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BW Businessworld

‘MDO Only Way To Raise Coal Output’

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The unravelling of the coal scam has brought to light corruption, red-tapism and ad hocism in allocations as well as an imminent energy crisis due to the severe shortage of coal. In fiscal 2012-13, India’s coal demand was 773 million tonnes (mt). While 452 mt was produced by state monolith Coal India, 110 mt came from private players — falling short of demand by 211 mt. The Union coal ministry, on its part, has announced measures aimed at providing relief to power producers and boosting overall coal production to reduce the shortfall to around 150 mt in FY14. In a conversation with BW, Union coal minister Sriprakash Jaiswal discusses the problems facing the coal sector and outlines the strategy to ensure coal security.

Excerpts:

Power shortages are being blamed on fuel supply. What is the coal ministry doing to keep power plants from lying idle?
The coal ministry is committed to meeting 65 per cent of the requirement through domestic coal in the coming year, 65 per cent in the next, 70 per cent the following year, and 75 per cent in the last year of the 12th Five-Year Plan. This is only for plants (those recognised by the ministry of power) lying idle due to shortage of coal.

What has been the increase in coal supply with this commitment?
Earlier, fuel was to be supplied for 60,000 MW; now, with the revised estimates, we are going to provide coal for 78,000 MW. Supply has been started from the current fiscal year to plants that have PPAs (power purchase agreements). Those that are able to fulfil conditions in the clauses of long-term PPAs are to be supplied 65 per cent of their requirement through domestic coal with immediate effect. As soon as they sign the PPA, they will get the supply.

Seventy-eight thousand MW also includes power plants that are under construction and, thus, our commitment goes beyond the current power generation.

What is the status of the dispute between Coal India and NTPC?

It has been resolved. The ministry said that the two parties need to sit together and resolve the issue, and that has been done. It was not the Cabinet, but the ministry’s intervention following the PM’s statement saying the issue needed to be resolved at the earliest. There was a complaint against the quantity and quality of coal. Regarding quality, third-party sampling was deployed. 

How bad is the current coal supply situation in India?
The coal situation is such because blocks were allocated for end-use plants. At that point there was no option. Successive governments also did not have any alternatives. To ensure the maximum output/coal extraction, we had no option but to allot coal blocks to PSUs (public sector undertakings) and private companies.

But those companies faced a number of problems — such as forest clearance, land acquisition, etc. — because of which the development of their blocks was stalled and delayed. Additionally, the delay can be traced to the fact that states with maximum coal reserves are also those with the biggest law and order issues.

Of course, there were some companies that had submitted incorrect information to get coal block allocations and then did not develop those blocks. To look into this, an Inter-ministerial Group (IMG) was constituted. But even before the IMG was formed, when I joined, the ministry had de-allocated 25 blocks due to delays in their development — this was even before the report by the Comptroller and Auditor General of India. Following the IMG report, a further 22 blocks were
de-allocated.

The IMG also suggested a half-yearly review of coal block development — a process that is continuing today. Notices are being issued, penalties are being levied and bank guarantees are being asked for. Companies as well as officials have been asked to fast-track the process.

What steps is the ministry taking to improve coal production?
To begin with, we have decided that all private companies will only be given blocks through the competitive bidding process. The process itself is being streamlined. Suggestions will be taken and examined, and then we will pick a process that will ensure successful continuous bidding. The framework is more or less decided.

Second, blocks for PSUs and state governments will be allocated on the basis of demand and availability of coal — and not through bidding. The proposal is more or less ready. In 15-20 days, we should be able to announce such allocations.

The other push is for the development of blocks through the MDO (mine, develop and operate) process. The coal secretary is to oversee the process. There are to be weekly reviews as per a decision taken over a year ago, though not enough progress has been made so far. We are attempting to ensure that such models are adopted on a wider scale at a higher rate.

Another initiative for improving coal quality is through washeries. Twenty coal washeries were sanctioned. At present, only six are operational. The speed at which this work should have been carried out was not achieved. Our subidiaries did not show the kind of interest that was expected.

So, at the last meeting, it was decided that the minister of state (MoS) would oversee the development of these 20 washeries, which together will have a capacity of 110 mt. The MoS is required to personally oversee their development, and to determine how they can be set up in the fastest time, as well as why enough interest is not being taken in them. He has been given the charge to intervene and ensure there is as little delay
as possible.

How much time will this take?

The allocations to the state governments and PSUs should be more or less completed in a month’s time. These are 17 blocks, which include 14 for power and three for mining. The bidding process will take another month following that. The MDO process of development should begin by the year-end. Additionally, seven open cast, captive coal blocks, with a capacity of 25 mt, are expected to start production before the end of this year.

Do you think by this year-end we will be able to meet the 200 mt shortage?

That we can’t say. We can’t say that we will be able to meet the shortfall. What we can assure is that whatever coal production we can increase we will. Whatever offtake we can increase, we are increasing. If we can establish all the washeries, that will have a large impact as well. We also need to adopt the MDO process. Until we adopt this method wholeheartedly, we can’t increase coal production at an escalated rate.

The increasing demand and the increasing ratio of demand for power and coal can only be met through this model. It is only after its adoption that we will be able to increase production substantially.

There are no legal or technical hindrances to MDO. The only challenge is that officers of our subsidiaries are not yet willing to adopt the model. That is why we have made the arrangement for our MoS to oversee its development.

What will be the revenue-sharing model for MDO blocks?
The revenue-sharing model will be decided by the ministry, but only after we receive proposals. We have to decide the process, revenue-sharing, tax and other nitty-gritty of this model as well as examine loopholes. We have to see that this model has no scope for cheating the government. Wherever you involve private companies you always face such problems. Precautions will
be taken.

Is there a deadline to bridge the demand-supply gap?
No deadline has been set. In this sector you cannot assign a target date since you do not know the problems you will face. You never know where there will be an MoEF (Ministry of Environment and Forests) problem, where there will be opposition to land acquisition, or where there will be a Naxalite problem... Therefore, there cannot be a target date. But the aim is to move ahead as fast as possible and expedite coal production to the extent possible.

What about imports?
The decision has already been taken. You have both options of private power companies importing for themselves as well as asking Coal India to import for them. The demand-supply gap is to be bridged by importing coal. And the cost of imported coal is to be passed through to the consumers.

Has there been any attempt to address issues of import/tariff with the countries that we are importing coal from?

When we get such a submission from companies importing coal, we will look into it. If they ask us or tell us that we have a certain demand and issues need to be raised with the country from where the coal will be imported, we will look into the matter. So far no requests have been submitted to the government/ministry from private companies on increased import rates, etc.

There is talk of privatising or restructuring Coal India. How will this help improve coal production?
There is no talk of privatisation. The T.L. Shankar report mentions the need for restructuring Coal India and its subsidiaries. That is why we have set up a committee to look into this and suggest whether there is a need for restructuring. It is also supposed to suggest the kind of restructuring that is needed, what the process should be and the system to bring about this change. The committee is yet to submit its report. We will take a decision or move forward in that direction only after it submits the report.

In January, the ministry floated an EoI (expression of interest) for consultants to suggest alternatives to the current Coal India structure. Seventeen firms had applied and nine have been shortlisted. Once a consultant has been finalised, only then will there be some progress on the recommendations made in the Shankar report.

You say there is no deadline. But with all the issues facing the coal sector, and elections due next year, do you not feel the need to set a time frame?

Elections keep happening, governments keep coming to power, but coal production continues regardless.

(This story was published in BW | Businessworld Issue Dated 27-07-2013)