Rethinking the coal issue

According to the Inventory of India published by the Geological Survey of India, the total assessed geological coal resource in the country is 352,125.97 million tonnes (or 352 billion tonnes), putting it among the nations with the highest reserves.

Yet, the country also frequently faces coal supply crises, which require costly imports to keep its thermal power plants running. News reports suggest we are in the midst of one such crisis right now, and are importing expensive coal — global prices are currently at a high because of the Russia-Ukraine war and other demand and supply related issues — throwing our thermal power production economics haywire.

A brief note here before moving further. The bulk of India’s reserves — over 282 billion tonnes — consists of the relatively low calorific value thermal or non-coking coal that powers most of the thermal power plants. The country has fewer reserves of the higher quality coking coal used most commonly in the metallurgical industry. So its need to import coking coal is understandable. Less understandable, though, is the need to import coal for the thermal power plants, as is happening currently, that are designed with domestic coal as fuel in mind.

Many explanations have been proffered for our failure to meet domestic demand for thermal coal. These include the inefficiency of Coal India Ltd (CIL), the perpetually cash-starved state discoms, which delay payments to producers who in turn delay payments to CIL, as well as bad logistic planning, which saw coal being available at pithead but not with power plants. These are all valid factors but they miss the big picture. The most important reason for India being unable to meet its domestic thermal coal demand consistently is simply because of the failure of the policymakers to take the long view of the coal sector.

The bulk of India’s privately run coal mines were nationalised between 1971 and 1973. Apart from its socialistic philosophy, then prime minister Indira Gandhi had some valid logic for her move. Many of the private mines were badly run and there had been many serious accidents. The safety of coal miners was typically the last thing on the minds of the private coal companies. Beyond that, they also lacked the resources and the inclination to improve coal mining efficiency and production.

The nationalisation yielded mixed results. While accidents came down, the creation of the monopoly CIL didn’t solve the problem of production lagging behind demand.

When the economy opened up starting 1991, fixing the coal issue unfortunately didn’t figure high up in the priority list. Sporadic efforts to ensure private participation generated enough controversy and attracted the ire of the Supreme Court.

Of late, some fresh efforts have been made — transparent coal auctions have taken place. Coal India has increased its production but it has not been able to keep pace with rising demand. And private sector coal mines are still marginal to India’s demand supply equation.
 

Two problems — one old one and another of recent origin — have been primarily responsible. The old one is the cash flow issue. Many state discoms owe enormous amounts to power generating companies. This in turn has hampered the ability of power producers to pay CIL on time. Despite several efforts of the Union government in the past, the problem has invariably remained unresolved because some states are loath to take hard decisions.

The second issue is the environmental one. The Union government’s enthusiasm for encouraging renewable power production has often made it turn a blind eye to the thermal power sector. Coal emissions are seen as a chief villain on the climate change front by everyone.

What the government needs to realise is that coal demand cannot be ignored for at least three decades, if not more. Equally, not utilising our coal reserves, while importing coal to meet the needs of thermal power plants designed for domestic coal makes little sense.

There are ways to reduce coal emissions. These include coal liquefaction and carbon capture, storage and utilisation (CCUS) technologies. China, Indonesia and several other countries are trying it out. India has made a start but it has been tardy. It needs to plan for coal remaining the mainstay of thermal power generation for at least the next three decades and then look for solutions to utilise domestic coal reserves, while also minimising emissions. It needs to encourage research and development of carbon capture, storage and coal liquefaction technologies and build more of these facilities. The added benefit will be that coal liquefaction from domestic mines could come to the rescue and serve as an alternative source of gas when crude and natural gas prices go too high.

The Union government also needs to sit with the states that haven’t made much progress on their power distribution problems to find a proper solution. The goods and services tax showed that the Centre and the states can sit together to try and tackle complex tax issues. There is no reason a similar approach cannot happen for power generation.

The main point to remember is that the big picture needs to be looked at — not piecemeal, knee-jerk solutions.

The writer is former editor of Business Today and Businessworld, and founder of Prosaic View, an editorial consultancy