Obstacles to higher coal output

With Coal India (CIL) lagging behind in its production commitments, the Union Government has recently come up with a policy assurance to fast-track domestic coal production. This is in order to meet the country’s energy needs.

While the intentions of the Government will be clear once the policy is in place, the industry has petitioned the Government to bring an end to Coal India’s monopoly over commercial coal production and allow a wider role to private capital.

Pervasive non-performance

Is there any magic wand to catapult the coal sector to higher growth? Or, has the Government created enough impediments to take the steam out of this sector, and is now desperately hoping that these obstacles will somehow disappear?

While there is little doubt that a monopoly is inefficient, a quick scan of the performance of the captive segment — which was offered as many as 219 blocks in the last two decades — will prove that the coal mining sector, as a whole, is in trouble.

NTPC, a relatively efficient PSU, which was awarded with eight large-sized blocks between 2004 and 2006, is a classic example. This includes the mother of all blocks, Pakri Barwadih (2004), having a reserve of 1,600 million tonnes, nearly 10 times the size of an average block.

In terms of geological reserves, the power major was perhaps the single largest recipient of captive resources allotted so far. More than half a decade down the line, not a single block of NTPC has started production. As of June 2011, the Coal Ministry de-allocated five blocks due to lack of progress.

NTPC is no exception. Companies, irrespective of their ownership pattern, have grossly failed to turn the captive assets into production. The failure is rightly brought out by the recent report of the Comptroller and Auditor General, which found only one block out of 57 allotted to private sector during 2004-09 to have started production.

Bureaucratic hassles

The failure of the captive sector, for once, proves that the answer to the nation’s coal crisis does not simply rest on privatisation or multiplicity of players. On the contrary, the problem essentially lies in the environment, in which this sector operates.

The mining sector, by its nature, needs to resolve three main issues for growth: land, the environment and forests. Each of these issues comes under the joint purview of the Centre and the States. Sadly, the departments or ministries related to these sectors operate as a fiefdom, without aligning themselves to the national development agenda.

A case in point is Odisha, which alone can easily produce 300 million tonnes of the cheapest thermal coal, enough to fuel nearly two-thirds of the country’s thermal power capacity. The experience of CIL suggests that unlike in many other parts of the country, people at large in the coal belt in Odisha are agreeable to giving up their non-fertile mono-cropped land for jobs.

And, since CIL offers jobs as part of its resettlement and rehabilitation policy, the company often suffers from problems of plenty, as was evident at Natara in Talcher. While CIL was in need of only 41 acres — to lay a crucial rail link — villagers were united in their offer of 500 acres of non-coal-bearing land, all in the hope of jobs.

Clearly, CIL is in a position to negotiate the land hurdle in Odisha. Yet, the company’s production plans in the State lag way behind projections, courtesy the fiefdoms in the areas of environment and forests.

The miner waits at least for four or five years to get environmental and forest clearances. The waiting period often exceeds a decade, as in Garjan Bahal (10 million tonnes).

Even if environmental clearance is available, red tape over forest clearance for 0.44 acres may bring the 16 million tonnes capacity block at Bharatpur and Jagannath to a grinding halt.

Need for regulation

Compliance with laid down formalities is not enough. The Environment Ministry may suddenly feel the need for some study that should keep Bhubaneswari block in waiting. Or, when all the hurdles are negotiated, as in the case of Kaniha (5 million tonnes), coal production waits till the evacuation logistics are in place.

If you think the private sector could handle the situation better, then you are in for a shocker. Of the 63 captive blocks allotted in Odisha since 1993, only one has come into production. Those who failed to monetise assets include some of the State Government-run companies.

Theoretically, there is little case for living with a monopoly such as Coal India. But unless the ground rules are sorted out, no privatisation can help the nation.

On the contrary, mindless privatisation may only add to the problems. Leaving aside other issues, there is an urgent need to regulate the captive and commercial mining sector under a common resettlement and rehabilitation policy.

Though States such as Odisha and Chhatisgarh had put in place a fairly lucrative compensation model for the land losers, the captive sector is often found to be at loggerheads with the villagers, for not offering adequate jobs in return for land.

In a recent incident, angry villagers all but disrupted a public hearing for land acquisition for the captive mine of a private sector power major. While the company offered a generous cash package, villagers stuck to their demand for jobs.

The fear is that unless the local aspirations are mitigated by a concerted effort of the government as well as corporates, the coal sector may be faced with resistance from the people of the land.