Time to revisit coal nationalisation
20 Jan 2009, 0055 hrs IST, JAIDEEP MISHRA , ET Bureau
There’s action on the power front, or so it would appear. The Delhi High Court has declined to stay a government decision to allow surplus coal

available to the proposed Sasan power project in Madhya Pradesh for electricity generation elsewhere, for instance at the upcoming Chitrangi plant in MP.

The ruling would have implications for natural resource management, power policy and reforms generally. What’s required is a holistic, forward-looking approach that is for the greater good and able to optimise output. In tandem, what’s called for is social change and innovativeness, so that growth pays rich dividends right across the board in the here and now.

The Sasan project is labelled as ‘ultra mega’, with large-scale concentration of generation capacity in the offing and with tariff-based competitive bidding already completed to decide on the project promoter. It is another matter that the winning bidder had to step aside after it emerged that there were misrepresentation of facts in routine disclosures; the bidder with the second-lowest tariff proposal has since agreed to go by the original (winning) tariff schedule and execute the project.

Anyway, it does make sense to reap scale economies in a heavily capital-intensive sector like power. Yet for years, myopic policy options and attendant populism did short-circuit plans for sufficient coagulation of thermal capacity for pan-India supply.

But the contention now is that the decision to divert surplus coal from the captive mines of the Sasan project — well after the bidding process was over — would favourably affect its economics and so is biased. Also, it is averred, had the provision for coal diversion been specifically mentioned in the bidding papers, it might have led to further lowering of the tariff bids. Yet current regulations reportedly do allow for the resupply of surplus coal from ‘captive’ sources to alternate plants, albeit on a case-by-case basis.

The Sasan project, of course, ought not to materially or financially benefit from the proposed coal supply to Chitrangi. What’s called for are separate accounts for coal supply and attendant transparency. Back-to-back, it would be logical to factor in the lower overhead costs of fuel supply into the tariffs of the coal-receiving power plant. Concurrently, what’s necessary is to expressly do away with the panoply of rigidities in coal mining and evacuation, so as to have an efficient and well-functional market for coal.

In any case, it would be thoroughly sub-optimal resource use to mandate that captive coal output be used for a single plant — even for large-capacity thermal plants like Sasan. Apart from physically constraining supply, it would in effect mean denying economies of scale in coal mining and supply. There is a sound case for repealing the anachronistic Coal Mines (Nationalisation) Act, 1973, so that multiple producers can realistically compete for custom, and in the process, rev up sectoral efficiency levels too.

When it comes to the supply of coal, our main energy source, surely there ought to be no scope for monopoly rents. In recent years, producers of metals, cements and power have thankfully been given the go-ahead for captive coal mining. It can be seen as a policy move in the right direction, likely to somewhat boost investor comfort.

Coal projects do tend to be of long-gestation, and the sheer prospect of avoiding time- and cost-overruns in seeking ‘linkage’ from the public sector Coal India can willy-nilly boost sentiments. Yet the rationale that metal or power producers do necessarily need to mine coal in-house is wholly questionable. The idea that lumpy investments, say, power and coal, be bunged in together is fundamentally flawed.

Such an arrangement would actually add and aggravate project risks, and may needlessly shore up project costs as well. Which is all the more reason to repeal the nationalisation Act — perhaps via the Ordinance route. In the immediate past, the left parties may have put a spanner in the works as it were, on the issue of coal reforms.

However, it’s time for a more holistic approach to policy reform, keeping in mind the interest of all stakeholders in improving coal availability. Estimates already suggest a domestic coal shortage of 60 million tonnes per annum by 2012.

In parallel, there’s the need for effectively implementing the reforms envisaged in the Electricity Act, 2003 to end everyday power shortages and improve the quality of supply. It is welcome that average annual power installation capacity seems to have well nigh doubled lately. It has much to do with the delicensing of power and consequent opening up.

However, it remains to be seen if the trend of increased capacity addition can be maintained in the foreseeable future. But then, a surfeit of reform measures such as tariff reform in the states, the implementation of ‘open access’ of line capacity for supply of power, and the rampant revenue leakage for public utilities in electricity distribution all remain to be tackled in any real sense. They’d gel with the scope for multiple supply of ‘captive’ coal from Sasan.