Bringing in private miners even more critical now
Given that over half of Indonesia’s exports are from commodities such as coal and palm oil, it is possible the Indonesian ambassador’s statement about his government contemplating the banning of exports of low-grade coal is nothing but local politics—the elections are due next year, so it helps to show the government is serious about getting more local value addition done. But given India’s dependence on imported coal, the bulk from Indonesia, New Delhi would do well not to dismiss this as just idle talk. After all, Malaysia’s decision to put a minimum price on exports of coal is what has got leading power producers in India lined up before the central electricity regulator looking for ways to alleviate the financial stress this has caused them. The fact that, 3 months later, the committee tasked with finding a solution has still not been able to do so tells you how intractable the problem is. What makes things much worse is that India’s coal needs, increasing rapidly enough as it is, are all set to grow even faster. From a deficit of around 140 million tonnes in FY12, the FY17 estimated shortfall—to be met by imports—is projected to nearly double. Apart from the strain this will put on India’s choked ports, the impact on the current account deficit, and hence the rupee, will be greater. From 0.5% of GDP in FY07, coal imports rose to 0.9% of GDP in FY13—that’s around 18% of the CAD in FY13. A doubling of coal imports, assuming Coal India production grows by around a fifth or so over 5 years, can put the rupee under severe stress.
All of which means India just has to get its act together as far as getting in new producers—an Indonesian lesson, interestingly, is that after the country brought back foreign investors, coal production shot up. Even the latest numbers, from 2006 to 2013, show a huge jump from 194 million tonnes to 400 million tonnes. Unfortunately, despite the Budget announcing a half-measure to bring in a PPP framework, with Coal India as a partner with private firms, there has been no movement on this—ideally, the Coal Nationalisation Act should have been scrapped and private players brought in as they have in the oil/gas sector, but the government doesn’t have the will for this though a Bill to this effect was brought into the Rajya Sabha by the BJP when it was in power and still remains a live one. The inter-ministerial group set up to examine ways to usher in the PPP model has met only once so far and the suggestions being tossed around right now indicate it will be a while before any meaningful solution is found. For a government that is supposedly tackling issues in crisis-mode, this is simply not good enough.