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Coal shortage
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No optimum use of reserves
All eyes on apex court
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Energy crisis hits coal-rich India The increase in power generation has resulted in coal shortages across India. Companies failed to anticipate the extra demand and did not import coal. With the stocks fast running out, the SC’s recent observations on illegal blocks and its Sept 9 verdict on 218 blocks will be crucial. By Girja Shankar Kaura
Prime Minister
Narendra Mod-led NDA government at the Centre could not have inherited a more complex situation than it has in the coal and power sector. A situation bridled with uncertainties, and more importantly, facing the ire of the Supreme Court which is looking to cancel the allocation of coal blocks from 1993 to 2009 in the wake of the Rs 1.86 lakh crore scam unearthed by CAG in the allocation of these blocks to private as well as public sector. An official stated that the situation is very critical in at least six of 23 thermal power plants across the country. There are stocks of less than a day at plants at Badarpur, Dadri and Jhajjar, all of which feed Delhi and the NCR. The situation has remained the same for the past few weeks, especially after the country’s largest power producer, NTPC, raised the red flag pointing to the critical situation that the power sector has been facing. The problem has compounded this year with the surge in demand for power due to poor monsoon, which, however, revived lately. The shortage of coal availability has put additional burden on the thermal power producing units. Reports say in the recent summer months, the power demand has gone up 29 per cent, with the NTPC running its plants at over 80 per cent capacity compared to an average of 62 per cent last year, leading to a higher demand for coal. This led NTPC chairman Arup Roy Choudhury to write a letter to the Coal and Power Minister Piyush Goyal, pointing to the criticality of the situation and which, incidentally, has become international news with prominent papers abroad and foreign agencies reporting on it. Goyal has repeatedly said he was looking into the matter and was trying to bridge the shortfall and avoid shortages. “Generation availability in the western grid is severely affected on account of coal shortages reported by state, central and private power stations,” as per a statement from the government. The authorities are also monitoring supply from the grids to power-deficit states such as Uttar Pradesh and Haryana to prevent a collapse similar to the one in August 2012, which had left 600 million homes across the north and east India powerless for nearly 24 hours. Reports said plants were running short of fuel due to lower supplies from Coal India (CIL), which accounts for 80 per cent of India's coal production. The government decided to open up the coal sector in 2004 as Coal India Limited was not being able to meet the demand locally due to its shortcomings, which still remain, and are the reason why the government is looking to divest some of its share in the company. The cancelling of the coal blocks would affect about 20 per cent of the coal supply from the private sector. However, this would give the present dispensation a chance to streamline coal supply to power plants and improve generation. The quality of coal supplied to the power plants has also been an issue. Imported coal has to be mixed with domestic coal to run the plants as the poor quality of Indian coal tends to damage the plants. Since the investments in washeries to upgrade them has been tardy, the quality of coal being supplied is not improving. The situation worsens in the monsoon months as the evacuation of coal from the mines slows down due to the rains. CIL claims that it cannot be blamed for lack of stocks at power plants. A high plant load factor and delay related to coal imports were responsible for the problem. Coal-fed thermal plants account for over two-thirds of the country’s power generation capacity. Reports suggest that 12 major power projects entailing an investment of Rs 36,000 crore, and having a total generation capacity of 7,230 MW, are stranded due to coal shortage. A power generation capacity of 42,480 MW commissioned in the country after 2009 is presently entitled to only 65 per cent of their Letter of Assurance (LoA) commitment. This has resulted in greater dependence on imports. Goyal is due to meet state power ministers on September 9, ahead of his meeting with private and public power producers later this month as they demand a hike in power tariffs from the state utilities as compensation for the costlier fuel. Interestingly, Goyal’s meeting with power ministers coincides with the day when the Supreme Court is expected to take a final decision on its August 25 judgment declaring illegal all coal blocks allocated from 1993 to 2010.
Making of the scam 2012: CAG report claims the national exchequer had suffered a loss of Rs 1.86 lakh crore due to the faulty allocation of coal blocks. The government trashes the report, but a PIL petition is filed seeking the cancellation of 194 coal blocks. *
The Supreme Court dismisses Solicitor General Rohinton Nariman's objections that the petition relies heavily on the CAG report, saying CAG was a “constitutional authority” and its report was “not a piece of trash”. *
The court asks the government why the 2004 policy of “competitive bidding” was not followed. March 2013:
The Supreme Court responds to a rare display of divergence between the Centre and the CBI, asking the CBI Director not to share details of the investigations with political executives and report only to the court. *
It orders the CBI Director to file an affidavit by April 26, 2013, stating that the probe status report filed before it had been vetted by him and its contents were not shared with the political masters and “the same arrangement shall follow in future”. April 13, 2013:
Two applications filed by Common Cause, an NGO, and Manohar Lal Sharma while activist-lawyer Prashant Bhushan seeks the creation of a special investigation team to probe the case. April 19, 2013: The BJP demands the resignation of Prime Minister Manmohan Singh, alleging that he was using the Law Ministry to save himself from the probe. April 23, 2013: Standing committee on coal and steel tables its report in Parliament, saying all coal blocks distributed between 1993 and 2008 were done in an illegal manner and allotment of all mines where production is yet to start should be cancelled. April 26, 2013:
CBI Director Ranjit Sinha submits an affidavit that the scam status report was shared with Law Minister Ashwani Kumar “as desired by him”, joint secretary-level officers from the PMO and the Coal Ministry before presenting it to the court on March 8. *
It contradicts the claim by the CBI counsel in the court that the report was not shared with any member of the government. April 29, 2013: The CBI says 20 per cent if its original report was changed by the government. Additional Solicitor-General Harin Raval resigns for having misled the court. *
The court directs the CBI to file an affidavit regarding the changes made in the status report; at whose instance the changes were made; and the effect of these changes on the investigation. July 2014: The court sets up a special CBI court for cases arising from the coal scam. RS Cheema appointed as special public prosecutor and Justice Bharat Parashar as the judge of the court. August 2014: The Supreme Court pronounces the terms under which the blocks were allocated as illegal.
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Despite holding the fourth-largest coal reserves in the world, India has not able been to meet its domestic coal demands. The problem is simple. India’s domestic output and transport systems are not able to keep up with the demand, which results in an ever increasing reliance on imports, which are not only expensive but also require infrastructure such as ports.
There is another problem that mars India's coal output. While the majority of production is concentrated in the north and east of India, the power demand growth is more toward the south and west. Reports suggest that domestic production of coal, where CIL remains the majority stake holder, is likely to be about 587 million tonnes for the fiscal year ending March. The imports are likely to touch a record 168 million tonnes, making India the second-biggest importer after China. The government's 12th five-year plan anticipates that about 76 gigawatts (GW) of new power will be added by 2016-17, with about 63 GW being from the coal-fired thermal power plants. If this capacity is added, it would take the total coal-fired generation to around 175 GW, which would need about 842 million tonnes of coal a year, a situation which would need a dedicated and serious approach to solutions to handle the jump in capacity addition. What is adding further pressure on the mining sector, where private players hold a minority stake, is that besides needing coal for power generation, the country is also looking at expanding its steel output, which could potentially require as much as 300 million tonnes of coking coal by 2016-17. CIL, which produces about 80 per cent of domestic output, believes it can increase output by 300 million tonnes a year, if the railways moved faster in building tracks. The company expects to produce about 475 million tonnes in 2013-14, but it would not be sufficient to meet the coal needs. Though the Prime Minister has made Piyush Goyal in charge of the coal and power ministries for better coordination and minimum differences, but the legacy inherited from the policy paralysis of the previous UPA government would take longer than expected to solve. Coal Ministry officials agree that environment and forest clearances and land acquisition problems pose the biggest challenges to mining. Also, there is opposition from the Maoists who operate in the deeper parts of the forests through which coal is transported. Industry's trade union leadership also forms the upper echelon of the coal mafia that operates in these areas and employs caste allegiances to maintain power. Pilferage and sale of coal on the black market, inflated or fictitious supply expenses, falsified worker contracts and the expropriation and leasing-out of government land have allegedly become routine for the mafia. A parallel economy has developed with a significant fraction of the local population employed by the mafia in manually transporting the stolen coal for long distances to warehouses and points of sale. Higher quality coal is sometimes selectively diverted, and missing coal is replaced with stones and boulders in railway cargo wagons, which leads to protests from the power generating companies leading to long-drawn standoffs over payments and supplies. Experts say more must be done to privatise the coal sector and eliminate bureaucratic red and green tape. Breaking up CIL was also mooted as a solution, but this would have to be accompanied by private access to the railways, and most likely private-public partnerships in building new tracks and ports.  |
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COME September 9, the Supreme Court will decide on the fate of 218 coal blocks allocated to various private and public sector companies between 1993 and 2009. Though imports form the majority of supplies to these sectors, not enough import orders have been placed to bridge the gap of supplies. Reports suggest that after the last observations, the government will not press its request for sparing 46 coal blocks from cancellation at the next hearing, even as it started identifying mines that would likely become available for auction after the judgment. The government had last week asked the court to spare 40 producing and six soon-to-be-operational blocks, and instead impose penalties on the operators for any wrongdoing. The government will now merely pass on the information from the coal-block owners to the court during the next hearing. Officials say the government will submit an affidavit containing names and status of the 46 blocks, but would not bat for them.
The challenges
* Lack of coordination between government departments *
Environment clearance denied to several private licensees of captive mines *
Land acquisition issues * Delays in government approvals *
Coal mafia Red tape
* Of 44 rail projects under way by December 2012, 32 per cent delayed for over 60 months and 23 per cent between 25 and 60 months. *
CIL is awaiting 179 forest, environmental clearances to start new mines
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As per the latest government figures, of the total 100 thermal power stations, 56 have less than seven days of coal stocks, including 27 with supplies to last under four days. The stock levels are at the lowest since mid-2012, when large swathes of the country had to go without power, plunging millions of homes in darkness. 
If the court rules that all blocks need to be de-allocated and auctioned afresh, not only would there be coal shortage, but also the government has no alternative plan to meet the needs of the power and steel sectors.