To meet the growing demand of electricity in the country, the approach paper of 12th Five year Plan (2012-2017) targets to set up 100 GW of capacity. However, if the government wants to achieve this desired growth, it certainly needs to undertake immediate reforms to augment domestic coal supply.
At a time when over 50% of the country’s energy demands are met by coal, India is still struggling with issues related to its production and supply. Every year, the Planning Commission comes out with an estimated target of coal production and, interestingly, every year the figure is scaled down considerably. Even the final output lies nowhere near the revised estimates. What’s more? Coal or black gold, as it is often called, is about to become dearer and the ramifications are certainly going to be felt all around. The reason is simple. A risk of shortfall in production targets, the proposed pay revision in the sector, and an increased share of washed coal may put an upward pressure on coal prices and place energy companies at the losing end.
When it comes to a change in policy regime, there have been visible attempts to liberalise the statutory & regulatory framework in order to promote investment in the coal sector. These policy initiatives have come in the form of allowing captive mining by power, steel & cement industries; allowing foreign direct investment (FDI) of 100% for the power sector, 74% for the steel, cement & coal washing; creating a competitive market for sale of coal; progressive reduction of customs duty on coal & the import of Heavy Earth Moving Machinery (HEMM); and the introduction of contract mining. Despite all this, there really hasn’t been too much forward movement in the sector. In fact, since 1993, over 208 coal blocks holding around 50 billion tonnes reserves have been allocated for captive users. However, still only about 30 blocks have started production, mining just about 40 million tonne (MT) of coal against the potential of over 200 MT. This indicates that the domestic production has never been able to meet the industry demand. Even for the current Plan (2007-12), the Commission had earlier estimated that coal production will reach 680 MT by 2011-12, but the figure was later revised to 630 MT in a mid-term appraisal, and was further scaled down to 554 MT. In fact, production shortfall in the current fiscal is projected at 142 MT, with domestic output likely to touch 554 MT.
No doubt, as per Planning Commission estimates, domestic coal production will grow to 770 MT by 2017 (on the basis of projected annual growth of around 7%), but by then the demand too would soar to 1,000 MT, requiring companies to import 200 million tonnes. For the uninitiated, over 60% of India’s commercial energy need is met by coal (India’s proven reserves of coal currently stand at 110 billion tonnes). Although, as per estimates, the share of coal in terms of India’s total energy needs would drop by 2024-25, the fall would be marginal 4-5%.
When it comes to a change in policy regime, there have been visible attempts to liberalise the statutory & regulatory framework in order to promote investment in the coal sector. These policy initiatives have come in the form of allowing captive mining by power, steel & cement industries; allowing foreign direct investment (FDI) of 100% for the power sector, 74% for the steel, cement & coal washing; creating a competitive market for sale of coal; progressive reduction of customs duty on coal & the import of Heavy Earth Moving Machinery (HEMM); and the introduction of contract mining. Despite all this, there really hasn’t been too much forward movement in the sector. In fact, since 1993, over 208 coal blocks holding around 50 billion tonnes reserves have been allocated for captive users. However, still only about 30 blocks have started production, mining just about 40 million tonne (MT) of coal against the potential of over 200 MT. This indicates that the domestic production has never been able to meet the industry demand. Even for the current Plan (2007-12), the Commission had earlier estimated that coal production will reach 680 MT by 2011-12, but the figure was later revised to 630 MT in a mid-term appraisal, and was further scaled down to 554 MT. In fact, production shortfall in the current fiscal is projected at 142 MT, with domestic output likely to touch 554 MT.
No doubt, as per Planning Commission estimates, domestic coal production will grow to 770 MT by 2017 (on the basis of projected annual growth of around 7%), but by then the demand too would soar to 1,000 MT, requiring companies to import 200 million tonnes. For the uninitiated, over 60% of India’s commercial energy need is met by coal (India’s proven reserves of coal currently stand at 110 billion tonnes). Although, as per estimates, the share of coal in terms of India’s total energy needs would drop by 2024-25, the fall would be marginal 4-5%.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
