Wednesday, February 6, 2013

COAL REFORMS: POWER WOES

Reforms in coal sector, on which India’s power generation is heavily dependent, have seen a faint light on the distant horizon courtesy reform proposals in this budget. B&E’s anchal gupta argues that the steps may be too small considering the delay and a lot more needs to be done, quickly.

 fact not just power, other core sectors dependent on coal feel strangled too. As per Ashok Jainani, Analyst, Khandavala Securities, “India largely depends on imported metallurgical coal for steel making. Our met-coke imports are as high as 80% of requirements and the situation is likely to remain so in the foreseeable future. As regards thermal coke, it still remains highly protected business within government control.”

The starting blip is that mining lease, i.e. access to land for mining is the state’s prerogative, while mining rights, i.e. access to the mineral below the land is the Centre’s call. The process of getting a lease and a license takes half a generation. AreclorMittal and Posco are some outsider victims in this lease-rights-land-acquisition jigsaw. However, thanks to a ‘gentleman’ named Madhu Koda, centre may have got a wake up call, albeit 2-3 decades late. With Finance Minister Pranab Mukherjee announcing the leasing of coal blocks for captive mining through open auctions and allowing captive miners to hold just 26% in FDI for any coal block, competition might just bring the black gold up a little faster. But the second and critical issue remains stuck. The Coal Reform Bill introduced in the Parliament in 2001 hasn’t even stayed on the table for long while its counterpart the Electricity Act 2003 has changed India’s power sector landscape. The bill, in essence, would open up coal mining for non-captive users and thus coal can be sold and bought in the open market. But the tentative script of the bill seems to be buried much deeper than its black protagonist.

Interestingly though, the talk of the town has been the cess of Rs.50 per tonne of coal mined. A first step towards incentivising the renewable energy sector in the country, it is at present just a needle in a haystack. “The cess levied on the coal mined will result in an increase in the power tariff for the companies who are in the regulatory business model (cost plus) as all the cost increase is a pass through for these companies. Those selling power on merchant basis would have to take a hit to that extent as the pricing is based on market forces,” says Solanki. However some experts estimate that the cess will lead to revenue, on a national basis, to the tune of Rs.30 billion per year, and will contribute massively to the National Clean Energy Fund (NCEF) proposed in this budget.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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