In the last few weeks, the country has been constantly reminded of its energy “insecurity” in a rude manner. Electricity production has plunged, leaving consumers to suffer long periods of power cuts. Industry too has suffered. A confluence of several immediate factors has led to the present crisis. Rains making coal—the dominant fuel—wet and unusable and labour strikes in a public sector coal company being the immediate causes. A long-term problem that of near-stagnation in domestic coal production over the last few years is the more serious problem.
However, these are mere symptoms of a larger malady with the government’s coal policy. Private mining companies are not allowed to mine coal and sell it in the open market. This has left power companies at the mercy of public sector behemoth Coal India Ltd (CIL). The restriction is now pinching like never before because of the surge in annual power plant capacity addition over the last few years.
Since coal production has not kept up, the supply margins in the event of disruptions have dwindled sharply. The fragility of this arrangement is aggravated by the pricing of coal. CIL’s government-regulated price is well below what’s charged in international markets. This keeps the distribution utilities’ power bills artificially down. To that extent, the real health of the loss-making distribution utilities is far worse. In short, the distortions travel from the coal to the power sector.
By Shyamal Banerjee/Mint
To remedy this situation, the government should allow private companies to mine and sell coal in the open market. This will accelerate the pace of coal production in the country. Further, it will offer benchmarks for coal extractions—both in terms of time taken to bring the coal to the surface as well as the volume of extractable coal. After all, one of the reasons behind the nationalization of coal production in 1973 was to bring an end to inefficient coal mining practises by private operators who were operating suboptimal- sized mines.
Then, CIL’s sale price should be deregulated and aligned with global prices. No doubt, this will result in the price of electricity going up, but it is essential to provide the coal company resources to open new mines quickly.
Both these measures require considerable political will, a scarce commodity in recent times. Had these decisions been taken in the last couple of years, the situation today would not have been alarming. What is being witnessed today is an “engineered crisis” that could have been prevented easily.
Why is the government shy of the right pricing policies for scarce resources? Tell us at firstname.lastname@example.org