Good News From The Coal Sector: Efficiency In Operations, Savings On The Rise

After a long time, India is realising efficiencies in the domestic coal sector. In a summer marked with furnace-like heat that has a lot to do with the burning of coal this may seem bad news, but is actually not.

All indicators for the sector are doing well. More importantly, they are doing well not in spite of government policies but mostly because of it. And they augur well for the environment too.

The impact of the clean up in the coal sector is big news for economic policy making in India. Consequently, 2016-17 promises to be the first year in decades when the coal sector will offer positive news. Not taking into account, that is, the shenanigans that have begun to crop up in courts in the myriad coal scam cases. They are attractive as diversions, not germane to the narrative of coal as a source of energy for India.

How did this happen? It happened principally because the central government held its nerve through most of 2014 and 2015 and went through with the entire menu of reforms needed for the coal sector, unlike the stop-and-start syndrome that is coming to smear the labour reforms chapter, for instance.

One of the headline numbers setting the stage for coal reforms relates to coal imports. Business Standard quoted power minister Piyush Goyal saying, in reply to a question in Parliament, that India will import only 48 million tonnes (mt) of coal in 2016-17. “As per the information received from Central Electricity Authority, 48 mt of coal is expected to be imported by power sector for import-based coal plants in 2016-17”, the minister noted in a written reply in the Rajya Sabha this week. This is less than 43 per cent of the imports for 2015-16 and less than 22 per cent of what India imported in 2014-15 (see here)

These are powerful numbers. And the slack in imports is happening despite a crash in global coal prices. Also, the pace of growth of the Indian economy has begun to gradually inch up now. For instance electricity generation, which averaged 5.2 per cent growth in 2015-16, it has begun to pick up. In March 2015, it grew by 2 per cent and went into negative zone by April at minus 1.1. In March 2016, however, electricity production has risen by a huge 11.3 per cent. It is significant that despite this rise Goyal is optimistic about a far lower scale of coal imports.

Though there are Cassandras who would be happy if all domestic coal mines are sealed and the economy instead depends on coal imports, it is obvious that a rational set of decisions have begun to pay results. Significantly they are pushing domestic coal extraction to become smarter.

Here again there is an interesting set of numbers to evaluate this. In 2015-16, state-owned Coal India and its sister, Singareni Coal Collieries Ltd, produced 596.87 million tonnes of coal. Two years ago, the total production of the two was less than 490 million tonnes. In the same period, Coal India reduced its employee strength by 13,541 in just one year (March 2015 over March 2014). The company is clearly using its employees better and it is showing.

In a summer which will be remembered for long for the scale of water distress, it is surprising to note the absence of headlines painting an equally acute shortage of coal stock at power stations; indeed the one news that has vanished from the news pages is that of load shedding. By the end of March 2016, all the thermal power stations were running with an average coal stock of 27 days (here).

The implications for the carbon economy of this scale of changeover in the Indian energy scenario are humungous. Coal mining companies (I will come to the private miners, soon) are using fewer men and more machines to dig out coal. We know what that is called — clean coal technology. Just like the private coal miners, CIL and SCCL have decided to let their mines be explored by specialist mine development operators. The results have begun to show.

In all these mines, the pace of extraction has become measured. So after the mineral is dug out, the stocks are not piling up in reverse mountains. Those mountains were one of the key reasons for environmental degradations that environmental groups repeatedly pointed out. Sure, stocks with both private and state owned companies have risen (coal ministry data shows it rose from 53.47 MT as on 1 April 2015 to 57.67 MT as on 1 April 2016) year but the key difference this time is the way the power plants are clearing them out.

A key change has been introduced in the rules for transporting coal across the country. The power ministry has allowed power plants to pick up coal from the mine nearest to them. So a plant in Haryana now does not have to get its coal trundled all the way from Sundergarh, Odisha if stocks are available at Rihand in Uttar Pradesh. This is what coal linkage committees were supposed to do; it is what those coal linkage committees faced with shortage of rail wagons and hideous peril of imminent black outs could not do in so many years.

Again, there are winners and losers. The losers are the Indian Railways, losing out on long distance freight cargo of coal. Chugging coal around the country gives the Indian Railways as much revenue as the total passenger fare business. The winners are the power sector and the environment sector—less coal transported is less of a pollution load for the economy.

Add to that the lower coal haulage from the ports and the scale of coal smarts that are getting added up for the environment sector becomes apparent.

There is another set of numbers to make the changes seem very palatable indeed. As the table shows, credit off take from the banks for coal and petroleum products has come down, year on year, by almost 9 per cent. At the same time, the credit demand for the power sector has also tapered off to grow by only 4 per cent year on year.

It is not all positive, though. Credit from the banks for the mining industry, including coal, has risen, but that is more to do with the one-off auctioned mines being put to use again. Few in the Indian economy, it would seem, want to speculate on coal any more. The Indian coal story is running up a lot of brownie points on the environment score board, unlike the mess left by the odd-even car share on road scheme.

Trends in Coal Sector Deployment of Gross Bank Credit