Coal Reforms: Turning Intent Into Action
Finance Minister Nirmala Sitharaman made three major announcements relating to the coal sector on Feb. 16, 2020, as a part of the overall package for economic revival:
- Commercial mining of coal, including auctioning of partially explored coal blocks;
- Investment to strengthen the infrastructure for evacuation of coal;
- Focus on coal bed methane. CBM extraction rights to be auctioned from Coal India Ltd. coal mines.
These are indeed very encouraging announcements but none of them are new. Commercial mining was announced more than a year ago. Investment in infrastructure for evacuation of coal has been argued for a long time and Coal India has been putting its money in a number of coal evacuation rail projects. Even coal bed methane has been discussed for a while.
These announcements represent a reiteration of what needs to be done in the coal sector.
No one can doubt the necessity of such steps, but the key question is how to make all this happen. There are indeed lessons to be learned from the recent past, at least in the context of commercial mining.
Lessons From The Last Coal Supply Shock
The shortage of coal production led to the so-called coal scams. We are all aware of the acute shortage of coal in 2013, when more than 25 power plants were critically short of coal, some of them with an inventory of fewer than five days. There was panic all around. The Supreme Court decision to cancel the allocation of 204 coal blocks meant that a large number of private blocks had to stop production from April 1, 2014. This resulted in a negative impact of around 90 million tonnes of coal. However, the situation was tided over on account of the efforts of Coal India. There was record production in 2014-15 (an incremental production of 34 million tonnes that was more the cumulative incremental production over the previous four years) by Coal India and then again in 2015-16. The acute shortage was a thing of the past and even the idea of exporting coal to Bangladesh was mooted. No power plant was critical on account of the shortage of coal. How did this happen? Three critical elements impacting coal production were taken care of:
- Land acquisition;
- Environment and forest clearance;
- Evacuation of coal.
The first two elements were tackled by engaging intensively with the state governments because these problems relate primarily to the states. The clearances were fast-tracked through the instrumentality of the Project Monitoring Group as were the coal evacuation projects.
Auctioning of partially-explored coal blocks is also a positive move but it will take much longer to mine coal from these blocks as exploration itself is a time-consuming process.
The focus will have to be on blocks that are already explored and the number is quite large.
Government’s Post-Auction Role
The government will have to get down to business immediately about commercial mining. There is already a transparent process for auctioning of natural resources. This came in for appreciation when it was put in place in 2014 and no one doubted its efficacy. This process can be utilised. However, even after coal mines are auctioned, the bidders will have to be assured that the government or its agencies will not sit on clearances as has been the case in the context of coal mines that were auctioned earlier.
The previous auctions were quite smooth but the processes thereafter were debilitating.
Consequently, mining could not commence expeditiously in most of the blocks that were auctioned. This will need to be taken care of while auctioning blocks for commercial mining. The government will have to act as a facilitator, handhold those that win the bids. A clear cut action plan will have to be worked out outlining what needs to be done, how will it be done, who will do it, and by when will it be done? The Project Monitoring Group will have to be revived in letter and spirit.
As coal is embedded in inaccessible areas, evacuation was always a key concern. Additional investment is welcome. It is not clear from the announcement where the money will come from. Coal India was sitting on Rs 50,000 crore of cash reserves in 2016 but it appears that most of it has been taken away by the government to handle its fiscal deficit. If Coal India is asked to raise resources, it will have to raise it at a much higher cost, that will impact the viability of such projects. Ironically, the depletion of Coal India's resources is happening on account of unwarranted dividends and investment in projects—fertiliser being one of them—that are not related to the core activities of this company.
However, even if such funds become available, new projects will take a long time to fruition. For the immediate future, what needs to be done is to fast track the existing evacuation projects that are languishing on account of a variety of reasons but primarily on account of delays in clearances. Yet again, activating the PMG would help as would an intensive engagement with state governments. Fortunately, states have now come to understand the value of such projects in terms of additional revenue to them as well as the employment opportunities that such projects create.
CBM: Slow Starter
The first CBM policy was announced in 1997. It couldn’t make much of a headway. Subsequently, 33 blocks had been allocated over a period of time to various entities under the coal bed methane policy.
A policy framework for exploration and exploitation of unconventional hydrocarbons in existing acreages under existing production sharing contracts, CBM contracts, and nomination fields was introduced in 2018. Without addressing issues that beset this sector, mere intent to auction the mines will not lead to any substantial outcome.
The announcements made by the Finance Minister, though not new are well-intentioned. These announcements will have to be followed through with action to make things happen on the ground.
Anil Swarup is a former Coal Secretary, and was Chairman of the Project Monitoring Group in the Cabinet Secretariat.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.