The Government’s in-principle nod for ‘pooling’ of prices for coal produced as well as imported by Coal India Ltd (CIL) is unwarranted and ill-conceived. The move – which entails the state-owned miner supplying coal of equivalent grade, whether its own or imported, at a single price to all power stations in India – harks back to the days when the Government made available iron ore, pig iron, coal or aluminium at the same rate across the country through a so-called freight equalisation policy. That policy, abandoned in the 1990s, helped create foundries in places likes Batala in Punjab, but robbed mineral-rich areas in West Bengal, Jharkhand, Orissa or Chhattisgarh of their natural location-based advantage. Coal price pooling would end up doing as much, since it aims at bringing the cost of imported coal (roughly Rs 6,000 a tonne) closer to the Rs 4,500 levels for indigenously mined material of comparable quality. That, in turn, would be done by adjusting the prices of domestic coal upwards; by spreading it over all power stations, this could be limited to around Rs 100 a tonne, translating into an additional electricity price of 10 paise per unit.
The Government has defended the proposal, saying that CIL cannot meet the fuel supply agreements (FSA) it has signed with new power plants only through coal produced from its own mines. Since that leaves no option but to import the balance requirement, there has to be some mechanism to make it feasible for coast-based power plants to burn imported coal. But this is hardly a convincing argument. Pooling would amount to penalising plants commissioned prior to March 2009. It is not the fault of these stations that they are today being supplied almost their entire requirement through indigenous coal. Moreover, if West Bengal or Orissa have huge coal deposits, why should they be denied the possibility of leveraging this advantage – that too, through artificial price equalisation – to generate cheaper power that might help attract investments? Whether these States are actually doing so, or simply frittering away this advantage, is not the issue here.
If power from imported coal is costlier, the only solution is to allow producers to pass it on to consumers. The other alternative is increasing domestic coal output. Both these call for decisive reform actions. Today, consumers are willing to pay for reliable power. The only thing standing between them and producers are the State Governments, which are neither allowing tariff rationalisation nor open access enabling them to contract directly. The Centre, on its part, has shown little inclination to dismantle CIL’s coal production monopoly and open up the sector to private and foreign miners. Nor has it effectively addressed the various environment and forest clearance-related issues impeding augmentation of domestic production. Price pooling is ultimately yet another of those expedients to evade the real issues confronting the energy sector.