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Home / Opinion / Views /  The real story behind India’s coal shortage

The lady doth protest too much in multiple sectors of the power industry. The power ministry puts out dire warnings of thermal power plants, the mainstay of India’s electricity generation, running short of coal. The coal ministry says there is no shortage of coal, that, and the problem is the insufficient availability of rail rakes to move coal. And, if anyone wonders where have all the rakes gone, given there was no desperate shortage of rakes till recently, here is the explanation: more domestic coal is being transported to the coastal power plants, which have both cut down generation and started demanding more of domestic coal, instead of using imported coal, to use which they came up along the coast and next to ports. When rakes are dispatched over longer distances from the pithead than they used to be, they take longer to come back empty, producing a shortage, in the meantime, of rakes for transporting coal to the power plants they supply in the normal course. And why have the coastal power plants started producing less power and importing less coal? The cost of imported coal has gone through the roof, thanks to the Ukraine war, assorted bans on Russian coal, and desperate scrambles to substitute Russian gas by burning more coal, sorry, climate. 

While these protests are meant to shift the blame to someone else, the reality is that everyone is to blame, the coal sector, the power sector and the rail sector. They must act severally and together to tide over India’s coal shortage in the short term and in the medium term.

India has the world’s fourth-largest reserves of coal and if we could get our act together, India would not need to import even a smidgeon of thermal coal (India would still need to import metallurgical coal, coking coal). But India does not have its act together in the coal sector. India nationalized coal in 1973, and entrusted its exploitation to state-owned oligopolies, most of which merged into the umbrella organization, Coal India Ltd. Coal India never mined enough coal to meet India’s rising demand. So, eventually, to meet the shortage, captive mining was allowed for power plants, steel plants and cement plants. The allocation of captive mines became a source of rent-seeking for the Neta-Babu nexus. It did not really lose money for the exchequer, because royalty had to be paid on every tonne of coal mined, regardless of who got to mine it. A lot of coal theft also took place, which did lose revenue for the exchequer.

In 2015, the Modi government cancelled extant captive mine allocations and auctioned off fresh mining rights. These never got operationalized properly. In the wonderland of regulation, our babus have created, environmental clearance is not given to a mine and its mining plan, but to individual owners. So, when a mine operator changes, it calls for an entirely new environmental clearance. This takes its own time. Further, people had bid unaffordably high premia to win mining rights that they found it cheaper to not mine than to mine and give the state the amount they had bid per tonne of mined coal. So, some production that had been going on got short-circuited, through this cancellation, fresh auction and non-operationalization of captive coal mines. This led to the largescale import of coal.

Now, the Indian power sector is another victim of the political economy of freebies. Politicians have conditioned consumers perfectly capable of paying for the power they consume to expect power to be given away either free or at heavily subsidized rates, with state electricity boards or state governments picking up the subsidy tab eventually. This has led to resource-starved utilities, underinvestment in transmission and distribution and a culture of preferring load-shedding to proper billing and collection of electricity dues.

The price of power generated from imported coal is sensitive to global price changes and changes in the exchange rate of the rupee. After the recent spike in global coal prices, many coastal power plants depending on imported coal have reduced generation, rather than ask consumers to pay a higher tariff for the power that is now costlier, due to higher fuel costs.

Yet another problem of the coal sector is the high ash content of Indian coal. It means that the coal comes mixed up with a lot of non-combustible material, such as shale and rock. Removing this dirt from the mined black stuff is called beneficiation. The traditional way to beneficiate coal is to use washeries. A solvent is added to water, to raise its density precisely to a level that would make crushed coal float on the liquid, even as heavier rock and shale settle in the water. The coal can then be skimmed off from the surface, and you get coal that better deserves to be called coal. The downside of such beneficiation is three-fold: this entails a certain cost, the sodden coal is heavier to carry and harder to burn, and the water used is polluted and, in turn, pollutes the soil into which it is discharged.

Now, dry beneficiation technologies are available, in which crushed coal is poured down from a height and the falling curtain of coal is bombarded with rays and particles, so that the lighter coal falls in a heap farther away, as compared to the rock and shale. Repeat this a number of times, and you can get coal that is about 20% coal, even from the stuff that Coal India sells as coal but is rock and shale anywhere up to 50%.

Failure to beneficiate coal is a crime against humanity. The incumbent government removed an earlier mandate to beneficiate any coal that has to be carried over a longish distance. About 40% of Indian Railways’ revenue comes from transporting coal. Roughly half its fuel expenditure is on hauling coal. At least 40% of the coal it hauls is shale and rock that will form into fly ash at the power plant where it is burned to produce power. In other words, a quarter of the Railways’ energy expenditure is on transporting useless shale and rock that could be taken out before being loaded onto train rakes but is not. Subsequently, yet more energy is spent on transporting the fly ash away from the power plant.

The government has scrapped the state monopoly on coal and tried to auction off coal mining blocks to large, professional mining companies. These have stayed away. Attracting them should be a medium-term project. But right now, action is required to end the coal shortage.

Incentivize Coal India managers and workers to produce more coal and offer cash rewards for mined quantities above the average for the last five years. Inspect the mined stuff to ensure it is coal and not just ferrite, shale and rock. Get all captive mines to produce as if they were merchant miners, rather than captive mines, and offer them similar incentives as to Coal India staff, for extra production.

Permit fuel price pass-through for all power plants. Grid power is always cheaper than power from captive diesel generators and any number of large consumers of power would be more than happy to pay a premium for reliable supply, even if it is at a price that fully passes on the cost of more expensive imported coal.

Mandate beneficiation of coal before transportation. The calorific value of each rake-load of coal would double, if the ash content is reduced from 40% to 20%. Rakes assigned to each plant could be halved, and the ones spared directed at other plants. A lot can be done, with the requisite will.

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