In a pincer

Years of not taking enough action to deal with the problems of stagnating productivity at Coal India have begun to take their toll (superior grade non-coking coal, which was 80 per cent of production in 1980, is down to 25 per cent today).

As this newspaper reported early this week, a shortage of coal has forced the government to refuse coal linkages to five coal-based private sector power plants as well as for the expansion plans of 10 cement plants.

Indeed, while most coal-fired power plants face a coal shortage during some period of the year, this time round the shortages are beginning to get longer and many more power plants remain on the “critical” list—a few months ago, six power stations were functioning with coal stocks of less than four days while another 20 had stocks for just a week.

The problem, as this newspaper has pointed out earlier, is that while the country’s coal reserves are nowhere near as high as is generally believed, production levels are expected to decline after the next 20-25 years.

While it is theoretically possible to exploit more reserves, large open-cast mines (which are economically viable producers) become an environmental disaster, and production from underground mines has actually declined with each passing decade, due to safety reasons as well as the fact that such production is too expensive to be of use to anyone.

Indeed, based on current production trends, not more than around 25,000 MW of additional coal-based power generation can be created, and this too would run into trouble if more coal were to be provided for other industrial uses (like cement).

And while it is true that the government has steadfastly refused to allow the private sector into the coal-mining business, except for captive mining, the potential is probably limited since it is the public sector Coal India that has the best mines anyway, and it would be unlikely to want to give these up.

In the event, it is obvious the country’s hopes on coal will have to be supplemented in a very big way with overseas coal—in the current plan period itself, it is estimated that there will be a coal shortage of around 55 million tonnes in 2006-07, or a shortage that’s equal to around a seventh of total production.

The problem with imported coal, and that’s the second arm of the pincer, is that once it gets transported to the port, it needs to be moved inland to various demand centres, and that can be done only by rail.

Yet, the freight structure of the railways is such that coal freight subsidises passenger and other traffic, so moving coal over distances over 200–300 kilometres becomes completely unviable! So, solving the coal problem can’t be done without solving the railway problem of excessive cross-subsidies.