Energy News Monitor | Volume XIII, Issue 10
The problem of plenty haunts coal
India
Just a decade ago, India was told by serious analysts from outside India that it is at the brink of a severe shortage of coal. India was cautioned that its coal resources were overestimated and that it had just 10 or less years before it ran out of coal, especially thermal coal for power generation. The recommendation was for India to repent and embrace alternative sources of energy.
Reality appears to be playing out very differently as we can see in news items reported this month. India now seems to have so much coal that it is looking to export 2-3 MT of coal to neighbouring countries. Indonesia, which was the primary source of India’s coal imports not only faces the threat of falling imports of coal by India but also the grim prospect of India capturing potential alternative markets such as Bangladesh and Sri Lanka.
In FY16 CIL increased output by 8.5% which reduced imports by 34 MT. India’s coal imports are expected to touch only 160 MT in FY16 much lower than over 250 MT predicted earlier. Those of us analysts who instantly become cheer leaders of Western views such as the impending scarcity of coal need to be cautious in the future. Any view originating from the West seems to have their interest embedded in them (such as reducing India’s coal use to contain carbon emissions for example) rather than India’s interest.
Lower import of coal have resulted in broader economic gains. NTPC is reported to have achieved a savings of about ₹0.30/kWh totalling a saving of about $80 million in a month. The use of higher quality coal on account of greater availability and lower prices has also resulted in the added benefit of specific coal consumption (coal consumption per kWh) falling by over 2.5%.
Indian coal is slowly moving towards having a bath before it embarks on burning itself. MCL has reportedly secured approvals for setting up a 10 MTPA washery in Talcher Orissa. The plant is expected to have zero liquid discharge to meet environment norms and also establish a pit head plant that will use rejects.
CIL, the world’s largest coal producer was also reported to be making gains in terms of quantity and quality. CIL has stated that from October 2018, it will supply 100% washed coal of grade 10 to meet environmental guidelines.
The problem of plenty seems to have domestic consequences as well. Both Chhattisgarh and Odisha are pressing the central Government to increase Royalties on coal so as to maximise their take. The problem is that the effective tax rate (ETR) on coal mining at over 60% is now the highest among all coal producing countries. Any addition to existing tax and levies may reduce the competitiveness of the Indian mining industry.
On the other hand it is true that coal producing States in India are among the poorest. They are asking for a bigger share of the resource rent so that they can work their way out of the ‘resource curse’. The problem of resource curse is generally understood as a problem of poor governance that results from Dictators depending on resource rents rather than tax revenue to sustain power. Dictators are not answerable to the people and so they are badly governed. The Indian resource curse does not follow this script. Moreover, there is little evidence to show that the lack of resource rents is among key reasons for the poor economic status of coal bearing States. Higher royalties may not flow to the people as the rulers of these States claim. A better idea would be for these States to consider options that would create more opportunities for value addition using coal and other resources (such as low cost pit head power generation and industries that need low cost power) within the States. This will create opportunities for employment and investment in infrastructure that are more sustainable in the long term.
CIL has also reported progress in the coal linkage e-auction for captive power plants. 12.95 MT out of 13.43 MT of coal linkages auctioned secured bookings at good premiums over notice price. A total of 18 MT coal linkage is expected to be auctioned. The interest in domestic coal seems to have increased this month as the price of imported coal is increasing. Though the much hyped coal block auctions did not structurally alter circumstances for miners as expected the Government seems to proving that it was right. The verdict of the courts announced this month went in favour of the Government as it said that the provisions of the e-auctions that allowed multiple bids in the first two rounds was fair. 31 of the 40 cases filed against the Government were either dismissed or decided against the petitioners.
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