India’s coal sector: A struggle between self-sufficiency and sustainability

By Jatin Bavishi 

Coal deposits of England and Germany enabled it to pave way for phenomenal growth in the 19th and 20th centuries. Although India joined the race later, it has 123 billion tonnes of reserves at present and is the third-largest producer of coal after China and the US. Unfortunately, the quality of coal is not high which makes imports an important strategy in India’s energy security.

Falling imports

The government recently declared that import of coal saw a decline to 191.95 million tonnes in 2016-17. Comparatively, in 2015-16, coal imports stood at 203.95 million tonnes, as per official data by the government. According to Business Standard, this surge was largely on account of higher production by Coal India Limited (CIL) that saw the country move to a regime of surplus coal. The Centre has also announced plans to boost CIL’s annual production to the level of 1 billion tonnes by 2019 to meet the growing fuel demand. The government had said that it would convince the private companies operating in the power space to totally stop the import of thermal fossil fuel.

The announcement of a movement of self-reliance in coal can generate national pride during the Independence Day month, however, we must appreciate deeper nuances. Import of coal is not solely dependent on the domestic production but also depends on other factors like power plant designed on imported coal and insufficient availability of coking coal of required grade, reports Business Standard.

The shambling power generation sector

Thermal coal is the mainstay of India’s energy programme as 70 per cent of power generation is dependent on it. The NDA government has promised to electrify all villages by 2018 and provide 24×7 power supply. Last year, India for the first time in history, declared that it will not have a power deficit. The officials say that this is an outcome of the current government’s initiatives to resolve burning issues like fuel scarcity. Coal output, which was stagnant for years, has increased significantly and helped many stranded power plants in generating electricity.

Power generation sector, in reality, is in shambles. Massive investments are planned to upgrade the sector, but they may not yield any significant changes. The distribution companies are highly indebted. The Institute for Energy Economics and Financial Analysis (IEEFA) finds that 11% of Indian banks’ stressed advances is to the power sector. According to Scroll, adding capacity would force new projects to operate at even lower capacities, eroding their ability to service loans. The IEEFA also estimates that India’s coal thermal plants generate only 58% of their capacity. Power thefts have been internalized as a perennial fact. They are the biggest drag on the fiscal positions of companies, and there is lack of an integrated approach to prevent those slippages.

Falling demand and intense competition

CIL definitely does well as far as production is concerned but its consolidated profit declined by 23 percent for June quarter, weighed by higher expenses. Growth rates of output also fell during the quarter due to lacklustre demand from the power sector, productivity gains in electricity generation, improvements in the quality of coal and partial substitution by pet-coke, according to sources at The Economic Times.

This fall may not be bad since the company has made critical capital expenditures in various projects such as supercritical thermal power plant, the revival of fertiliser plants and acquisition of coal blocks in India and abroad. However, considering the intense competition in this sector after the arrival of private players, the company would require more profits to stay afloat.

Diversifying operations

The larger question is if we should rely on coal for our energy security. Coal emits greenhouse gases responsible for Global Warming and India is a signatory to the Paris Protocol which requires consequent changes in world energy scenario. The CIL is looking forward to diversify its operations towards renewable energy like solar power and clean energy sources like coal mine methane, coal bed methane, coal to liquid and underground coal gasification. However, with coal-based plants accounting for more than 60% of the new capacity with additional boost envisaged, there appears to be a contradiction in Government policies.

Energy efficiency is a necessary requirement for a developing country like India, but apart from devising policies to attain the same, the policymakers must not forget issues of equity and sustainability.

Featured Image Source: Visual Hunt