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JUN 29 2017

Assess demand first to make CIL's $1 billion investment plan work: NITI Aayog

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 29th JUN 2017


A careful assessment of coal demand for power sector is needed so that the over USD 1 billion annual investment plan by CIL for raising its production capacity to 1 billion tonne is not stranded, the government think tank NitiAayog has said.

The think tank also suggested to spin-off Coal India's seven arms into independent firms and imbibe competition, saying the coal behemoth was supplying coal to consumers at higher prices.

"It has to strive hard to achieve the target of 1 billion tonne production by 2019. However, with subdued demand for coal, we may not require the production level envisaged above. A careful assessment of demand for coal-based power is needed so that the over USD 1 billion annual investment being made by CIL, in raising its production capability is not left stranded," NitiAayog said in its Draft National Energy Policy.

Looking to the fact that power demand is growing only at 5 per cent annum presently, the coal sector is allowed to respond autonomously rather than pursue a target-led strategy, it warned. Meanwhile, it said Coal India Ltd (CIL) is expected to remain the principal vehicle of coal production for the country in immediate future.

The draft policy also suggested to spin-off Coal India's seven arms into independent companies to compete with each other as the country needs to move away from opaque coal economy and introduce competitiveness.

The world's largest coal miner that accounts for about 80 per cent of the domestic output supplies the solid fuel to buyers at higher costs due to its monopoly. "We must corporatise the seven subsidiaries of CIL into independent companies and allow them to compete against one another in an open coal market," NitiAyog said.

Beyond a small e-auction market, India's coal economy is run almost entirely through administrative allocation. There exist multiple prices associated with the allocations and the "methodology of fixing coal prices is arbitrary", it said.

The Draft National Energy Policy said, "Coal India Limited charges prices that are significantly higher than the implicit cost of mining by the independent power producers (IPPs). Given its monopoly on coal, CIL is able to pass higher costs to coal buyers and thus has no incentive to contain costs".

Coal India refused to comment on it, saying it is in draft stage and they still have to go through it. When contacted, one of the official functionaries of BhartiyaMazdoorSangh, BaijnathRai said coal India trade unions would oppose any such move.

The draft policy has also suggested that "progressively fresh production from new mines ought to come from private sector". It said this will call for comprehensive reforms in allocating coal blocks on commercial lines to independent companies specialised in coal mining.

The two steps - forming independent companies and fresh production from new mines will replace the current system of administrative allocation of coal by a vibrant coal market with prices performing the function of allocation.

The resulting competitive pressure will foster efficiency and bring about substantial reduction in coal price, it said. "It is entirely conceivable that our coal industry will emerge as an exporter of coal," it said.

Coal India produced 40.7 million tonne (MT) of coal in May against the target of 44 MT. The company had missed the annual production target by 44.48 MT against 598.61 MT for 2016-17.

"The present coal regime in India continues to be a historical relic. While most other sectors of the economy have evolved to adopt free market principles, beyond the adoption of auctioning of mines, coal sector has remained untouched by liberalising reforms," it said.


Independent Power Producers Coal Coal India Limited Coal Price Energy CIL Power coal mining India

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