Reforms push to coal is justified

| Updated on June 22, 2020 Published on June 21, 2020

Opening up 41 blocks with no strings attached will mitigate supply bottlenecks

Last week, the Prime Minister announced the auction of 41 coal blocks to virtually anyone who might be interested — with the government having removed end-use restrictions and relaxed prior mining experience as bidding criteria. While this is a watershed effort to break the public sector monopoly on coal production, the enabling legal changes have been made over time, since 2015. The focus on self-sufficiency in this sector is justified; India imported 243 million tonnes of coal in 2019-20, about a third of its domestic output of 729 million tonnes, of which Coal India accounted for 602 million tonnes. Imports will only rise as the economy returns to its growth potential. Of these imports, high-grade metallurgical coal (or coking coal) used for making steel accounts for 50 million tonnes annually. Coking coal is scarce in India; however, most of the remaining imported coal can be substituted by domestic mining. The Centre has said that commercial mining can save ₹30,000 crore in coal imports, or about a sixth of India’s coal import bill. The move is expected to draw in an investment of ₹30,000 crore, and lead to exports as well.

The move to virtually end ‘captive mining’, or the allotment of mining rights only to those who directly use the coal as an input rather than trade in it, is justified. Captive mining of small blocks, a decontrol move that was initiated in 1993 and continued right up to the coal scam, has been an inefficient process. Not surprisingly, CIL has continued to account for well over 80 per cent of total output while being unable to meet the needs of input industries. In fact, the cancellation of the 204 captive mining licences and the reallotment of 89 of them has not helped ramp up output either. Commercial mining, however, is likely to spur output in the medium term (assuming that private players will make a difference in five years), and provide some competition to CIL. It should spur CIL to ramp up its efficiency in summer months to deal with the coal shortage that typically sets in after the monsoon, leading to power plants tripping up on output. Experts estimate that there is considerable scope for CIL to ramp up its output by 15 per cent in the summer months. Even so, given the current role of thermal power in the energy mix, additional coal output and imports would be needed. The key issue is whether the rise of renewables can temper coal demand — as indeed it should.

India’s coal push should not undermine its achievements in renewables. Coal gasification is an idea whose environmental effects are uncertain. The impact of coal in terms of forest loss and air pollution (to get worse if unwashed coal is used) cannot be discounted in the context of climate change.

Published on June 21, 2020
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