Coal mining for future

When international coal prices skyrocketing only a few months ago and domestic supply sources were stretched, there were hoarse cries for long-term solutions. But now, as prices are falling and import sources look tamer, the crisis seems to wane. But this may be the time to act to avoid a more severe and damaging crisis in the future, and the opportunity presented by the current crisis should initiate formulation of a sound and sustainable coal mining policy. Power generation, steel and cement companies, as well as other consumers, are concerned about unpredictable availability of coal from domestic sources and risks of rising prices in the international markets. The demand for coal is projected to reach a whopping 2.34 billion tonnes by 2031-32, which are likely to result in more severe crises in future.

The fact that the energy, and hence, coal supply crisis is not the only crisis India is facing further complicates the matter. The financial crisis, too, is likely to have a profound effect on coal mining and supply scenario. Due to the credit crunch and liquidity squeeze, there may be delay in coal mining investments and new project implementation. Brakes on investments will surely mean much worse domestic coal supply scenarios in future. The financial crisis is likely to result in lower investments in coal mining even in global context that may result in higher price spikes when the economic recovery begins. Failure to act now will harm the long-term prospects for the economy that requires coal to fuel the growth engines.

Long-term perspective must be applied to coal mining policy, in the contexts of private sector participation, tax and royalty regimes, price regulatory mechanism, environmental and safety administration and human resource development for the sector. Coal mining policy that fosters the investment needed over the long term must be whole-heartedly adopted. A competitive approach to block allocations coupled with easing of procedural quagmire to commission the project may help a long way in enhancing investment environment. The public and private sectors should collaborate on initiatives that leverage technology and human resources for development of the sector, which is significant since coal mining companies are government owned and controlled.

Coal mining projects are hugely capital intensive and have long gestation period. Further, due to lack of better comprehension, financial institutions in India have been wary of lending and investing in the sector. The law and order conditions in some of the coal rich states in the eastern part of the country do not aide investment case either. Therefore, sound coal mining policy will have to hinge on long term and holistic vision, and continuation of short-term measures are hugely damaging to the sector.

Profits to the private sector are important drivers and they are also the source of future investment capital. The mining business being cyclical, profits do run dry sometimes, and hence, tax policy should focus on rationality of prices and profits. Long term direction of regulatory policy must also be aligned with goals of enhanced private sector participation and a wider market. Fiscal policies must be woven with mining policy to support investment and encourage and achieve capital deployment efficiency.
Coal is abundant in India. It, therefore, makes sense to promote a policy of investment in coal to liquids and gas conversions to encourage less energy dependence, doing so will again require a long-term view. The industry is brimming with new technologies involving both conversions to make coal backbone of the energy security. The concerns for alternate usage for power, steel and other sector may be met by further exploration.

Volatile coal prices in the international markets result in significant impact on credit risk and liquidity, intensifying the challenges of sourcing coal from international markets. There are significant challenges of managing political risks as well in acquiring coal mines in countries like Indonesia, South Africa, Mozambique and Malawi. Long term focus for foreign coal sourcing options, therefore, may have to focus on making policies that ease outbound investments, allow tax exemptions on dividend received and such other measures.

In-depth understanding of these factors and their implications alone can help develop clearer policies and regulations that focus on long term objectives of supply security and mitigation of associated risks. Industry-wide debate with participation of all stakeholders will go a long distance towards formulating such framework.