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DAILY NEWS ANALYSIS

  • 17 December, 2020

  • 12 Min Read

Centre for Science and Environment - Coal Analysis

Centre for Science and Environment - Coal Analysis

GS-PAPER-3 Economic issues- Energy security (Mains-I.V)

According to Centre for Science and Environment (CSE), coal will continue to be the mainstay of India’s power generation till at least 2030. But efforts must be made to ensure that it is used efficiently to reduce greenhouse gas (GHG) emissions. Improving fleet technology and efficiency, propagating biomass co-firing and investing in carbon capture and storage are among the measures, among others, that could help cut GHG emissions by 22%.

Biomass co-firing It is a globally accepted low-cost method for decarbonising a coal fleet. It is an option for efficiently and cleanly converting biomass to electricity by adding biomass as a partial substitute fuel in high-efficiency coal boilers.

News Background

Coal is the most important and abundant fossil fuel in India. It accounts for 55% of the country's energy needs. The country's industrial heritage was built upon indigenous coal. Commercial primary energy consumption in India has grown by about 700% in the last four decades.

The current per capita commercial primary energy consumption in India is about 350 kgoe/year which is well below that of developed countries. Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise.

Considering the limited reserve potentiality of petroleum & natural gas, eco-conservation restriction on hydel project and geo-political perception of nuclear power, coal will continue to occupy centre-stage of India's energy scenario.

Through sustained programme of investment and greater thrust on application of modern technologies, it has been possible to raise the **All India production of coal at 730.354 million tonnes in 2018-19 (Provisional) with a positive growth of 7.9%. Coal India Limited has set up Regional Sales Offices and Sub-Sales Offices at selected places in the country to cater to the needs of the consuming sectors in various regions.

Import: As per the present import policy, coal can be freely imported (under Open General Licence) by the consumers themselves considering their needs based on their commercial prudence.

Coking Coal is being imported by Steel Authority of India Limited (SAIL) and other Steel manufacturing units mainly to bridge the gap between the requirement and indigenous availability and to improve the quality of production. **Coal based power plants, cement plants, captive power plants, sponge iron plants, industrial consumers and coal traders are importing non-coking coal. Coke is imported mainly by pig-Iron manufacturers and Iron & Steel sector consumers using mini-blast furnace.

Reserves: As a result of exploration carried out up to the maximum depth of 1200 m, a cumulative total of 319.02 Billion tonnes of Geological Resources of Coal have so far been estimated in the country till April, 2018. Hard coal deposit spread over 27 major coalfields, are mainly confined to eastern and south central parts of the country. The lignite reserves stand at a level around 36 billion tonnes, of which 90% occur in the southern State of Tamil Nadu.

**Top 5 States in terms of total coal reserves in India are: Jharkhand > Odisha > Chhattisgarh > West Bengal > Madhya Pradesh.

Classification of Coal

Coal is originated from organic matter wood. When large tracts of forests are buried under sediments, wood is burnt and decomposed due to heat from below and pressure from above. The phenomenon makes coal but takes centuries to complete.

Classification of Coal can be done on the basis of carbon content and time period. On the basis of carbon content it can be classified into following three types:

Anthracite: It is the best quality of coal with highest calorific value and carries 80 to 95% carbon content. It ignites slowly with a blue flame and found in small quantities in Jammu and Kashmir.

Bituminous: It has a low level of moisture content with 60 to 80% of carbon content and has a high calorific value. Jharkhand, West Bengal, Odisha, Chhattisgarh and Madhya Pradesh have deposits of Bituminous.

Lignite: carries 40 to 55% carbon content and is often brown in colour with high moisture content thus, gives smoke when burnt. Rajasthan, Lakhimpur (Assam) and Tamil Nadu has deposits of Lignite.

Peat: is the first stage of transformation from wood to coal with low calorific value and less than 40% carbon content.

**Despite having the world’s fourth largest coal reserves, India imported 235 million tonnes (mt) of coal last year, of which 135mt valued at Rs.171,000 crore could have been met from domestic reserves.

Problems of COAL mining

India has to import near 213 million tons coal and some Indian companies have also acquired coal mines overseas to ensure continuous supply. The import dependency for good quality coal is NOT good for India’s energy requirement and fiscal health.

Reasons:

  • Till now, the PSU, Coal India was the only commercial miner in the country for more than four decades which has shown monopolistic tendencies in the sector. Monopoly in mining sector was incapable of meeting domestic demands.
  • Low productivity of Coal India is still a concern.
  • Coal plants have higher operation and maintenance costs because of strict regulatory issues.
  • India’s power regulators are not regularly updating prices to accommodate increases in operational costs due to regulation.
  • State Pollution Control Boards are ineffective at monitoring or enforcing compliance.
  • Expansion in power generation in India has been largely based on state financing i.e many coal power plants in India are constructed through massive debt financing from state-owned banks. It shows that international investment in coal generation assets in India has been very less.
  • Delayed environment and forest clearances: Environment ministry in past has classified ecological sensitive areas in ‘Go and No Go areas’ and there was total prohibition on mining in no go areas.
  • Further there are other clearances required from State and Central Governments.
  • Land Acquisition problems.
  • Lack of adequate technology.
  • Allocation process was arbitrary, discretionary and non-transparent.
  • There was no consideration of Merit, no Price discovery mechanism for national resources.

Government efforts

1. In April 2018, The Ministry of Coal has launched UTTAM (Unlocking Transparency by Third Party Assessment of Mined Coal) Application for coal quality monitoring. The app aims to ensure transparency and efficiency in coal quality monitoring process and bring coal governance closer to people.

2. The Cabinet Committee on Economic Affairs (CCEA) has approved a new coal linkage policy to ensure adequate supply of the fuel to power plants through reverse auction. The new policy will help in ensuring fuel supplies to the power plants in an organised manner.

3. Ministry of Coal has developed Online Coal Clearances System to provide a single window access to its investors to submit online applications for all the permissions / clearances and approvals granted by Ministry of Coal.

4. Coal Allocation Monitoring System (CAMS) is developed to monitor the allocation of coal by CIL to States, States to SNA and SNA to such consumers in a transparent manner.

5. Opening up of commercial coal mining for Indian and foreign companies in the private sector. The CCEA approved the methodology for auction of coal mines/ blocks for sale of the commodity on 20 February 2018. The move has been defined as the most ambitious reform of the sector since its nationalisation in 1973. The auction will be done on an online transparent platform. The bid parameter will be the price offer in Rupees/ Tonne, which will be paid to the State government on the actual production of coal.

This reform is expected to bring efficacy into the coal sector by moving from an era of monopoly to competition. It will increase competitiveness and allow the use of best possible technology in the sector.

Procedure established till now in Coal Mining:

  • Until now there were restrictions on who could bid for coal mines only those in power, iron and steel and coal washery business could bid for mines and the bidders needed prior experience of mining in India.
  • This effectively limited the potential bidders to a select circle of players and thus limited the value that the government could extract from the bidding.
  • Second, end-use restrictions inhibited the development of a domestic market for coal.
  • The ordinance essentially democratises the coal industry and makes it attractive for merchant mining companies, including multinationals such as BHP and Rio Tinto, to look at India.
  • The move was overdue considering that the country spent a huge Rs.1,71,000 crore in coal imports last year to buy 235 million tonnes; of that, 100 million tonnes was not substitutable, as the grade was not available in India.
  • But the balance 135 million tonnes could have been substituted by domestic production had it been available.

Commercial mining

Commercial mining allows the private sector to mine coal commercially without placing any end-use restrictions. The private firms have the option of either gasification of the coal or exporting it. They can also use it in their own end-use plants or sell them in the markets. The government expects more than Rs 33,000 crore of capital investments over the next five to seven years in the sector.

Further, with 100 per cent foreign direct investment allowed in the coal sector, global companies can also participate in the auctions. The complete freedom to decide on sale, pricing, and captive utilisation is expected to attract many private sector firms to participate in the auction process. The government expects these steps will generate employment and reduce India’s import bill.

Transformative reforms POST COVID- RSTV script

Presently, despite being the world's fourth-largest producer, India is the second-largest importer of the dry-fuel. Therefore, in line with the vision to build an ‘Atma Nirbhar Bharat’, a slew of reforms to promote commercial mining of coal in India, has been announced.

Unlocking coal mining for private players is a step forward to attain self-reliance in the coal sector. However, for sustainable utilization of coal, there is a need to look into these reforms from a multidimensional viewpoint.

Announced Reforms:

  • Commercial mining of coal allowed, with 50 blocks to be offered to the private sector.
  • Entry norms will be liberalised as it has done away with the regulation requiring power plants to use “washed” coal.
  • Coal blocks to be offered to private companies on revenue sharing basis in place of fixed cost.
  • Coal gasification/liquefaction to be incentivised through rebate in revenue share.
  • Coal bed methane (CBM) extraction rights to be auctioned from Coal India’s coal mines.

Intended Benefits

Boost Economy and Employment: Allowing commercial mining may help to address India’s coal production needs, provide investment opportunities and save precious foreign exchange.

  • This will play a major role in ensuring the energy security of the country, as nearly the majority of power generation in India comes from thermal power plants.
  • The domino effect on sectors that use coal, like steel, power and aluminium, is going to be significant.

Plugging Supply Gap: The nationalisation of coal in 1973 meant that domestic coal could be mined only by public sector companies.

  • In this pursuit, Coal India Limited (CIL), registered an unprecedented increase in coal production and became the world's largest coal miner.
  • However, the country’s coal demand continued to grow at a much faster rate. Due to this, the growth in coal import (2009 to 2014) stood at 23 per cent.
  • Commercial mining of coal can increase the domestic production of coal and bridge the supply gap.

Win-Win Situation: The government has introduced a more equitable system of sharing of revenues, moving away from fixed rates to a revenue-sharing model.

  • Revenue sharing model will ensure when the prices go up, the miner shares more with the government; and if the price decreases, miner shares less. This is a win-win situation for both parties.

Associated Challenges

Dominance of Coal India: While reforms are aimed at ending the monopoly of Coal India Ltd., that’s unlikely to happen in the near future.

  • The current commercial coal mining regime will find it difficult to compete with Coal India. As the major consumer of coal in India (thermal power plants and steel sector) are in long term purchase agreements with Coal India.
  • Also, it will be a challenge for many companies to be able to match Coal India’s ability to navigate the complicated bureaucratic and political hurdles associated with opening new coal mines.

Issue with Non-washing of Coal: Doing away with the regulation requiring power plants to use “washed” coal will have huge environmental and economic costs.

  • The “washing” requirement was introduced in 1997 and promised the use of cleaner coal in power production. It was India’s only legitimate justification to extend the use of coal as a development fuel despite the climate crisis.
  • Also, a manufacturing or power-producing unit has to burn more coal and in turn generate not only ash but also noxious gases, particulate matter and carbon emissions.

Is this the first attempt by govt to open up the sector?

  • After the Supreme Court cancelled the coal block allocations made to the private sector by the Congress-led United Progressive Alliance government in 2014, the Narendra Modi dispensation had brought in the Coal Mines (Special provisions) Act of 2015 to return these coal blocks to the private sector through auctions.
  • But there had been end-use restrictions and the private sector was not allowed to trade into the market making it unattractive for the private sector. Further in 2018, private sector firms were allowed to sell upto 25 per cent of the output in the market, but this also saw a lukewarm response from the private sector.
  • Meanwhile, sectors like power, aluminium and steel are likely to be the biggest beneficiaries with enhanced availability of coal.
  • India imports nearly 250 million tonnes of coal from other countries despite having the world’s fourth largest coal reserve.
  • The government is hoping that the involvement of the private sector will increase production and make India self-sufficient in meeting its internal coal requirements.

Way Forward

Technology upgradation measures to be imposed to improve the productivity of the coal mines and improve recovery from the coal mines. The government may consider creating funds to support overseas acquisition to supplement domestic resources. Steps need to be taken to promote research and exploration activities and modern underground mass production technologies.

For easing commercialisation of coal, there is a need to establish a single-window clearance process for coal mines. Offering projects with secured clearances will boost timely development as well as increase industry participation. Government support for the early resolution in land acquisition-related issues is needed to ensure timely operationalisation of coal mines. Further, commercial mining projects can be aided with investment in initial infrastructure settings which is more capital intensive than mining.

Source: RSTV


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