Coal ordinance: Government needs a plan

The coal sector must jettison the present policy regime to achieve substantial output expansion.

 |  Retrofit  |  5-minute read |   09-01-2015
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The two-day labour strike in Coal India Ltd (CIL), called jointly by all the trade unions, including the HMS affiliated to the BJP, has thoroughly exposed the fragility of the demand-supply balance in the thermal power sector. The spectre of power shortages and blackouts loomed large and was averted at the last minute after ministerial intervention, which came at a cost.

The deal with the unions has been to reassure them against any proposed denationalisation of CIL and perhaps to also indefinitely shelve the sale of even a fraction of the CIL equity. These proceeds are critical to meet the fiscal deficit target, which in this case will not be met. "King coal" looms large over the economy. Therefore, it is necessary to evolve a holistic and forward looking policy for it.


Coal is and will remain the principal energy source for the foreseeable future. Coal output increased from 352 million tons (mt) in 2001 to about 613mt in 2013-14. During this period, however, domestic demand increased from 411mt to 744mt necessitating imports of nearly 100mt. CIL, the public sector monolith, saw its output stagnate from 431 to 462mt between 2011 to 2013 while imports were rising. In comparison, China’s coal output increased from 1,001mt in 2001 to nearly 4,000mt in 2013. In keeping with overall economic performance, the gap in Chinese and Indian coal production has widened.

90 per cent of CIL’s output comes from open cast mines, which if not strictly regulated, are an environmental scourge and disrupt communities and livelihoods of tribal people, that are the majority in the coal producing regions. In contrast China’s coal output, more than six times the Indian production, is made up of 80 per cent coal from underground mines, which result in relatively far lower ecological and demographic impact. Despite recourse to open cast mining, CIL has been unable to keep up with domestic demand. This is reflected in over 20,000MW of electricity generation capacity remaining under utilised and coal imports expected to increase to almost 200mt annually over the next ten years. India possesses coal reserves to last it more than a hundred years.

These estimates are bound to rise, as India remains one of the less explored geologies. But these reserves represent a wasting resource because growing global pressure against carbon emissions and domestic opposition to environmental damage and population displacement will not allow us to exploit these reserves over the long run.


Therefore, India needs to ramp up its coal output as much as possible in the short to medium term. To achieve this substantial output expansion, however, requires jettisoning the present policy regime and replacing it with a new policy framework. Incrementalism and tinkering at the margins or reacting to court decisions will not serve our national interest. The objectives of the new policy would be:

(i) Maximising non-coking coal output in the shortest time, thereby eliminating shortages and imports;

(ii) Adopting latest mining technologies including longwall mining, fluidised bed combustion, in-situ gasification;

(iii) Introducing latest coal combustion and carbon sequestration technologies to maximise pithead power generation. This avoids transporting poor quality coal over long distances, which worsens the energy balance and also prevents coal output expansion becoming dependent on last mile railway connectivity;

(iv) Raising productivity levels to make coal mining globally competitive; and

(v) Attracting investment for geological exploration.

These objectives would be best achieved by attracting large-scale private investment by specialised mining companies that can undertake geological exploration, mining operations and transportation using latest technologies and at globally competitive costs. At the same time, it is important to ensure that profit maximising private sector mining companies are effectively restrained from practices that will damage the environment and trample over the rights of indigenous people. A robust regulatory mechanism, effectively implemented, can ensure that these two ostensibly conflicting objectives of attracting large-scale private investment and minimising environmental degradation and human costs can both be achieved.

Admittedly, there was urgency in addressing the vexed situation in which the industry was landed after the August 2014 Supreme Court rulings. However, seven months is surely sufficient time for designing a robust and comprehensive policy response. However, to do so, required a change in the policy mindset from merely reacting to Supreme Court judgements to taking the longer term and more holistic view of national goals and ground realities. I am afraid that with the twice promulgated Coal Mines Special Provision (Second) Ordinance (first was passed in October and the second on 29th December) an opportunity to come up with an innovative policy framework been lost.


The ordinance does nothing to attract private investment and technology by specialised mining companies that produce coal for commercial sales as opposed to producing it for self-consumption. It only legalises coal mining by private sector actual users, which was hitherto done under an executive order that the Court found illegal. It does not address the five goals enunciated above. In fact it further reinforces CIL’s dominant position by requiring that "actual users" who mine coal, surrender their excess production to CIL – not to other users! Thus the impact of another strike in future will be even greater. The ordinance does not even mention the need for environment and human rights protection and enhancing productivity with the use of frontline technology. There is no mention of putting in place a regulatory framework.

I am afraid the coal ordinance may not address the prevailing domestic coal scarcity, rising imports, use of backward and inappropriate technologies, poorly paid mining workers, environment degradation, uncertainty about private sector investment and about adequacy of coal supplies. In this context, the announcement of the NITI Aayog is most welcome. It will hopefully be charged with the responsibility for coming up with a fresh vision and policy framework for various sectors, especially those critical to the economy. In doing so, it will take the government out of the bureaucratic straight jacket in which it has clearly landed itself at present.


Rajiv Kumar Rajiv Kumar @rajivkumar1

Former Secretary General, FICCI, India, Economist, author, interests: Sufi music and meditation.

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