The Problem of Thermal Power Plants and Third Generation Coal Reforms

• India’s power demand touched a record high of 211MW even as the coal shortage continued with coal stock available only for eight days.
• The ongoing high coal prices are set to increase the input prices for independent power producers and power distribution companies.
• To bridge the gap between shortage in domestic supply and increase demand, power generating companies were directed to use imported coal for 10% of their requirement.

How did India get here?

• India is the second-largest producer of coal with a reserve that could last up to 100 years but the domestic production of coal stagnated between FY18 and FY21 and the power demand too surged owing to economic recovery and hotter weather conditions.
• The dip in imports can be attributed to the skyrocketing prices of coal in the international market mainly due to the Ukraine-Russia conflict which has led to disruption in the supply of coal by Russia.
• The price of imported coal is nearly 5-6 times higher than the domestic supply.

Reason for rising prices and demand-supply gap

• Ongoing war

War has led to a disruption in the supply of coal by Russia, which is unlikely to be fully replaced by other suppliers.

• Price increase at source

The price of Australian coal for march delivery had hit a high of about $330 per ton. Australia and Indonesia are key sources of coal import for Indian thermal power generation companies using imported coal.

• High turnaround time

Power plants are taking more than the prescribed amount of time to unload coal from railway tracks, even the greater delay in power companies unloading coal.

• Demand supply gap

The demand-supply gap is mainly due to an increase in price and low domestic production because of delays in environmental clearance in ecologically sensitive areas, arbitrary allocation of coal blocks, Coal India’s monopoly in the market, regulatory provision of using “washed” coal only and poor plant load factor make existing coal-based thermal plants unable to reach the expected level of supply.

Other issues

• Unfair Coal Block Allocation
  • The Coal Mines Nationalization Act 1973 does not allow private companies to mine coal for sale to third parties, though captive mining is allowed for specified end-use sectors. [captive mining means mining by the companies only for self-use, and cannot sell in the market.]
  • There are political sensitivities in opening up the coal sector to private investment, but it is simply not logical to keep private investment out of coal when it is allowed in natural gas and petroleum.
  • There is also a demand to amend the Coal Mines Act 1973.
• Underground Mining:

• Only 15% of India’s coal production comes from underground mines.
• The industry aims to reach a total coal production of 30% from underground mines by the year 2030.
• Considering emerging hurdles in forest clearance and land acquisition in the future, serious efforts have to take to increase the share of underground production by focusing on long wall technology and productivity in underground mines.

• Coal Regulation and Pricing:

• India has the fifth-largest coal reserves in the world. There are huge power expansion plans, which need to be fueled by coal. However, there has been no coal regulator.
• The idea of a Coal Regulatory Authority came in 2008, but it could not be established for unknown reasons.

Reform in the Coal Sector (Third-Generation reform)

• Ministry of coal launched (UTTAM)- unlocking transparency by third party assessment of mined coal, it is an application for quality monitoring of coal.
• Mission Shakti – application for allotment of coal field to the private sector.
• Cabinet Committee on Economic Affairs has approved the New Linkage Policy to ensure adequate supply of fuel to the power plant through reverse auction, this new policy will help in ensuring fuel supply to a power plant in an organized manner.
• Ministry of Coal developed an online coal clearance system, CAMS (Coal Allocation Monitoring System), to monitor the allocation of coal by CIC to state and state to a consumer who wants to mine the coal.
• Opening up the commercial coal mining for India and foreign companies in the private sector in the line with the vision to build AtmaNirbhar Bharat, a slew of reforms to promote commercial mining and to make India self-reliant in the coal sector. The AtmaNirbhar Bharat reforms in the coal sector are:

1. commercial mining of coal allowed for both private and foreign firms, in which 50 blocks will be allocated to the private sector.
2. liberalization in the entry norm where the regulator cannot impose the clause of washed coal.
3. coal block offer to a private company on revenue sharing model and not through a profit-sharing model.
4. government is also increasing coal gasification or liquefaction to be incentivized through rebates in revenue share.
5. coal bed methane extraction right to be auctioned from Coal India’s coal mine.

Way forward

If all the reforms are implemented responsibly, then the demand-supply gap can be controlled. The New Reform will increase productivity by bringing modern technology for world-class production. Also, there is a need that the government should revisit the coal grades pricing mechanism from grades based on coal mines to grades based on coal desire for end-user.