Roadmap for Restructuring Coal Sector

The merging of ministries for power, coal and new & renewable energy is a good beginning but still falls short of an all-encompassing Ministry of Energy that could include oil and natural gas as well. This is necessary in view of the need to look at the comprehensive energy policy, energy security challenges and planning to meet the needs of our growing economy. While that may be essential and critical, but need to restructure coal industry is both and also urgent so that power sector may meet the expectation of electricity generation and supplies.

The immediate priority for the Government of India should be to ensure that coal supplies are enhanced from domestic production and that the investment environment in power sector improves. The roadmap for opening of coal sector for greater private and foreign participation needs to be drawn, which may include de-nationalization and also creating independent subsidiaries out of Coal India Limited monolith.

The coal blocks allocated to government-owned companies and private sector companies from the approved end-users of power generation, cement and steel sectors haven’t met the expectations of production, which is around 37 million tonnes per annum. More than a quarter of the allocated coal blocks have been de-allocated and several more have been served notices for explanations for delays in project development. The controversies in these allocations notwithstanding, the performance of these coal blocks in itself indicates the failure of captive mining policy. End user companies with no experience and no expertise are not the best candidates for allocation in any case since most of them in turn resort to hiring contract miners for development and operations of these mines.

Given this, the best way forward will be to remove the entry barriers to coal mining and auction the coal blocks through transparent and objective process to independent miners or end users if they desire. Increasing the number of suppliers in the market will not only improve supplies but also make pricing transparent and market driven. It is time that the pending Coal Mines Nationalization Amendment Bill of 2000 enacted.

The other mechanism for enhancing competition in coal sector that has been mooted is to split Coal India Limited into independent companies. The newspapers report that CIL unions may not resist such a move. However, looking at the fact that the subsidiaries are still monopolies in their geographies and these subsidiaries were created based on coalfields, and also that these may still be controlled by the Ministry, the mechanism of competition may not help. It is also noteworthy that marketing function of Coal India Limited and its subsidiaries are restricted and coal linkages are provided by Standing Linkage Committee, which is a multi-ministerial and multi-stakeholder body constitute by the Ministry of Coal. Under these circumstances, competitive forces in the proposed liberated subsidiaries will still be dormant and negligible. To make splitting of CIL effective, it needs to be supplemented with large scale stake sale of each of these subsidiaries; mostly to the public should outright privatization be politically unpalatable. Government may still be in control but large floating public shareholding will enhance accountability of the Boards of Directors and help competition. 

Through the transition of coal sector from the current state to market oriented with private and foreign participation state, the Coal Regulator may play a crucial role. The framework for the regulator is already in place but needs to be strengthened in scope.

Short term challenges of the domestic supply of coal will persist since the projects that CIL has planned may need quicker permissions and development of infrastructure for coal evacuation.  But with strategic roadmap laid for the turnaround of the sector will pave the way for reducing import dependence and create a vibrant domestic market.  

dipesh@jenissi.org