By Rishabh Diwakar
Its many a times argued that what will trigger the third world war and who will be participating in it. But the truth is the war has already begun and each and every country has become a part of it. This war is for energy resources. Every country needs energy to grow, survive or prosper. Agriculture needs energy, industries need energy, and transportation needs energy and at the same time a country need to pay for this energy. Now if the country has its own resources of energy it can prosper in a better way without being dependent on any other country but if the country lacks energy resources it has to pay a large amount to meet its demand of energy.
India is lucky to have abundant of coal reserves. As of 2011 a total coal reserve of India are 285862 MT. Coal accounts for Indias 55% of energy demand and is likely to dominate till 2031-32. However the extraction and usage of coal affects the environment but in India the problem is far more severe than this issue. The inefficiency in coal mining policies, lack of reforms and corruption has paralysed the coal mining and also the sectors related to it.
The first major challenge is lack of transparency.
After coal nationalisation in 1973, public sector Coal India Limited (CIL) was given sole rights of extracting coal. But CIL has been failing to supply coal in the required quantities to end-users (particularly in the power, steel, aluminium and cement sectors). This emerged as a major constraint on Indias growth. There was no provision in Coal nationalization Act for open bidding. Also many state governments like Chhattisgarh, Orissa and West Bengal, which were run by BJP government, also oppose competitive bidding as they would lose rights to favour some other private company. Hence, to augment production of coal, UPA-I government decided to go for allocation of some coal blocks to a few major end-users in the public (like NTPC) and private sectors (such as Arcelor-Mittal, Tata Steel, Reliance Power, Jindal Steel) for captive use (that is, no outside sale permitted), starting 2004.
This happened despite PM preference given to competitive bidding 2004. In 2006 the law ministry gave clearance that the competitive bidding is possible and finally government switched to competitive bidding in 2010. But the question remains that why it took so long time to switch the process.
The other challenge is corruptions. According to the Comptroller and Auditor General (CAG) report allocation of captive blocks without bidding during year 2004-09 has caused the national exchequer loss of Rs. 1.86 lakh crore, known as Coalgate scam. Previously there have been many incidents of pilferage of coal and frauds in transportation of coal but these issues seem minor in front of Coalgate scam.
Another problem is monopolistic competition in coal mining. Coal India Limited (CIL) is the only PSU which is responsible for extracting coal and selling to others rest are allowed only captive mining hence the pricing of coal and efficiency in production in questionable. Also alone the CIL is not able to meet the demand supply gap.
Apart from these political hindrances the coal mines also suffers from environment and social challenges. Coal mining typically affects the air and water surrounding the mines. Various studies show that at many places the air quality is way below the prescribed norms. These environment challenges are fuelled more by the social problems which are caused by displacement of thousands of people and also who lose their livelihoods, often agriculture or shepherds. Mostly these are tribal people which are difficult to satisfy with the new arrangement and find hard to adept themselves in new environment.
These are few issues which have gripped the economy and are pulling its leg. The increasing oil prices in international market, devaluation of rupee, widening spread of Current account deficit and internal problems of coal have contributed to a costly energy for India. The problem of CAD and rupee is burning the Indian economy from outside and lack of efficiency and reforms in coal sector is burning India from inside.
One possible solution to this is that government should allocate some blocks to the private sectors to bring in competition. This will help the sector to bring new technology and increase the efficiency of production and usage. This will also help in price discovery in the coal market.
Rishabh Diwakar: He is an electronics engineer and is currently pursuing full time M.B.A in Energy and Infrastructure (Finance) from School of Petroleum Management, Gandhinagar. In past he has been associated with Tata Consultancy services Ltd for 3 years as a system engineer. He has also done research work for Indian Oil Corporation during his Internship and helped them to understand the role of media in branding.