…nor any lump to burn

There are many things that the UPA Government can take credit for but strategic thinking on infrastructure is not one of them. The absence of this virtue is obvious in many areas, not the least of which is the coal shortage that is staring the power sector in the eye. Amongst those hit by it are private power developers, who have come up with a reasonable idea. It is based on the doctrine of promissory estoppel which, stated roughly, says that if one side to an agreement keeps its promise, the other side has to do so too, even if there is no formal contract. The doctrine is based on the simplest notion of equity and is widely accepted because it is fair.

In the case of the private power developers, when the Government was desperately seeking private investment in power, it promised investors that Coal India Limited (CIL) would supply coal in whatever amounts were needed. New capacity to the tune of some 20,000 MW is slated to come up over the next couple of years, most of which is based on clear-cut letters of assurance (LoAs) issued by CIL. Such an assurance was also needed to achieve financial closure. The investors took this seriously and went ahead with their plans. But now that the investments have been made and the projects will need coal soon, CIL is suddenly acting coy. In essence, it seems to be saying: Sorry, we can't give you coal and, in any case, there was only a letter of assurance, no formal contract. Since this will leave the power plant owners high and dry, they have suggested that they will buy the coal from CIL at prices determined by the e-auctions. In other words, they are claiming a pre-emptive right but are willing to pay whatever it takes. During the quarter ended December 2010, Coal India sold around 48 million tonnes, or nearly 12 per cent of its production, through the e-auction platform.

There are two counter questions. First, why can't the private producers of power bid in the e-auctions and, second, why can't they import what they need? The answers are that, first, e-auctions are only for small buyers, which the power producers certainly are not, and that the auction process has uncertainties in terms of the bidding schedule (generally, twice a month) as also the quantity offered; and, second, that imported coal will help only to a limited extent because boiler configurations permit only up to 15 per cent blending of imported coal. In other words, domestic coal is essential for the new capacities coming up. Another solution is to start liquidating the huge coal stocks of about 50 million tonnes at the pitheads. Together, these measures could free up around 80-100 million tonnes for immediate use. But, as usual, there is a snag: the railways don't have the capacity to move this coal. It is coal, coal everywhere, nor any lump to burn.

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