Privatization of coal mines in India

Coal is India’s largest commercial source of primary energy. Policymakers and planners expect coal to continue to dominate as the mainstream energy source for the next several years. The power sector is the main buyer of coal and accounts for about 74% of all production in the country. It connects over 166 lakh households while continually increasing coverage under various rural electrification programmes. Other key buyers are the metallurgical (6.9%) and cement (2.5%) sectors, which contribute to infrastructure development. Given this importance of coal to sustained growth, it is essential to ensure its continued supply to consumers at an affordable cost.

It was keeping with the objective of growth in mind that the coal sector was nationalised in 1975. Mismanagement of mines by private companies, lack of investment and a slower-than-expected two per cent annual growth forced the government to come up with the Coal Mines (Nationalisation) Act, 1973, which led to the formation of Coal India in 1975. The 1973 Act, amended in 1976, terminated mining leases of private companies in all coal- bearing regions with the exception of allowing captive mining by private companies involved in the production of iron and steel. The coal industry, after the 1973 Act, was reorganised into two large public sector companies, Coal India Limited (CIL) which owned and managed all previously government-owned mines of the National Coal Development Corporation and the nationalised private mines, and the Singareni Colliery Company Limited (SCCL) which was owned and managed by the government of Andhra Pradesh. The coal industry grew strongly after nationalisation, and between 1980 and 2010, the state-owned coal companies led to a four-fold increase in production. In recent years, however, production growth slowed down forcing discussion on structural changes to boost production and productivity.

Coal India accounts for more than 80 per cent of domestic production and controls nearly 18 billion tonnes of reserves.

The demand curve for coal sector is continuously rising. Major factors leading to a rise in the demand include the growing power sector in countries such as India and China and rising steel production. Total demand for coal grew around 6.6 per cent in the 11th Plan period (2007-12) against domestic production growth of only 4.61 per cent. That’s a huge shortfall.

The power ministry is looking to add 76,000 Mw during the 12th Plan period (2012-17), taking the total capacity to 269,000 Mw. Going by the recent production figures, it seems well-nigh impossible to meet the target. The deficit for the power sector alone, as of today, is 80 million tonnes. Hence, it is vital to open up the industry to private players. While 360 million tonnes is reserved for fuel supply agreements signed before 2009, the projects that came after that are running at about 50 per cent availability, while the normative coal availability is 85 per cent.

Coal India relies heavily on vast open-cast mines but is running short of appropriate places to dig (at least without antagonising gun-toting Naxalite rebels, who plague swathes of eastern India). It is also failing to extract coal from deeper seams. The coal it produces is mostly poor in quality and rich in ash; it should be washed before shipping to make it more efficient, but is not. India's overloaded railways struggle to deliver enough coal to power stations. Government planners, rather than a market, allocate supplies and set prices and wages. As a result, coal that is nearly the worlds cheapest when dug up is nearly the priciest when it reaches a furnace.

Arguments for privatization –

1. Reformers hope that private investment will bring sharper scrutiny and better management.

2. It will lead to – a. Bring in new technology and modern mining methods to improve productivityb. Financing new developmentc. Bring corporate management capabilities to exploration and operations.d. Competition from new players and profit incentives will spur better performance

and lower costs.e. Privatization of electricity generation has resulted into 55000 MW capacity

additions in the last five years.f. In India, private sector participation will not only help increase the supply, but

will also lead to investments towards developing integrated coalfields, Logistics & infrastructure and allied sectors.

g. There are direct tangible benefits to private sector participation in coal mining, ranging from employment generation, contribution to GDP, control over inflation, greater self- sustenance in energy security and growth of the value chain (including equipment and service suppliers).

h. Private investors are also more likely to pick up coal assets for mining in areas where the government is reluctant to invest, for lack of technology and infrastructure or because the seams are deeply embedded.