Privatisation of the Coal sector.

Privatisation of coal sector is said to be a much needed reform to enhance the efficiency and reduce the dependence on imported coal.

The Union government launched commercial coal mining with the auctioning process for 41 blocks. Though this time there is a big difference, the auction is open to the private players. Coal mining since 1973 is nationalised and carried out by Coal India, a government-run enterprise. The government’s decision to end the monopoly is a huge step and is facing both applause and criticism since its announcement. The argument supporting the decision is “improved efficiency of the coal sector.” Improved efficiency has a lot of associated consequences, from the lowering of power charges to reduced dependence on imported coals. But the question arises if this decision alone is sufficient or should be taken as just the first step in the slew of reforms to improve the efficiency and transparency of coal production.

To better understand the commodity and it’s economy, let’s put some facts into perspective. India has the world’s fifth-largest reserve of coal in the world (101,363 million tonnes), although India’s coal import bill is ever rising. This seems alarming, but let’s explore more before arriving at conclusions. Imported coal demands are mostly by power and steel industries. Steel industries require coking coal, a type of coal that has limited reserves in India. Due to the scarce availability, a deficit is created, which is bridged by imports from other countries. A little can be done to reduce this deficit with ever-growing steel production. Let’s focus on the power sector; for the article, they can be broadly classified as inland and coastal plants. It’s not just the location which is a distinguishing factor between these plants but also, the machinery especially boilers employed. The coastal plants have machinery installed, which primarily runs on imported coal(low ash). Replacing the mechanism involves enormous costs and therefore, the coastal plants continue to operate on imported coal. The third significant consumers are the inland plants; they are primary producers of thermal electricity. The machinery can run on domestic coal, but they still constitute a substantial portion of coal imports.

Here comes Coal India into the picture; it is unable to meet the growing demand, domestic coal produced is costlier and has lower ash content. These factors lead the power plants to resort to imports to meet their requirements. A closer look at the balance sheet of Coal India reveals more facts on factors that affect its efficiency. The company is investing 7043 crores on Capex, which is around 5% of the gross sales. It comes at no surprise that the company’s annual increase in production is about 5-6%, which is less than what required to bridge the existing deficit and match the growth of coal demands from power plants. Another striking fact is that it spent just 37 crores on R&D, which is much less for a company of its size, lesser technology adoption leads to higher cost in terms of employee benefits and lowers production.

— Avichal Agrawal (Co-Founder Editor)

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