|The coal non-solution|
|Saturday, 18 February 2012 00:00|
CIL's monopoly untouched, coal costs to rise 30%
Apart from saddling Coal India Limited (CIL) with the responsibility of importing around 50-60 million tonnes of coal to meet at least 80% of the demand of 50,000 MW of power capacity (this requires 200 million tonnes of coal at 100% utilisation but CIL already supplies around 100 million right now), it’s not quite clear how the PMO-brokered solution to the coal-power crisis hopes to help. CIL, as the PMO has noted, has failed to deliver on the coal needs of the power sector and, apart from supplying just 50% of the needs of various power plants, has not even signed new fuel supply agreements for the last 3 years. In such a situation, the only solution was to try to increase coal production and the only way to do that was to break up CIL’s monopoly by bidding out more coal blocks to private firms including merchant miners—India’s oil/gas reserves have gone up several times since private firms were allowed in, so it’s reasonable to expect something similar in the case of coal. Instead of tackling this, however, the PMO has said CIL has to guarantee to supply at least 80% of the demand of power projects, meeting the shortfall with imports if need be. While the extra imports are likely to be around 50-60 million tonnes right now, this will increase as more power plants come up.
Since CIL is not going to pay for the higher cost imports from its pocket, the solution worked out is that local and imported coal will be pooled and that customers pay a pooled price. Keeping in mind the prices of local and imported coal and the amounts that are to be imported, the pooled price of coal will go up by 30-40%—as the amount of the vastly more expensive imported coal rises, this will rise further. At a time when SEB losses are mounting dramatically thanks to power tariffs not keeping pace with production costs, this will send SEBs further into the red—unless power regulators decide to start hiking consumer tariffs on a regular basis and to cover rising costs. Indeed, while CIL’s supplies have not kept pace with demand, power producers always had the option of importing coal. If they didn’t do so, it was because imported coal was much more expensive and, if the power plants were in the hinterland, the costs of railway freight made them even more uncompetitive. Wednesday’s solution to the power crisis won’t help since it doesn’t take this reality into account.