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Black hole of old King Coal

A share offering will do little to shore up this vital energy sector that needs radical reforms.

india Updated: Oct 19, 2010 22:05 IST

India is a nation that survives by burning coal. However, it is the energy sector that receives the least amount of attention and interest. Black and smoky though it may be, it produces half the energy the country consumes and is likely to fuel the economy for decades to come. But coal has been stuck in a policy rut for nearly half-a-century. There is none of the dynamism of natural gas or excitement of nuclear and other renewable energy sources. The Coal India share offering will help kickstart some badly-needed change in this vital sector. The state-owned firm, which has a virtual monopoly on coal production, will at last have to answer to owners who will be more demanding than the sleepy Ministry of Coal. The firm will also have the resources that, if used wisely, will allow it to compensate for decades of under-investment in technology and capacity.

However, the share offering only provides a glimmer of light in an otherwise dark economic sector. As the Kirit Parikh committee report on energy has noted, when it comes out of the ground Indian coal is among the cheapest in the world. By the time the coal reaches its customers, and has been worked over by shambolic infrastructure and poor management, it is among the costliest. New Delhi frets it will run out of coal in 40 years while boasting it has the world’s third largest reserves. The truth is it doesn’t know: the coal ministry depends on an obsolete 1956 geological procedure to make its calculations. Coal India is criminally wasteful. It ignores coal buried below 200 metres and focuses on the low-hanging fruit of surface-mining. Unsurprisingly then, India’s coal imports have been rising dramatically. In the past two years they have doubled to 60 million tonnes. Indian private firms like the Tatas are buying coalfields in Indonesia and Africa. Coal-fired power plants complain of endemic shortages of fuel.

The long-term solution lies not in infusing new life into Coal India but infusing competition into the coal sector. The government has sought to encourage private activity through roundabout methods like captive mining. The Coal Mines (Nationalisation) Amendment Bill that would allow private competition made a brief parliamentary appearance in 2000 and has not been seen since. The sector remains without an overall regulator. India’s most important energy sector is, in effect, untouched by the changes brought about the 1991 liberalisation of the economy. Share offerings are all for the good, but fishing coal out of its socialist black hole is a more pressing need.