Letter by Shri E A S Sarma, Former Secretary to Government of India, to Union Coal Secretary
Shri A K Jain
Union Coal Secretary
Dear Shri Jain,
The 2021 coal crisis has severely impacted the power sector, especially the performance of the DISCOMs operating within the State sector.
As a result of the shortfalls in coal supplies, the DISCOMs were forced to import coal at exorbitant prices, which in turn escalated the price of electricity. As a result of the insistence on the part of the Centre that DISCOMs must meet a minimum proportion of their electricity needs from centralised solar power plants, largely operated by the corporate business houses, the delivered cost of electricity from which is quite high, coupled with the directions issued by the Centre that DISCOMs should also meet at least 10% of their coal requirements from expensive imports (https://economictimes.indiatimes.com/industry/energy/power/power-plants-told-to-import-10-of-their-coal-demand-for-next-year/articleshow/88578862.cms), the distribution utilities have had no other alternative than to bear the huge cost burden and incur financial liabilities for no fault of theirs, at the same time burdening the electricity consumers to some extent.
Soon after the 2021 coal crisis, it was hoped that the Coal and the Power Ministries would plan the coal supplies more diligently thereafter, so as to prevent any recurrence of coal shortages. However, the power utilities across the country are once again staring at yet another debilitating coal crisis, that will further cripple the finances of the DISCOMs.
Right through these coal crises, it is the two CPSEs, namely, the CIL and the Singareni Collieries Company, which rose to the occasion and ramped up coal production to ward off the shortages to the extent possible. On the other hand, it is the private companies which have been awarded captive coal blocks that have badly let down the coal sector.
According to news reports (https://www.business-standard.com/article/economy-policy/produce-more-coal-or-no-supply-from-cil-govt-warns-captive-mine-owners-121090801093_1.html), there are at least 43 captive coal blocks with the private companies, with a peak production capability of 145 MMT per year. During 2021-22, they were targeted to produce 82.5 MMT, against which, till the end of August, 2021, they produced only 18.3 MMT. At best, they will produce only 54 MMT during 2021-22, which implies a shortfall of 28.5 MMT for the year. To meet their captive requirements, some are perhaps in a position to make up the shortfall by importing coal and several others fall back on coal supplied by the CIL. In a way, this has placed undue pressure on coal supplies from the CIL at the cost of the DISCOMs.
It is ironic that many promoters of the companies developing the captive coal blocks are also those who own overseas coal mines, located in Indonesia and elsewhere. These are the companies that have been quoting exorbitant import coal prices to the State power utilities, citing the tight coal supply situation globally. Evidently, they are exploiting the global coal shortages to earn windfall profits at the cost of the domestic power utilities!
The State power utilities are caught between the devil and the deep sea, unable to procure domestic coal on the one hand and unable to pay the astronomic prices quoted by the Indian coal companies from their overseas coal mines. Some utilities unable to pay for such expensive imported coal are forced to resort to power cuts at great cost, affecting agriculture, small enterprises and manufacturing activity.
For example, according to a recent news report (https://www.businesstoday.in/latest/economy/story/andhra-cancels-adani-bids-to-supply-imported-coal-report-328442-2022-04-03), in response to a coal import tender floated by the Andhra Pradesh utilities, a private group having its own captive coal mines in India and has also coal mines overseas, quoted 500,000 tonnes of South African coal at Rs 40,000 ($526.50) per tonne and another 750,000 tonnes at Rs 17,480 ($230.08). Unable to pay for such expensive imports, the AP utilities have cancelled the proposal to import coal, prepared instead to face a severe power shortage in the State. The greed of the private Indian coal traders is obviously crippling the Indian economy, while the concerned authorities in India have become passive spectators, not inclined to take action, for reasons best known to them.
If the domestic coal blocks were to be valued at the high import prices being quoted by the same bidders who are bidding for those blocks, would it not imply that the Coal Ministry is handing over the coal blocks to private promoters at highly concessional prices? It shows that something is drastically inappropriate with the ongoing coal block auctions. This aspect needs to be investigated thoroughly.
The irony of privatisation of coal is that the private bidders do not bring any additional fiscal resources for the government, as they borrow largely from the PSU banks. In India, it has become commonplace for many such private companies to leverage public funds unduly to the maximum, knowing well that they could always default on repayment and expect the PSU banks to restructure their debt more than once, an undue concession that is denied to a small farmer or a small business enterprise. One should not be surprised if several of the promoters of the coal companies who have got captive coal blocks soon add to the NPAs, compounding the already worrisome NPA crisis that is plaguing the banking sector like never before.
This raises important questions of propriety in regard to the policies adopted by the Centre on allotment of coal blocks to private companies and allowing those among them having overseas coal mines to exploit the State utilities.
- Should not the Coal Ministry straightaway revoke the coal mining licenses granted to the private coal companies that have fallen short of expectations of production of coal from their captive blocks? Should not the Centre have imposed severe penalties on them for crippling the economy? In fact, the penalties to be imposed should be on the basis of the quantity of coal short-supplied, valued at the highest coal import price, plus a deterrent additional penalty to discourage shortfalls in the future.
- Should not all such blocks be taken back and handed over to the CIL for development, subserving the public interest to a greater extent?
- It is widely known that several Indian companies supplying coal from their overseas coal mines have over-invoiced the coal and laundered the profits at the expense of the State utilities. Why is the government dragging its feet on completing the investigations into such money-laundering cases? What such companies have done runs counter to the national interest.
- Should not such private companies be barred hereafter from bidding for domestic coal blocks?
In all, this has important lessons for the Centre in regard to relying excessively on private coal mining. A time has come when the Centre should encourage CPSEs like the CIL to reinvest their surplus resources on exploring and developing new coalfields, instead of forcing them to pay high dividends to the Centre, thereby reducing their capability to plan their growth on a long-term basis.
I hope that this serves as a wake-up call to the Centre to revisit its policy on privatisation of coal development.
E A S Sarma
Former Secretary to GOI
4 April 2022