The Hindu Business Line : Govt may allow bidding for coal mining blocks

THE Centre is actively mulling the possibility of allotting captive coal mining blocks on a competitive basis after earmarking coal blocks for the public sector behemoth Coal India Ltd. The blocks will be awarded to the bidder quoting the highest price with the exchequer netting the sale proceeds.

The Union Coal Ministry had recently moved a Cabinet note to the Prime Minister's Office in this regard, according to Government sources.

The move, if implemented, will result in higher cost of fuel for power plants, steel units and cement plants and hence could drive up inflation, according to experts.

Coal sector deeply impacts the power sector since it accounts for around 50 per cent of the cost of power generated by a coal-based power plant.

The fate of the power sector is inextricably linked with that of the domestic coal sector since it consumes around 70 per cent of the total coal produced in the country. Further, coal-fired power plants generated 70 per cent of the 500-odd billion units generated in the country during fiscal 2003-04. The average fuel cost of coal-fired stations in the country is in the region of around Rs 1 per unit of electricity.

The proposal to bid out coal blocks could blunt the capacity addition programme of the Central and State utilities, which account for a significant 90 per cent of the coal-based generation capacity in the country. This is because the blocks that would supply coal to the power plant require to be secured well in advance of the commissioning of the power plant.

If the securing is done through a competitive bidding process where the highest quote wins, the viability of the power plant could be undermined.

In case the coal cost is still cheaper than that of alternative fuels like LNG or natural gas, the States, which are the main intermediary purchasers of power, will end up transferring this hike to the consumers, experts say.

With more States deciding to restore free power for farmers, they will be burdened with a higher deficit. This will further retard the reform process and the restoration of the viability of the power sector.

In other words, this would amount to transfer of resources from the States to the Centre in a commodity (electricity) where the delivery chain passes through monopoly sectors — coal and Railways — and harbours ills such as inefficiency and subsidy distortions.