Back to centrestage

After three years of indifferent performance from FY19 to FY21, coal is back to centrestage in FY22. Coal India Ltd (CIL) recorded de-growth of one per cent per year in coal production during FY19-21. De-growth in coal offtake was even sharper during this period, leading to pithead stocks rising to the unprecedented level of nearly 100 MT as on March 31, 2021. All these numbers reversed in FY22. Coal production grew by four per cent to 623 MT. Coal offtake grew by an impressive 16 per cent to around 662 MT. The pithead stock fell by 39 MT to around 61 MT March 31, 2022. Yet, the coal stock build-up at power plants remains a challenge; so is coal supply to non-power utilities, namely aluminium, cement and other industries.

The crux of demand reversal is the rise in PLF of existing thermal plants. It was languishing at around 51 per cent in FY21. The post-Covid recovery pushed it higher to over 60 per cent. A rise of one per cent in average PLF of the thermal plants in the country corresponds to a rise in coal consumption by 10 MT per annum.

What if this new trend continues in FY23 and beyond? CIL has already stretched itself and is expected to continue the growth momentum. However, this alone will not be adequate to meet incremental demands of the order witnessed in recent times. A constructive approach towards faster opening up of the sector with induction of new players is required to bridge the gap.

Pursuant to the Coal Mines Nationalisation Amendment (CMNA) Act 1993 becoming effective, over 200 coal blocks were allotted for captive mining by interested end users. The process came under serious questioning, leading to en masse cancellation, barring a few, by the Apex Court effectively in March 2015. That virtually negated all efforts made to open up the sector till then. The coal consumers, both power and industry, continued to reel under severe coal shortage despite the country being endowed with abundant resources.

Responding to the crisis, the Ministry of Coal (MOC) acted swiftly and judiciously. A transparent auction-based mechanism was put in place for allotment of the cancelled coal blocks to the end user segment. While the initial rounds met with some success, the euphoria tapered off and subsequent auctions were unsatisfactory. A High Powered Committee was constituted by MOC to recommend modifications to the process of auctioning for improving bidder response without diluting the transparency requirements. The recommendations of the committee suggesting opening up of the coal sector to commercial mining for sale of coal, as well as adoption of 'Revenue Share' as the auction parameter were accepted by the government. The rounds of auction in recent years carried out on these principles met with higher success. 42 coal blocks have been allotted with an aggregate Peak Rate Capacity (PRC) of over 86 million tonne per annum (mtpa), and many more are in the offing.

However, the benefits of commercial mining are still a few years away. It is necessary to consider other means of private sector participation for augmenting coal production to complement CIL's effort at increasing production.

In the wake of coal stocks at power houses reaching critical levels last year, MOC allowed the captive block allottees to produce up to 50 per cent more coal for commercial sale in the market. This has led to a breakthrough in increasing the production share of these players from around 55 mtpa to 85 mtpa in current FY.

In yet another major move, MOC is supporting a CIL initiative to involve the private sector for reopening abandoned mines. This is indeed gratifying since the earlier attempt by CIL in 2009 failed due to regulatory constraints.

By adopting the concept of 'Revenue Share' for auction of such mines to private players capable of bringing in appropriate technology and finance, these mines, some if not all, may restart in near term. Since the ownership of the mines will rest with the coal companies, the Revenue Share will flow to them. Besides making more coal available in the market, the process will allow the coal company to monetise idle assets and also boost cashflows of the concerned state exchequer through payment of royalty.

Coal mines had been abandoned in the past due to exhaustion of reserves or technical constraints. The mines abandoned for reasons other than exhaustion of reserves are mostly underground, located in the older coalfields under the jurisdiction of ECL, BCCL, CCL and, to a lesser extent, SECL and WCL. The focus of coal mining post-nationalisation has been predominantly opencast, primarily to fulfill the imperative of faster growth. As a result, mechanised underground mining did not receive the attention it deserved. This, however, is not the global trend. Underground coal mining is predominant in China, and significant in countries like Australia, the US, Poland etc. It is hence reasonable to expect that given an opportunity, private companies can source appropriate technology for a commercially sustainable reopening of these mines.

While the broad principle of auction with Revenue Share as the parameter may be adopted, the technical challenges involved should be adequately factored in the process of bidder selection. The bidding should be carried out in small lots of, say 10/12, mines initially. The mines may be chosen carefully where technical challenges are relatively less and residual coal reserves are substantial. Sharing of detailed technical information — including site visit and discussion — should invariably precede the main bidding process. It is important to succeed in the initial rounds to lay the foundation for subsequent success.

The success of the process will ensure infusion of state-of-the-art underground mechanisation that has eluded the country so far. Higher share of underground coal mining — perceived environment friendly compared to opencast — will improve the environment and image of coal companies. Underground coal quality is better. This should help in import substitution considerably.

Collectively, the pick-up of commercial mining, additional production beyond end use requirement by captive block allottees and reopening of abandoned mines with private participation, coupled with thrust on faster growth of coal production by CIL, is expected to completely eradicate the coal shortage scenario in the medium to long term. Simultaneously, efforts to improve coal quality by setting up coal washeries on a large scale, minimising deforestation and intensifying afforestation will mitigate the environmental impacts of mining. This, ideally, should be the way forward.

Views expressed are personal