Why is India facing coal crisis despite having fifth-largest deposits in the world?

India still largely remains on coal-based thermal power to meet its power requirements. This source of power accounts for about 52 percent of India's total installed power capacity and 72% of current power generation. Though there is a concerted effort to shift towards cleaner sources of energy due to commitments to combating climate change, coal remains still the major source of power. Any acute shortage of coal will hard-hit the power sector resulting in a perilous impact on the economy.

The Government of India while dismissing reports of a crisis in the coal sector, states the following reasons for the shortage in the coal supply reported from certain units. These include:

1. There has been a sudden rise in demand for power and thereby coal due to more than expected levels of post-pandemic recovery in the economy.

2. Coal production has been disrupted due to rains and floods as a result of monsoons extending into October.

3. The prices of coal in the international market have skyrocketed in the past year making it impossible to import coal. The price of imported coal was around $50 per ton in August 2020. It has now increased to $180-200 in October 2021.

The reason cited by the government of India is of course true. But, the truth has a much larger story to tell, which the government does not intend to acknowledge.

There has been an orchestrated attempt to weaken the premier public sector unit, Coal India Limited (CIL) from several directions. Despite the allocation of coal blocks to the private sector, both by the UPA and present NDA governments, CIL accounts for 80 percent of India's coal production.

Coal India had no regular Chairman and Managing Director for a year after 2017 dampening the tempo built in the previous years. Even today Bharat Cocking coal has no CMD. Several technical director posts in Coal India subsidiaries are still vacant, creating a vacuum in the top management. This has certainly impacted the functioning of coal India adversely. Coupled with other reasons, the human resource crunch at the top management too contributed to the stagnation in coal production by CIL around 600 million tons for the last three years.

Coal India had cash reserves of around Rs.35,000 crore in 2016. This has now been reduced to Rs. 10,000 crores. The government of India instead of investing in the expansion of coal production has sucked out the cash reserves with CIL in the form of dividends and other pay-outs to balance its budget. India has the fifth-largest coal deposits in the world. CIL has the technical expertise, long years of experience, and the required cash reserves to expand domestic coal production. Surprisingly, CIL was asked to invest in fertilizer plants which only indicate the lopsided priorities of the central government that owns CIL.

More strikingly, the managers of coal India were deputed to monitor the setting up of toilets under Swachh Bharat Abhiyaan. Former Coal Secretary, Anil Swarup brilliantly exposed this in his recent interviews to the NDTV, Karan Thapar for the wire, etc. He opposed such a move in a meeting with the cabinet secretary, explains the former coal secretary in his book Ethical Dilemmas of a Civil servant.

The private sector companies sat over the coal blocks allocated to them as they preferred to import coal which was cheaper at that time. But, now with the international coal prices registering a three to four-fold increase, the private sector power plants like the TATA Mundra project have shut down expressing the inability to produce power using such prohibitively costlier imported coal.

The entire power sector which is the end-user of coal is in total mess adversely impacting the latter too. For instance, DISCOMS have Rs. 1 lakh crore dues to GENCOS, which in turn owe Rs 20, 000 crore payments to the coal companies. The non-payment of dues has also led to the disruption of the supply of coal to the power units. According to estimates of rating agency ICRA, the total debt of all the DISCOMS in the country is expected to touch six lakh crores in 2022. Thus, the fiscal mess in the power sector will have a contagion effect on the coal sector too.

Meanwhile, power units are advised to maintain an inventory of coal stocks sufficient to meet 15 to 30 days of their requirements depending on the distance from the coalfields. But, the power units failed to heed this advice as maintaining inventory of coal incurs costs.

Coal mining is a complex process involving several stages and players from the allocation of coal blocks to actual mining. It requires meticulous planning and continuous monitoring. But, the coal project monitoring groups turned defunct. Coal deposits largely exist in opposition-ruled states. There should be center-state coordination to ensure speedy execution of a project, environmental clearances, forest clearances have to be obtained, and land has to be acquired for actual mining to take place either by the public sector or private units. But, the political climate marked by center-state conflict due to coercive federalism, has also adversely affected the planning and execution of coal mining in India, especially in the last few years.

India has an installed power capacity of nearly 390,000 MW. With the current evening peak of about 170,000 MW, not even 50% of our installed capacity, there should not have been any crisis despite having adequate coal deposits. Thus, the ongoing coal shortages are purely artificial. This man-made crisis is a result of policy paralysis emanating from political hubris and utter disregard for planning coupled with very high levels of concentration in the decision-making.