Policy Interventions in Coal Sector

4th Coal Summit 201219th November, 2012

Hotel Ashok, New DelhiD.N. Prasad

Adviser (Projects)Ministry of Coal

Structure of Presentation

• Planned Development of Coal• Trend in Plan wise coal production• Oil Shock & Focus on coal• Coal Mining & Environmental laws• Trend in production, consumption & Imports• On set of Economic reforms• Policy Shift• Way Forward

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Planned development of Coal

• The need for systematic and scientific development of coal industry was recognised from the inception of the process of national economic planning in the country;

• National coal Development Corporation (NCDC) was set up in 1956 which was the first step towards planned development of the industry;

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Planned development of Coal

• Singareni Collieiries co. Ltd. (SCCL) was already a government company in 1956 and Central Government started in equity participation in SCCL from 1960 onwards;

• However, comprehensive development programme could be initiated only after nationalisation of the industry in the early 1970s and formation of Coal India Ltd. (CIL).

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Trend in Plan wise coal productionFive Year Plan

PeriodTerminal Year Coal Production

(million tonnes)%CAGR*

First Plan 1955-56 38.30Second Plan 1960-61 55.67 7.76Third Plan 1965-66 67.80 4.02Fourth Plan 1973-74 78.20 1.79Fifth Plan 1978-79 102.02 5.46Sixth Plan 1984-85 147.41 7.86Seventh Plan 1989-90 200.89 6.38Eighth Plan 1996-97 289.32 5.34Ninth Plan 2001-02 327.79 2.52Tenth plan 2006-07 430.83 5.62Eleventh plan 2011-12 539.94 4.62Twelfth Plan (Target)

2016-17 795.00 8.04

* Note: The % CAGR over the last 55 years i.e. 1955-56 to 2011-12 works out to 4.93%

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Oil shocks & Focus on Coal

• Oil shocks of 1970s (1973 & 1979) clearly identified the need for developing domestic energy resources, particularly coal;

• Coal industry was nationalised in the early 1970s and CIL was formed in mid 1970s as a holding company with four coal producing companies (now seven) and a planning & design institute;

• As the demand started rising, a number of new projects were taken up by these companies and production more or less followed the projected demand;

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Coal Mining & Environmental Laws

• By mid 1980s it was evident that enhancement of production was possible mainly through large scale opencast projects only;

• Mechanization of underground projects was fraught with inadequate planning and a large number of projects were to be foreclosed at much less capacity than the envisaged;

• Forest (Conservation) Act came in to being in 1980 and Environment (Protection) Act, in 1986 and environmental management plans made mandatory for coal mining projects;

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1990s - Economic Reforms

• Early 1990s was the period of onset of economic reforms and amongst others, power sector was opened up for private investments;

• However, the major fuel, coal was opened

limited to captive use;

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Trend in Coal Demand, Consumption & Production (million tonnes)

Five Year Plan(Terminal Year)

Demand Consum-ption

Production

Gap Coking coal impor

ts

Thermal coal

imports

Total coal

imports

Imports as % of

consumption

VII Plan1989-90

222.00 199.80 200.89 (+) 1.09 4.45 - 4.45 2.2%

VIII Plan1996-97

311.00 303.55 289.32 (-) 14.23 10.62 2.56 13.18 4.34%

IX Plan2001-02

354.29 351.91 327.80 (-) 24.11 11.11 9.44 20.55 5.84%

X Plan2006-07

474.18 463.87 430.83 (-) 33.04 17.88 25.20 43.08 9.28%

XI Plan2011-12

696.03 649.00 550.00 (-) 99.00 30.04 68.90 98.94 15.23%

XII Plan2016-17

980.50 795 (-) 185.50 35.50 150.00 185.5 18.91%

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Trend in Coal Demand, Consumption & Production (million tonnes)

• Trend indicates that consumption has invariably been less than the demand mainly on account of ambitious demand projections for power;

• Till the end of the VII Plan Gap in demand and domestic production was not a issue but for coking coal which was to be imported on qualitative and quantitative reasons for metallurgical purposes;

• This trend continued till the end of IX Five Year Plan with little imports of thermal coal mainly by cement industry to reap the benefit of exports;

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Trend in Coal Imports & APM• Imports of thermal coal outpaced coking coal

imports from the X Plan onwards as there was a surge in coal demand for power;

• Coal was put on OGL and import duty was tapered off ;

• Administrative Pricing Mechanism (APM) for coal on the basis of normative cost formula of BICP was in vogue and price rise was allowed as per the escalation formula by updating the cost indices from time to time;

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Policy Shift• Government approved Capital restructuring of CIL

and SCCL in1996 and budget support was withdrawn and Coal Price Regulatory Account was discontinued;

• Based on the recommendations of Integrated Coal Policy Committee in 1996, partial decontrol of coal prices of higher grade coals affected and CIL & SCCL empowered to notify prices of these grades on their own;

• Colliery Control Order was dismantled and coal prices and distribution were decontrolled with effect from 1.1.2000; Coal companies were vested with the powers to notify coal prices on their own; Subsequently Colliery Control Rules were put in place in 2004 under MMDR Act.;

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Policy Shift• Though distribution was decontrolled, arrangement

for allocation of coal on long term basis is still continuing through standing linkage committee under MoC;

• New Coal Distribution Policy was formed in 2007; FSAs made mandatory;

• Realising the need for supplementing the efforts of coal PSUs in enhancing coal production and to bridge the rising gap between demand and domestic production Government decided to open the coal sector for private investments in commercial mining by the end of the IX Plan and introduced Coal Bill 2000 in Rajya Sabha in April 2000 which is still awaiting consideration of the Parliament;

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Policy Shift• Enhancement of Coal production through

outsourcing resorted to initially due to financial resource constraints in the end of 1990s; continued for quick augmentation later on wherever departmental capacities were not adequate;

• Project appraisal and approval methodology streamlined and performing coal companies were provided with enhanced delegation of financial powers to take up capital investment decisions;

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Policy Shift• Disinvestment of NLC (6%) took place in 1991-

92 and CIL (10%) in 2010; • Acquisition of coal equity abroad permitted

for ensuring energy security;• Emphasis laid on development of clean coal

technologies including coal beneficiation, exploration and exploitation of CBM/CMM, UCG etc.

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Policy Shift• CBM policy came in to existence in 1997 and 33

blocks thus far have been allotted to various players in public and private sector;

• Legislative Amendments to MMDR were made to bring in more transparency in offering the coal blocks through competitive bidding and notified in September 2010;

• Modalities are being finalised for offering the identified blocks through Competitive Bidding;

• Emphasis laid on building rail infrastructure in potential coalfields and strengthening port infrastructure;

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Policy Shift• Government has sensitized all the coal

bearing states not to permit construction of large scale structures on coal bearing areas;

• With a view to ensure consistency in quality of coal supplies international best practice of trading of thermal coals on GCV basis has been introduced in place of UHV w.e from 1.1.2012;

• A policy for coal beneficiation is in the pipe line for regulating washing aspects and to address rejects disposal;

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Policy Shift• Emphasis is laid on enhancing coal

exploration such that only explored blocks could be offered through bidding;

• Proposal for Setting up an Independent regulatory authority for coal is under consideration of a GoM;

• Stringent guidelines for mine closure issued for proper reclamation and rehabilitation of mined out areas;

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Way Forward• Coal will continue to play an important role in

meeting our energy requirements;• Widening gap between demand and domestic

supply implies quickly implementing new capacities as well as sourcing supplies from outside;

• Our coal imports are about 15% of the overall consumption and should not be a issue to make up from domestic production but for coking coal; however it is subject to timely availability of statutory permissions, land acquisition etc.;

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Way Forward• Revisiting the environmental and forestry

clearance procedures critical for envisaged growth in the sector;

• Port and rail Infrastructure development for coal movement needs to be strengthened;

• Coal mining and coal use needs to be made more environment friendly through adopting international best practices and CCTs;

• Competitive markets for long term sustainability of the sector is critical;

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Thank You

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