Interview with Anil Swarup

“If the country’s economy has to grow, the demand for coal has to grow”

The coal sector has witnessed a number of positive developments over the past two years, including record coal production, auctions of coal blocks, rationalisation of coal linkages, and a reduction in imports. Although the sector is currently facing sluggish demand, Anil Swarup, secretary, Ministry of Coal, is confident about its revival in the near future. In an interview with Power Line, he talks about the performance of the sector, the key challenges, the future outlook and the ministry’s future plans. Excerpts…

How do you think the coal sector has evolved over the past two decades? What were the key drivers of the change in the sector?

The coal sector has undergone a sea change from what it was in the 1990s to what it is now. It has evolved significantly from a Coal India Limited (CIL) monopoly, when the price was determined solely by the government and was highly subsidised. CIL has progressed from being a loss-making entity to a profit-making one. Moreover, a lot of professionalism has come into the sector over the years. The opening up of the economy and the gradual increase in the demand for power in the early twenty-first century has brought about this change in the coal sector.

Are you satisfied with the pace of growth in the coal sector over the past two years? What are some of the unresolved issues?

The performance of the sector in the past two years has been phenomenal and unprecedented. The immediate and primary objectives, such as increase in coal production, have been achieved by and large. However, there are certain issues that remain to be addressed. These include the quality of coal, grade slippages, washing of coal and coal pilferage. Various systems are being put in place to ensure that the price paid by consumers corresponds to the quality being sold. To this end, a third-party sampling system is being implemented, which is likely to stabilise in a few months’ time. We are also looking at curtailing pilferage through the use of technology.

Given the fact that there has been a reduction in the expected offtake, does the coal production target continue to be 1 billion tonnes?

The coal production target continues to be 1 billion tonnes. The current lack of demand for coal is primarily due to the lack of demand in the power sector, which is beyond the control of CIL. While fundamentally a demand for power exists, it is because of the lack of money with the discoms that they are not able to articulate this demand. However, we are hopeful that consequent to the implementation of the Ujwal Discom Assurance Yojana (UDAY), demand in the power sector will increase with the improvement in the financial health of the discoms. Moreover, the plant load factor of thermal power plants today is 60-62 per cent. For it to go up to 70 per cent, a lot more coal will be required. Hence, we believe that more demand should come in the future and we are working towards the 1 billion tonne target.

What is your outlook for coal imports over the next few years?

In the next two to three years, we will have virtually no import of coal. The quality of coal that is available in India will not be imported in the years to come. However, imports will continue for qualities that are not available in India such as coking coal, as well as for meeting the design requirements of certain boilers, and as part of long-term commitments.

What is your view on the surplus coal lying at CIL’s pitheads?

I do not think there is a surplus per se. While we do have coal stocks lying at the pitheads, these have come down from 55-56 million tonnes (mt) to 41 mt. So, almost 15 mt has been liquidated in the past few months. Moreover, some stock is anyway required at the pitheads.

What has been the response to the special forward e-auctions? What is your view on thermal power producers’ concern that procuring coal through e-auctions is adding to cost pressures since the MoU route has been discontinued?

There has been a very encouraging response to special forward e-auctions. For power producers, the MoU route was an ad hoc arrangement wherein the price was arbitrarily fixed. This was not fair. With the auction route, all power producers, including those who were previously getting coal through the MoU route, will be able to bid for coal in a transparent manner. In fact, some of them have already bid in the auctions held so far and have been able to secure coal that is not very expensive. In some cases, the price of coal obtained through the auction route has been less than the MoU price of coal. Auctions are the most transparent way and do not leave scope for allegations that someone is being favoured.

What is the status of the production from the auctioned coal blocks? Will the production reach the 100-150 mt mark by next year?

Some of the auctioned coal blocks have begun production, and the production level is 20-30 mt from these blocks. By end-2016-17, all the other auctioned blocks will also start production. Had there been a coal crisis, they may have begun producing faster. There are some issues at the state government level that will hopefully get resolved within this year. A few cases have also gone to court and the decisions are awaited.

More than reaching a specific production level, the main concern is whether sufficient coal is available to meet the demand or not. If there is more coal than is required, the issue that will arise is where to store the extra coal produced. Having said that, there is a need to plan for future requirements, make projections and ensure that there is a reasonable amount of coal that can be made available at any point in time when it is required.

When will the next round of coal block auctions take place? Is there any change planned to be incorporated in the auction process?

The next round of auctions will not happen soon. This is because, in the last round, that is, the fourth round, there were not many takers. Hence, the auction was cancelled. Right now, so much coal is available that I do not think many people would want to bid for the coal blocks. We will wait and watch for a while. However, the process does not require any change.

What is being done with respect to the auction of coal linkages?

Auctioning of coal linkages for the non-regulated sector has already happened. For the regulated sector, it is under the consideration of the government and a view will be taken soon.

Are the transportation issues beginning to get resolved?

Right now, we do not have any transportation issues. In fact, Indian Railways is meeting all our transportation requirements. Two years ago, there was no coal, there were no rakes and there was demand. Now, there is coal, there are rakes, but there is no demand. To this end, rationalisation of coal linkages has contributed in a big way.

What are the coal ministry’s plans with respect to commercial mining?

Given the fact that the regular coal mines could not be auctioned in the last round, I wonder if there will be any takers for commercial coal mines. In case commercial coal blocks are auctioned and the bid amounts that come in are less than those of the blocks in which there is a binding end-use, it will be highly criticised. Right now, there is not so much demand for coal for us to think in terms of auctioning coal blocks for commercial mining. However, we have moved in a particular way in commercial mining. Certain blocks have been allocated to state entities. These entities will be allowed to mine commercially, that is, they will be able to sell the coal to anybody they want to sell it to. This will also be a sort of test through which we will get to know the reaction of the market. It will help us in deciding whether commercial mining for private entities can be done or not.

What are some of the measures being undertaken to improve coal production from underground mines?

We are emphasising on underground mining for purely environmental reasons, but the cost per unit of underground mining is around three times that of opencast mining. So, technologies that can bring down the cost of mining, such as long wall mining, are being looked at. It has already been tested on a few mines and a potential for replication has been seen. However, it will not be able to compete with regular coal due to its high cost.

What is your outlook for the coal sector in India over the next five to ten years?

I have a very positive outlook for the coal sector. Coal has never been as good as it has been in the past two years. Going forward, it is only going to get better in terms of quality, washing and quantity. The dependence on coal will continue at least until 2030. The share of thermal plants in the overall energy needs may decline from the current level of 60-65 per cent. However, the capacity of thermal plants will grow in absolute terms, hence the demand for coal. If the country’s economy has to grow, the demand for coal has to grow.

What are your thoughts on the power sector?

I am very hopeful that UDAY will kick in and do good. If that does not happen, everyone will be in trouble. But I am hopeful that with the way things are moving, UDAY should deliver. And once UDAY delivers, the demand for power will increase. If the demand for power increases, the demand for coal will also increase, and that serves our purpose.

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