indonesia and Australia.
Has the private participation in section helped improve supplies?
The principal driver for nationalisation of coal resources in 1973 was the need for addressing safety issues, but the other main reason was to facilitate government funding to develop coal mines. Private participation is being gradually permitted by amending the Coal Mines Nationalisation Act to allow captive mining.
Though the safety records have significantly improved, the capacity augmentation from captive coal blocks has been dismal. Till March 31, 2012, more than 195 coal blocks with geological reserves of around 4,500 mt have been allocated to government and private entities for coal mining. However, only 29 mines could come online as compared to a targeted 93 mines. From these mines, only 36 mt of production could be achieved against the target of 104 mt in 2011-12.
Further, it is important to look if private sector captive mines have come up faster than the government sector captive blocks. Table 3 presents the compÂarative assessment blocks under different ownership:
We may see from above table that the Resource Development Indicator (RDI), which indicates the percentage of resource under development and mining, is the highest for CIL at 0.67 per cent followed by SCCL and captive block allocatees (both government and private companies) at 0.53 per cent and 0.08 per cent, respectively. RDI puts government and private coal block allocatees at par with each other.
Further, the Production Gearing Ratio (PGR), which indicates the number of average coal blocks being mined and exhausted every year, is the highest for CIL at 3.16 followed by SCCL and captive block allocatees (both government and private companies) at 0.28 per cent and 0.08 per cent, respectively. Further, PGR indicates the cumulative impact of relative ease and seriousness for development of coal mining projects. PGR puts the government and private captive coal block allocatees at par with each other.
The analysis indicates that private participation in the sector has limited impact on boosting the sector supplies. Further, this may also indicate, inherent or other, challenges in sector. Some important challenges, among others, are:
- Lack of institutional capacity for developing coal blocks and limited availability of sound contract miners.
- Procedural challenges (related to environment, forestry, R&R and land acquisition etc.) faced by the captive coal block owners.
Dealing with these challenges is important for improving sector supplies.
Steps for improving coal supplies in country
Capacity building and contracting: Only few of the power generating and cement companies have in-house mining capability. Hence, either they have to develop the capability of coal mining in-house, which takes time, or they have the option of engaging contract mining companies. Most of the companies choose the latter option, ie, to engage contract mining companies. These contract mining companies, which bring in investments for development of mines, are also known as mine developer and operators (MDOs). In most cases, mine operation contracts have been formulated in such a way that risks related land acquisition, forestry and environment clearances are in the scope of work of MDOs. Such arrangements have led to further delays due to lack of capabilities of MDO to secure clearances and approvals for land acquisition, R&R, forestry and environment management, etc. Therefore, while entering into MDO arrangements, it is important for owners to have well-drafted agreements and in-house capacities to enforce them.
The letter of allocation and mining lease agreements should have provisions for mandatory training of the required in-house personnel in the mines and offices of CIL, SCCL, CCO, CMPDIL and/or outside India. The trainings should focus on the aspects of mine safety, mine operation, mine closure and environment etc. This will help capacity building of coal mining in end users.
Mining technology transfer and fiscal benefits: The big companies engaged in iron and steel production have capabilities in iron ore mining and coal mining. However, as the coal mines are going deeper, they are facing difficulties in sustaining production at the same level due to lack of deep underground coal mining technologies. The challenges with small players are further more. Also, the large opencast mines of end users would require mining technologies and machinery which are not present in India. Though the government has signed many MoUs and agreement with other countries on various aspects of coal mining, the results have not been observed on ground level (Table 4).
Government needs to provide fiscal benefits to foreign companies which are willing to set up operations in India. Further, government may guarantee these foreign companies a tie-up with Indian coal mining companies to test their technologies including training arrangements for fine tuning them to Indian conditions. Such arrangement would help in absorbing improved technologies help in creating a pool of trained professionals.
Further, government may provide tax rebates to foreign MDOs proposing to enter Indian markets by introducing fiscal benefits including tax rebates (in withholding taxes), tax holidays, reduction in custom duties (to nil) for coal mining projects etc.
Forestry & environment issues and single window clearance: CIL, in its Annual Report for 2011-12, has cited difficulty in achieving production targets owing to reasons like delay in land acquisition and R&R issues, delays in environmental and forestry clearances, unÂavailability of infrastructure facilities for coal evaÂcuation and depleting resources among others. The table below presents the summary of 179 projects awaiting forestry and environmental clearances impacting 246 million tonne of incremental production capacity (Table 5).
Further, about 29 projects of SCCL are at different stages of forestry and environment clearance with an incremental capacity of 46.03 mt per annum. Timely forestry and environment clearance may help in meeting production targets.
Securing timely clearances for mine development and operation is also a most important factor for timely development of coal mines. Presently, all related subjects such as land, water, mineral, environment and forest, etc, are administered by different independent departments and ministries at the state and central levels. Since these functions are dependent and complimentary to each other, it is suggested that a single-window agency at the state and central level may process the application. A single-window committee will help to streamline the entire approval process and bring about speed and consistency in decision-making.
Ultra Mega Coal Projects (UMCP) and restructuring of coal companies: Government may introduce the concept of awarding UMCP (5 million tonne per annum or above capacity for underground projects, 10 million tonne or above capacity for opencast projects) through PPP modes for coal blocks owned by CIL/SCCL. All the benefits which are either extended to NELP rounds or UMPP projects may also be provided for UMCP.
Restructuring exercises of coal companies (as already initiated by MoC) may continue to make the coal companies more efficient in their management decisions.
Introduction of commercial mining: Once UMCP concept shows positive results, commercial mining may be introduced in India, subject to the condition that produced coal shouldn't be exported out of India. Coal Mines Nationalisation (Amendment) Bill, 2010 which provides for opening up sector for commercial mining by private companies is already pending in the Parliament.
The coal supplies in the country are hugely dependent on sustained reforms in the sector at all levels including the policy and administrative level changes at central and state levels. Further, it is important for government to constantly monitor the performances of government and private players through an independent regulator. Also, all efforts should be made to monitor the fulfillment of import commitments of power producers. Extension of fiscal benefits and rapid absorption of mining technology would help in improving supplies in long term.