what are the indicators of coal sector reforms_a comparative analysis of australia, china and india

What are the indicators of

successful coal sector economic

reforms? A comparative analysis of

Australia, India and China

Dilip Kumar Jena

MSc. in Energy Studies with specialisation in Energy Finance

University of Dundee

August, 2014

Table of Contents

Declaration .......................................................................................................... 6

Certificate ............................................................................................................ 7

Dedication ........................................................................................................... 8

Acknowledgement ............................................................................................... 9

Abstract ............................................................................................................. 10

Table of abbreviations ....................................................................................... 11

1 Introduction ................................................................................................. 12

1.1 Why is the coal sector important? ........................................................ 12

1.1.1 Wide availability............................................................................. 12

1.1.2 Abundant resources ...................................................................... 12

1.1.3 Leading fuel in electricity generation ............................................. 13

1.1.4 Important primary energy source .................................................. 14

1.2 What is “full-scale reform” and the “reforms process”? ........................ 15

1.3 Rationale for the project topic .............................................................. 18

1.3.1 Nearness of coal sector structure to retail competition .................. 18

1.3.2 Sustainability of reforms ................................................................ 18

2 Literature Review ....................................................................................... 20

2.1 Degree of private participation ............................................................. 20

2.2 Degree of adherence to elements of reforms ....................................... 20

2.3 Degree of competition and market power ............................................ 25

2.4 Degree of marginal cost based pricing................................................. 26

2.5 Degree of propensity of physical assets for reforms ............................ 27

2.6 Degree of sustainability of reforms ...................................................... 27

2.7 Degree of technical efficiency .............................................................. 29

2.8 Views of experts .................................................................................. 30

3 Methodology ............................................................................................... 32

3.1 Key assumptions behind framework & index development .................. 32

3.2 Selected indicators of the reforms ....................................................... 33

4 Comparative Analysis Results .................................................................... 38

4.1 Data sheet ........................................................................................... 38

4.2 Comparative analysis of coal sector reform initiatives ......................... 47

5 Interpretation & Recommendation .............................................................. 50

6 Conclusion .................................................................................................. 55

6.1 The key areas of improvement for India alone ..................................... 55

6.2 The key areas of improvement for China and India ............................. 55

6.3 The key areas of improvement for Australia and India ......................... 56

6.4 Key limitations of the framework .......................................................... 56

7 Bibliography ................................................................................................ 57

Table of Figures

Figure 1: Global Electricity Generation Mix in 2010 and 2040 .......................... 13

Figure 2: Global Primary Energy Consumption Mix in 2013 and 2040 .............. 14

Figure 3: Reforms process ................................................................................ 17

Figure 4: Coal industry structure prior to unbundling/deregulation .................... 21

Figure 5: Coal industry structure after unbundling/deregulation ........................ 21

Figure 6: Main steps in a generic reform model ................................................ 22

Tables

Table 1: Global fossil fuel resources ................................................................. 13

Table 2: Key elements of full-scale reforms ...................................................... 16

Table 3: Modes of transportation of coal ........................................................... 24

Table 4: Framework for electricity sector reforms sustainability ........................ 28

Table 5: Technical parameters of efficiency ...................................................... 29

Table 6: Key assumptions for framework .......................................................... 32

Table 7: The Jena Reforms Framework ............................................................ 33

Table 8: Data sheet with marks for indicators ................................................... 38

Table 9: Comparative analysis of Australia, India and China ............................ 47

Table 10: Interpretation & Recommendation .................................................... 50

Declaration

I hereby declare that the following Project Report has been composed by me;

that, unless otherwise stated in this Project Report, all references cited have

been consulted, that all work of which the Project Report is a record has been

carried out by myself, and that it has not been previously presented or accepted

for a higher degree.

Dilip Kumar Jena

Certificate

This is to certify that Dilip Kumar Jena has completed his Project under our

supervision and that he has fulfilled the conditions of the relevant Ordinance

and Regulations of the University of Dundee, so that he is qualified to submit

this Project Report in application for the Degree of Master of Science.

Dr. Anita Schiller,

Energy Economist,

Centre for Energy, Petroleum and Mineral Resources, Law and Policy

Dedication

I dedicate this Project Report firstly to Jesus, and then to my family member -

Mrs Majulata Devi, Mr. Bhagwan Jena, Mr. Pradeep Kumar Jena, for much

forbearance in India, and Miss Barbara Andoh, for her prayers, whilst I was

completing this Project Report.

Acknowledgement

I would like to thank Dr. Anita Schiller, for invaluable guidance she provided in

producing the final version of this Project Report.

I would also like to thank Dundee PENSA members for their constant prayers.

Abstract

Many developing and underdeveloped countries have large coal resources

which could be leveraged to drive their economic growth. However,

unsustainable mining practices have led to low value addition to the economy,

environment and society. To overcome such challenges many countries have

started reforming their coal sector. The objectives of such reforms include

mainly, among others:

Opening competition in coal mining,

Introducing scientific mining & conservation,

Protecting employee, consumer interests & social interests,

Introducing institutional efficiency into the sector

The foremost question is: how do countries measure how successful they have

been in implementing the reform objectives? Due to the absence of universally

accepted indicators or measures of successful coal sector reforms, it has

become a difficult task to measure the success of such reforms. To fill in this

gap, this project report pools together several key elements and indicators of

reform and develops a rational framework and index for measuring the success

of coal sector reforms. It applies this framework in analysing the success of

reforms adopted by Australia, India and China.

Table of abbreviations

CCO Coal Controller Organisation

CRA Coal Reforms Act

EIA Energy Information Administration

HHI Herfindahl-Hirschman index

ICM Independent Coal Miners

IEA International Energy Agency

ISO Independent System Operator

ITSO Independent Transportation System Operator

LDC Local Distribution Company

MGR Merry Go Round

MoC Ministry of Coal

OECD Organisation for Economic Cooperation & Development

OMS Output per Man Shift

RSI Residual Supply Index

TPP Thermal Power Plant

1 Introduction

“Even if some pioneering markets have operated with considerable success for

a number of years, liberalisation has shown itself not to be a single event, but

rather a long process that requires on-going government commitment.”

(International Energy Agency, 2005)

As stated above, the energy sector reforms is a continuous process and

requires significant commitments from all stakeholders including investors,

developers, operators, regulators and policy makers. To keep the stakeholders

committed to the reforms process, it is vital to quantify the degree of success of

energy, including coal, sector reforms. The quantification could provide the

following information among, others:

1. Outcomes of reform initiatives with respect to its objectives,

2. Areas of further focus and improvement,

3. Relative position with respect to similar reforms process elsewhere.

The rationale of quantification of reforms is elaborated in the subsequent

paragraphs.

1.1 Why is the coal sector important?

Coal is very important for improving energy access to approximately 1.2 billion

people who live without any access to modern energy services (World Energy

Council, 2013). Further, coal is commonly available, reliable, safe and a

relatively cheaper fuel.

1.1.1 Wide availability

Coal is available in more than 75 countries including the countries which are

facing challenges for electricity sector development in Asia and Southern Africa.

Coal can be easily accessed in an affordable and secure way for the

development of power generation capacities (World Energy Council, 2013).

Coal will play a significant role in developing capacities for base load plants

where they are most needed meeting the needs of the developing world.

1.1.2 Abundant resources

Coal resources are projected to last longer than any of the other fossil fuel

resources as presented in Table 1.

Table 1: Global fossil fuel resources

Fuel Reserves (R) Production (P) R/P

Coal 891 billion tonnes 8 billion tonnes 118 years

Oil 1638 billion barrels 29 billion barrels 56 years

Natural Gas 210 trillion cubic

meters

4 trillion cubic meters 55 years

Source: World Energy Council, 2013

It is therefore important for the coal rich countries, especially the developing

countries, to develop their coal resources to meet their long term energy needs.

1.1.3 Leading fuel in electricity generation

In 2010, 40% of electricity was generated by coal fired thermal power plants

(TPP) and it is projected that this scenario would not change much in 2040

where 35% of the electricity would be generated by coal based TPP’s. The

projections are as presented in Figure 1:

Figure 1: Global Electricity Generation Mix in 2010 and 2040

Liquids4% Nuclear

13%

Renewables21%

Natural Gas22%

Coal40%

Electricity Generation Mix (2010)

Source: U.S. Energy Information Administration, 2013

1.1.4 Important primary energy source

In 2013, 30% of global primary energy consumption was in form of coal. It is

expected to be 27% in year 2035 making it the second largest primary energy

source after oil. The projections are as presented in Figure 2:

Figure 2: Global Primary Energy Consumption Mix in 2013 and 2040

Liquids2% Nuclear

14%

Natural Gas24%

Renewables25%

Coal35%

Electricity Generation Mix (2040)

Oil33%

Natural Gas24%

Coal30%

Nuclear4%

Hydroelectricity7%

Renewable2%

Primary Energy Consumption Mix (2013)

Source: BP p.l.c., 2014

As presented above, the role of coal is very significant in increasing global

energy access and global energy security, therefore it is important to focus on

coal sector development and hence on identifying key indicators of coal sector

reforms to sustainably develop and operate coal mines in an optimal timeframe.

1.2 What is “full-scale reform” and the “reforms process”?

For introducing economic efficiencies into the sector and to ensure

environmental and social welfare, it is important to implement full scale energy

sector reforms (Jamasb, et al., 2005). Billions of dollars have been spent in the

last two decades to reform the energy sector (Erdogdu, 2013).

The key objectives of such reform programmes are:

Improving access toand enhancing the reliability ofenergy services for

the populace;

Funding capacity additions and maintenance;

Releasingof public resources for other pressing needs; and

Raising of immediate revenues for government through sale of

assets/privatisation(Bacon & Besant-Jones, 2001).

It is important to note that capital expenditure in the coal sector has more than

doubled from $30 billion in 2000 to $75 billion in 2013. Most of these

Oil28%

natural Gas26%

Coal27%

Nuclear5%

Hydroelectricity7%

Renewable7%

Primary Energy Consumption Mix (2035)

investments have been made in China, Indonesia and India. Further, it is

estimated that $736 billion would be invested in coal mine development and

$298 billion in coal transportation infrastructure, totalling $1034billion, in the

period 2014-2035 (International Energy Agency, 2014).

In light of the above mentioned objectives and significant investment

requirements, it is important to understand the key elements of full-scale

reforms. These elements are presented in Table 2:

Table 2: Key elements of full-scale reforms

Sl. No. Element Remarks

1. Operating as per

commercial

principles

a. Obligation extends to state coal companies

as well

b. Coal distributors and traders procure coal in

wholesale market and sell to consumers

c. Companies pay taxes and market interest

rates

d. Earn market returns on their equity

e. Companies have complete autonomy

2. Competition in all

possible segments of

value chain

a. Competition in mining, transportation and

distribution

b. Consumers must be able to switch between

suppliers at low costs

3. Horizontal splitting

and limited vertical

integration

a. Coal mining, transporting and distributing

companies, operate in competitive

wholesale markets

b. Above entities to operate separately from

coal consuming entities

c. Laws against cartel formations

4. Privatisation of

horizontally split

entities, transporters

and distributors of

coal

a. Privatisation under separate ownerships

b. Private entities to bring technical, financial

and managerial capabilities

5. Economic a. Independent regulator for the sector

Regulations b. Prevention of anticompetitive abuses in the

wholesale market

6. Government focus

on policy formulation

a. Government formulates policies and

executes them

b. Government gives up the roles of operator

and investor in entire value chain

Source: Author

The reforms process generally progresses from Model 1 through Model 4 to

achieve the full scale reforms and as presented in Figure 3:

Figure 3: Reforms process

Source: Hunt & Shuttleworth, 1996

Model 1: Monopolistic system

•Single monopolist (or government controlled entities) at all points of coal mining value chain

•No competition at all

Model 2: Monopsonistic system

•Single buyer model. Single entity (usually government company) buys coal from many producers

•The entity onsells the coal to conumers without competition

Model 3: Wholesale Competition

•Coal distributors buy directly from competing coal mining companies

•They retain access over retail consumers in a particular region

•Open access to transportation networks

Model 4: Retail competition

•Consumers choose suppliers

•Open access to transportation networks

•Competitive retailing

1.3 Rationale for the project topic

There seems to be no universal definition of coal sector reforms as it is a

continuous process. However, it could be observed that there are two schools

of thought for measuring successful reforms which are discussed below:

1.3.1 Nearness of coal sector structure to retail competition

Lower prices, improved sector efficiency, and better quality services are

indicators of successful reforms(Jamasb, 2004). Among the Organisation for

Economic Cooperation & Development (OECD) countries, where legal &

institutional frameworks were robust and where political systems were fully

functional, the success of reforms was measured in terms of economic

performance optimisation. Further, for non-OECD countries, private

participation was the key indicator of the success of reforms (Williams &

Ghanadan, 2006). These authors focus on changing the initial condition of the

energy sector and relate success of reforms to the achievement of various

milestones till full scale reforms are observed.

1.3.2 Sustainability of reforms

Many authors are of the view that milestones, even if attained, may not indicate

that full scale reforms have been be achieved. They argue that the sustainability

of the reforms process is a better indicator of reform. Benavides argues that:

a. The changes brought to the initial condition may be inconsistent,

b. Framing of new competition rules may in itself be an important milestone

but it cannot guarantee the achievement of reforms objective, if it is not

properly implemented; and

c. If political parties require the removal of price floors proposed by

regulators to incentivise the introduction of efficient mining, beneficiating

and transporting technologies, if this price floor is disclosed before the coal

price revision, then reforms process may be deterred.

The sustainability of reforms is therefore the central issue rather than just the

initiation of reforms (Benavides, 2003). The propensity of reforms process to

move to the next level of market structure, as depicted in Figure 3, is dependent

upon sustainability of reforms process. An unsustainable process may not be

able to deliver desired objectives of reforms.

In light of disagreements in quantifying “successful reforms”, this project report-

“What are the indicators of successful coal sector economic reforms? A

comparative analysis of Australia, India and China” seeks to develop a

simple framework, which combines these two schools of thoughts among

others, for quantifying the success of coal sector reform programmes. Further,

this project report compares coal sectors of Australia, India and China using this

framework and identifies various areas where improvements could be made.

The developed framework could become an important tool in the hands of civil

society & regulators to press for better governance of the sector and to seek

further reforms.

The second chapter elaborates on the literature concerning the key indicators of

successful reforms in coal sector followed by methodology for quantifying

success of reforms programmes in the third chapter. The fourth chapter

presents a comparative analysis of Australia, India and China using this

framework and the fifth chapter presents the results of the analysis, interprets it

and makes recommendations. The sixth chapter presents the conclusion.

2 Literature Review

Various organisations including international agencies (such as World Bank),

private entities, and economists, have shown interests in assessing the state of

mining sector reforms in various countries (The World Bank, 2003). The

interests of the private sector are to secure coal resources for getting a share in

economic rents, wherever possible. The objective of international lending

agencies is to assess the current status of reforms and the need for new reform

initiatives and possible avenues for funding the same. However, it would not be

imprudent to mention that, to assess the state of reforms, every institution and

agency follows their own methodologies. Amidst the differences in

methodologies, the fundamentals of quantifying reforms remain the same. The

elements of reforms are discussed below.

2.1 Degree of private participation

Many under-developed and developing regions of the world need to develop

their coal resources and transportation infrastructure including ports to meet

their primary energy demand which otherwise has a significant economic and

social cost. As per economic theories, if additional taxes are imposed to fund

public expenditure (including expenditures in developing coal mines) then it

results in decreased social welfare due to dead weight loss (Jamasb, 2004).

However, private funding of coal mines may result in increase in total welfare of

the society. Privatisation in the coal sector may result in improvement in

operational efficiencies and productivity (Haselip & Hilson, 2005) which in turn

leads to reduction in coal prices. However, other authors have pointed out the

limitation of empirical and theoretical evidence in support of direct correlation

between privatisation and improvement in commercial viability of infrastructure

projects (Jamasb, et al., 2005).

2.2 Degree of adherence to elements of reforms

Industry structure plays a significant role in understanding the reforms need. A

generic industry structure for the coal sector is depicted in Figure 4:

Figure 4: Coal industry structure prior to unbundling/deregulation

Source: Author

The generic industry structure after unbundling/deregulation is presented in

Figure 5:

Figure 5: Coal industry structure after unbundling/deregulation

Source: Author

Coal mining

• Mines are generally owned by the state or government mining companies

• Coal mining and beneficiation costs may not be competitively decided

• The prices are generally average prices and do not reflect the marginal pricing

• Coal prices are not subject to competition or regulation

Coal transportation

• Interstate transportation is generally state owned and transportation tariffs are not subject to regulation

• Local transportation, may be by dumpers, are decided by state owned mining companies (locally or centrally) and tariffs are not subject to regulation

Local Distribution company (LDC) or

end user

• Transportation company may deliver coal to a local coal distributer owned by state

• Transportation company may deliver coal to the end user directly

Coal mining

• Mining company is split into many small entities

• These small entities sell coal in wholesale markets

• Private particpation allowed

• Competion and market regulation

Coal Transportation

• Moves coal for Coal marketer, Local Coal Distributor and End User

• Uses rail network, pipelines, ship and/or road network set up by government or private players

• Transporter may be private entity

• Open access and regulation

Coal retailing/usage

• Coal marketer

• Local Coal Distributer

• End user

• Competition and regulation

The elements of reforms for the coal sector may be deducted from the reforms

model for energy sector based on the framework suggested by Newbery (2002)

which is presented in Figure 6.

Figure 6: Main steps in a generic reform model

Source: Newbery, 2002 and Author

The indicators are discussed below:

1. Existence of CRA: The legal basis for restructuring, and creation of

regulators is provided for by enacting a coal law. Such laws provide for

conflict addressing mechanism and reduce the issues related to property

rights. Enactment of law relating to reforms was one of the key questions

for measuring degree of reform by the World Bank in its survey of 115

developing countries (Bacon, 1999).

2. Restructured sector: Separation of coal miner, coal transporter, local

coal distributor and end user could be one of the key elements of reform.

Unbundling of energy companies is recognised as one of the key

Enactment of Coal Reforms Act (CRA)

• Institution of regulator

Separate and regulate Local Coal Distributor/End User from coal miner

• Ensure access/ commercial pricing

• Economic regulation

Separate and regulate coal transportation

• Open access

• Market determined/regulated capacity charge

Split coal mining company into smaller entities

• Create market for coal mining and beneficaitions

Privatise

• Coal mining, coal transportation and local coal distribution

indicators of reforms by World Bank (Bacon, 1999). Restructuring helps

in introducing competition in coal mining, coal transportation and coal

distribution. Key transportation structures may also operate as natural

monopolies. Also, as most of the inefficiencies including coal theft

originate near the coal mines near to the end users, to free the coal

miners from the burden of coal theft, local coal distributors may be

selected to serve small end users including small industries. Incentives

may be provided to local coal distributors and may be linked to reduction

in quantum theft. It is also desirable to identify the number of local coal

distributors to serve the end users at initial stages of unbundling. The

greater the number of local coal distribution entities, the greater the

competition. Further, regulators benefit from large numbers of local coal

distributors as they have multiple sources of information (Jamasb, 2004).

1. Regulated local coal distribution business: Efficient distribution may

be promoted by incentive regulation (Joskow, 1998). Regulated coal

distribution business with cost plus method of price determination may

help in reducing cross subsidies between power and other sectors (steel,

cement etc). Further, incentive regulations for reducing theft of coal may

help the local coal distributors to invest in road/transport infrastructure

and environment restoration. Also, the provisions for access to the coal

distribution infrastructure such as roads/ pipelines/conveyors (including

third party access) should be introduced at this stage.

2. Separated transportation business: Coal transportation infrastructure

networks linking the coal mines to the end users or a group of end users

are very critical for survival of the coal industry as well as the power

sector. The following modes of over transportation could be available

depending upon the terrain profile, distance and receiving end

infrastructure:

Table 3: Modes of transportation of coal

Mode Usual one way distance (in km) Remarks

Trucks Up to 75 Trucks are usually used to transport coal from

coal mines to railway siding or to the nearest

transfer points for usage or further

transportation

Rail More than 10 Rail is the preferred mode of transportation

over long distances. This mode is common in

Australia, China and India.

Barge More than 100 Transportation using barges are common in

countries endowed with river ways or

waterways. This mode is common in Indonesia

Pipeline More than 100 This mode is preferred if the terrain is highly

undulating and there is availability of water.

Conveyors More than 1 Conveyors have emerged as one of the

preferred ways to transport coal to large

distances.

Source: McKetta Department of Chemical Engineering; The Univesity of Texas

at Austin, and Author

Separation of coal transportation business may help in creating

necessary transportation infrastructure for connecting mines with end

users. Further, it will help in attracting private investments for developing

critical transportation networks. The right to use/access to the

transportation network may be independently monitored by Independent

Transportation System Operator (ITSO) or Independent System Operator

(ISO). ITSO/ISO schedules the dispatches, observes traffic, ensures

third party access to transportation systems and ensures safety as their

primary work(Pollitt, 2011).Congestion (peak load on transportation

system) pricing may also be introduced for particular times of a day,

particular days of months or particular durations during the year as it is

an indicator of progressive reforms.

3. Multiple coalminers: A wholesale energy comprising of multiple

producers is a key indicator of reform (Pollitt, 2011). The coal mining

companies compete among themselves to conclude supply contracts

with local coal distributors in the following markets:

a. A single buyer market (a market where, coal is procured by state

appointed marketing agency for further distribution) or

b. Marginal cost based pools (a market, where preference of

dispatch is determined by the marginal cost of coal. Lesser the

marginal cost of coal, higher would be priority for dispatch in the

system. The common price of the market is determined by the

marginal coal mine (s) at which demand is met.)

c. Price based spot market.

Many authors have indicated that creation of wholesale market may

not necessarily mean that the sector has been reformed because of

inability of the market to be readily quantified in physical and

monetary terms (Jamasb, et al., 2005). Allowing entry of independent

coal miners (ICMs) may also be a key indicator of successful reform.

2.3 Degree of competition and market power

Degree of competition is determined by the number of players in the market.

More the number of entities in market, greater is the competition. Herfindahl-

Hirschman Index (HHI)is being used by many institutions to quantify the degree

of competition or concentration in market. HHI is calculated using the following

relation:

HHI = ∑(market share of company i)2X10000

If HHI is less than 1500, then the market is fairly competitive, if HHI is between

1500 and 2500, then the market is moderately competitive and in cases where

HHI is greater than 2500, the market is concentrated (U.S. Department of

Justice; The Federal Trade Commission, 2010).

Further, the electricity sector uses the Residual Supply Index (RSI) to determine

market power (California Independent System Operator, 2002). RSI helps in

determining the market free of market power. RSI is calculated using following

relation:

RSI = (Total Supply – Largest Seller’s Supply)/Total Demand

Where, Total Supply = Total in-state supply capacity + Total Net Import; Total

Demand = Metered Load + Purchased Ancillary Service; Largest Seller’s

Supply = Largest Seller’s Capacity – It’s Contract Obligation to Load

Given that such an index is not available for the coal sector, market size free of

the large entities could also be taken as an indicator of competition. A similar

approach was adopted by Jamasb (2004) to determine market power.

The economies of co-ordinations were fostered by the vertical integration of the

energy companies across the globe. The unbundling activities could have been

promoted only in cases where the resulting efficiencies of unbundling are

greater than the economies of coordination (Joskow, 2004). Market

concentration is against the principles of the competition and may give rise to

market power (Rudnick & Montero, 2002). Many countries have put caps on

market share. For example Argentina has placed a cap of 10% on market share

for generators of electricity.

Competition could be started in the coal mining sector by splitting the large state

owned entities and by permitting private mining companies. Also, in coal

transportation, regulated third party access may be permitted. Further, well laid

out rules for allocation of transportation charges, congestion pricing and

financing transportation network help in ensuring competition.

2.4 Degree of marginal cost based pricing

Efficiency in the energy market is also indicated by prices. In efficient markets

the prices of energy reflect the marginal cost of services (operation &

maintenance) in the short term and prices tend to long run marginal costs in the

long term (Benavides, 2003). In developed countries, energy pricing may tend

to long run marginal costs in the long term. However, in developing countries,

government subsidises the energy prices. It becomes challenging to reform an

energy sector, with greater quantum of subsidies (World Energy Council, 2004).

Also, it has been observed that consumers accept carefully designed subsidies

to enhance access of the low income group population to energy services.

Since total welfare of society increases with the complete removal of the

subsidies (Joskow, 2004) coal sector reforms must target complete removal of

subsidies. The ratio of actual coal prices to the marginal cost of coal production

could be an important indicator for measuring degree of reforms.

2.5 Degree of propensity of physical assets for reforms

Many developing countries have either very small operation or no operation at

all. Therefore it is important to analyse and compare the efficiency gains due to

unbundling vertically (into coal producer, coal transporter and local coal

distributor) and splitting horizontally (into smaller coal miners, transporters and

distributors) with the increased transaction cost of competition to the economies

of co-ordination and economies of scale. The possible economic capacities of

coal mines, for allowing mechanisations, is about one million tonnes per annum

where technologies such as continuous miners for Bord & Pillar mining1

(Trehan, 2014), Longwall mining2 (Mitchell, 2007) or Open Cut3 mining

technologies involving shovel & dumper could be introduced. If capacity of coal

mine is less than one million tonnes then mechanisation becomes a challenge.

If the coal mines of capacities less than one million tonnes are split into two or

more entities to increase competition, there are chances that the coal prices

may increase compared to situations where there is just one unbundled entity.

Therefore ratio of coal demand and economic capacity of coal mine would be

an important indicator of coal sector reforms.

2.6 Degree of sustainability of reforms

Sustainability of reforms is considered as a key element of reform by many

authors (Benavides, 2003)(Bhattacharyya, 2007)(Millán & M. von der Fehr,

2003). The degree of sustainability may be measured using the framework

illustrated as below (Bhattacharyya, 2007):

1 This underground mining technology involves cutting network of ‘rooms’ or panels in coal and leaving behind ‘pillars’ to support the roof of the mine. 2 This underground technology involves coal cutting by mechanised shearers from coal face. Hydraulic powered props support the roof temporarily when coal is cut. 3 Surface mining technology where coal is extracted by removing waste rocks overlying the coal seam. Currently, this is most common method of mining because of possibility of high degree of mechanisation.

Table 4: Framework for electricity sector reforms sustainability

Su

sta

inab

le R

efo

rms

Politically

Acceptable

Desirable

Feasible

Credible

Socially

Desirable

Accessible

Affordable

Minimises social costs

Environmentally

benign

Fuel & technology choice

Consumption behaviour

Location and risk

Implementable Simple processes

Ease of transition

Simple legal changes

Economically

efficient

Efficiency

System adequacy

Signal

Financially

Viable

Reduced state support

Revenue adequacy

Cost economy

Source: Bhattacharyya, 2007

The framework presented in Table 4 is explained below:

1. Degree of political acceptability: If a reforms programme is desirable,

feasible and credible, then chances of it being politically acceptable is

very high (World Bank, 1995). The changes in ideology is the main driver

of desirability of reforms process. If there is enough political support for

the reforms process then the feasibility is ensured. If the political

promises for reforms have been kept in past then credibility is high.

Without high degree of political support, it is difficult to ensure the

sustainability of reforms process and hence the success (Bhattacharyya,

2007).

2. Degree of social desirability: Reduction of social cost indicates the

degree of social desirability of reforms. Accessibility issues might arise

for the economically vulnerable population when subsidies are gradually

removed as part of reforms process. Government may introduce

appropriate policy instruments and innovative subsidy structuring (such

as; local coal distributors are selected based on their ability to serve

requisite number of consumers with the least subsidy) to protect the

economically weaker segment of the society (Wellenius, et al., 2004).

3. Degree of being environmentally benign: Reduction in energy prices

are a common aspect of the reforms process. This may lead to increased

consumption of coal which in turn may result in increased emissions

(Vrolijk, 2004). A reform process which encourages coal beneficiation,

underground coal mining, capture of coal mine methane etc. may be

considered as environmentally benign.

4. Degree of implement-ability: Simplicity of implementation of reforms

process could be an indirect indicator of the success of reforms process.

Simple legal changes requiring simple transition infrastructure are key to

the success of energy sector reforms process (Bhattacharyya & Dey,

2003).

5. Degree of economic viability and financial feasibility: High degree of

competition and determination of prices in markets indicate the degree of

economic viability (and these aspects are already covered in sections 0,

0and 0). Private participation and funding of coal projects by private

institutions are strong indicators of financial feasibility (Bhattacharyya,

2007).

2.7 Degree of technical efficiency

The marginal cost of coal production is directly dependent on availability and

utilisation of the capital asset. The availability of capital assets are directly

dependent on the planned maintenance schedules, and utilisation is directly

dependent on the efficacy of management of coal mines including scheduling.

The parameters which could be used for measuring technical efficiencies are

presented in Table 5:

Table 5: Technical parameters of efficiency

Parameters Remarks

Availability Availability of capital asset indicates that it is available for

productive work. Availability is calculated using following

relationship:

Parameters Remarks

Availability = ((Scheduled hours-maintenance hours-

breakdown hours)/Scheduled hours)*100

Greater availability is better for the economy as it helps in

reducing cost of coal production and helps in reducing

wasteful investments in additional capacities.

Utilisation Utilisation of equipment is calculated using following

relationship:

Utilisation = ((Scheduled hours- maintenance hours –

breakdown hours – idle hours)/scheduled hours)*100

Greater the utilisation lesser is the marginal cost of coal.

With increase in utilisation, idle hours reduce.

Out-put-per man

shift (OMS)

OMS is generally used to measure productivity for coal

mines. OMS is defined as average tonnage of coal

produced in a shift by an employee. With the introduction

of reforms, there has been a clear decrease in the

workforce as observed in a study by the IEA/OECD.

Increased labour productivity (i.e. increased OMS) has

enhanced overall efficiency of the coal sector. However,

this increased productivity has resulted in social costs as

well (International Energy Agency, 2005).

OMS is a reflection of management strategies and

captures the availability and utilisation of all equipment

and systems for mining. Therefore OMS could be used as

an indicator for efficiency of mines.

Source: Author

2.8 Views of experts

The project report sought views of experts through primary survey. Mr. Dipesh

Dipu4 expressed his views on coal sector reforms as follows:

“Coal sector in a country that has greater degree of reform should have

adequate competition and market forces should be allowed to determine prices,

4 Dipesh Dipu is Managing Partner at Jenissi Management Consultants, Hyderabad, India. He could be reached by Email at [email protected] .

which in turn will determine investments in technology and efficiencies; and

degree of private participation. Markets that have sustained reforms will witness

players operating at marginal cost based pricing and earning normal profits. The

indicators mentioned do capture the essence of reforms and hence, can give

fair understanding of status of reforms.

Another measure of reforms may be number of regulations targeted at coal

sector – in the form of applicable legislations, rules, regulations, bylaws and

directives. Country with higher degree of reforms would tend to have minimal

regulation and industry players tend to be largely self-regulated.”5

On question to rank indicators on scale of 1 to 6, with later indicating high

impact on degree of reforms, the following views were obtained from Dipesh

Dipu:

“a) Degree of private participation - 3

b) Degree of competition and market power - 6

c) Degree of marginal cost based pricing - 4

d) Degree of propensity of coal mines for reforms (size, technology) - 2

e) Degree of sustainability of reforms - 5

f) Degree of Technical efficiency – 1”

The views expressed by the experts indicate that the chosen indicators for

measuring the reforms are significant.

In next chapter this project report presents the methodology.

5 The comments were obtained through email communication dated 18 August, 2014 at 12:59 PM.

3 Methodology

3.1 Key assumptions behind framework & index

development

The framework is developed using the key indicators discussed in the literature

review section of this project report. The main assumptions for the framework

are as presented in Table 6:

Table 6: Key assumptions for framework

Sl. No. Assumption Remarks

1 Equal weightage to

every indicator

World Bank in its studies has taken a similar

approach (Bacon, 1999).

2 Maximum score 1 and

minimum 0

Each indicator is assumed to have maximum

score of one (1) and minimum score of zero

(0).

3 Wherever the indicators

are difficult to quantify

they are indicated as

high, moderate or low.

High indicator is given a mark of 1, moderate

is given a mark of 2/3 and low indicator is

given a mark of 1/3.

4 Also, values less than

1/3 are highlighted as

red, in between 1/3-2/3

are highlighted as

yellow and 2/3 to 1 are

highlighted as green.

Red represents an area of significant

potential improvement; yellow represents an

area of moderate potential improvement and

green represents area of low potential

improvement for realising reform objectives.

5 All the scores are then

added and divided by

maximum possible

score and multiplied by

100 to get the index

value.

Index values of two or more countries are

calculated and compared. The index is

named as “Jena Reforms Index”.

Source: Author

3.2 Selected indicators of the reforms

The key indicators are chosen from the literature review section and presented

in a framework at Table 7 and named the “Jena Reforms Framework”.

Table 7: The Jena Reforms Framework

Sl.

No.

Indicator Formula for calculating marks and

remarks

Degree of private participation – Maximum marks: 3

1 Degree of private

participation in coal

production

Mark = Coal mining capacity owned by

private sector/ total capacity

2 Degree of private


transportation

Mark = (Percentage of coal transported by

rail*private ownership of railways) +

(Percentage of coal transported by

road*private ownership in road sector) +

(Percentage of coal transported by

ships*private ownership in shipping industry)

Remarks: This formula may be modified to

include other modes of transportations. Also,

almost all coal is transported by trucks to

unloading points for further transportation.

Therefore, it is not considered as part of coal

transportation by road.

3 Degree of private


distribution

Mark = Coal distribution capacity owned by

private sector/ total distribution capacity

Degree of adherence to elements of reforms – Maximum marks: 8

1 Existence of Coal

Reforms Act

If yes then Mark = 1

If no then Mark = 0

2 Existence of Coal

Sector Economic

Regulators


If no then Mark = 0

3 Restructured Coal If high then Mark = 1

Sector If moderate then Mark = 2/3

If low then Mark = 1/3

4 Multiple Local Coal

Distributors

If high then Mark = 1

If moderate then Mark = 2/3


5 Regulated Coal

Distribution Business


If no then Mark = 0

6 Incentive Regulation for

Coal Transportation


If no then Mark = 0

7 Independent

Transportation System

Operator


If no then Mark = 0

8 Wholesale Coal Market If high then Mark = 1



Degree of competition and market power – Maximum marks: 5

1 Coal production free

market power

Mark = 1 – (Coal production capacity owned

by the largest firm/total production capacity)

Remarks: The formula represents the

capacity which is free from market power

2 Coal transportation free

market power

Mark = 1 – (Transportation capacity owned

the largest firm/total transportation capacity)

3 Coal distribution free of

market power

Mark = 1 – (Coal distribution capacity owned

by the largest firm/total distribution capacity)

4 Rules for third party

access have been laid

out


If no then Mark = 0

5 Provisions of

congestion pricing is

available


If no then Mark = 0

Degree of marginal cost based pricing – Maximum marks: 2

1 Coal prices for non-

power producers

If the value of

(recent coal prices for non-power producers/

marginal cost) < 1

Then, Mark = 1

Else, Mark = 1/(Coal prices for non-power

producers/ marginal cost)

Where, marginal cost = Cost of production

+ nominal returns.

Cost of production could be obtained from

annual reports and nominal returns may be

calculated as 12% of capital invested.

For deregulated market where prices are

market determined then, Mark = 1

Remarks: Generally it is observed that

prices for non-power producers are higher

than marginal cost. The formula brings the

indicator within range 0 and 1.

2 Coal prices for power

producers

If

(recent coal prices for power producers/

marginal cost) < 1

Then, Mark = (recent coal prices for power

producers/ marginal cost).

Else, Mark = 1

For deregulated market where prices are

market determined then, Mark = 1

Remarks: Generally it is observed that coal

prices for power producers are less than

marginal cost due to subsidies offered on

coal prices. The formula brings the indicator

within range 0 and 1.

Degree of propensity of physical assets for reforms – Maximum marks: 1

1 Propensity of coal

sector assets for

reforms

If total demand of coal > 1 million tonnes per

annum,

Then, Mark = 1

Else, Mark = 0

Degree of sustainability of reforms – Maximum marks: 6

1 Politically acceptable This paper uses Worldwide Governance

Indicators published by World Bank to

measure political acceptability.

Mark = (summation of all the six

indicators/(6X100))6

2 Government

considered removal of

subsidy in phased

manner.

Phased manner include

removing subsidy in a

planned manner to shift

the burden of increased

cost of coal to

consumers gradually.

If high then Mark = 1



3 Percentage of

production from

underground coal

mining technologies

Mark = (coal production from underground

mining methods/total coal production)

4 Efficient technologies If yes then Mark = 1

6 http://info.worldbank.org/governance/wgi/index.aspx#reports

like coal beneficiation

have been introduced

If no then Mark = 0

5 Efficient technologies

like coal mine methane

or underground coal

gasification are

commercially

introduced in at least

one mine


If no then Mark = 0

6 Legal framework

provides for

implementation

This paper uses Worldwide Governance

Indicators published by World Bank to

measure strength of legal framework for

implementation.

Mark = (government effectiveness + rule of

law + regulatory quality)/(3X100)

Degree of technical efficiency – Maximum marks: 1

1 Output per man shift

(OMS) (In absence of

country level OMS,

OMS of largest

producer could be

considered as

representative OMS of

country)

If OMS > 40 tonnes then Mark = 1

If 15 tonnes < OMS < 40 tonnes then Mark =

2/3

If OMS < 15 tonnes the Mark = 1/3

Total Maximum marks: 26

Jena Reform Index = Total Marks/26 X 100

Source: Author

The above framework is populated for Australia, India and China in the next

section and a comparative analysis is made.

4 Comparative Analysis Results

4.1 Data sheet

Table 8: Data sheet with marks for indicators

Sl. No. Indicator Rationale for marks and marks

Degree of private participation

1 Degree of private


production

Australia: As per EIA (2014), Australia has 107 coal

mines and all are owned by private entities.

Therefore, as per formula presented in Table 7,

Mark = 1.00

India: As per Coal Controller Organisation (2012),

only 9% of coal are produced by private entities

therefore Mark = 0.09

China: As per Tu (2011), 38% of total coal

production comes from privately owned mines in

China therefore Mark = 0.38

2 Degree of private


transportation

Australia: Most of the coal transportation in

Australia is carried out by private entities (SOG,

Australia, 2014). Therefore Mark =1.00

India: As per Ministry of Coal (2014), India, 25% of

coal is transported by trucks and conveyors. Most of

these are privately owned, therefore Mark = 0.25

China: Only 19% of coal is being transported by

private sector in China (Tu, 2011), therefore Mark =

0.19

3 Degree of private


distribution

Australia: The coal producers are distributers of

coal in Australia. Since all the producers are

privately owned entity this implies all the distributor

are privately owned (Lucarelli, 2011). Since Mark for

producers is equal to 1, therefore Mark for this

indicator =1.00

India: Coal producers in India are coal distributors

too. Since Mark for producer is equal to 0.09,

therefore Mark for this indicator = 0.09

China: Coal producers in China distribute their coal,

therefore Mark for this indicator = 0.38

Degree of adherence to elements of reforms

1 Existence of Coal

Reforms Act

Australia: In Australia, policy decision led to

the private participation and sector is dominated

by private players (Dawson, Blake, 2011).

Therefore Mark =1

India: In India, coal resources were

nationalised in 1973 by Coal Mines

Nationalisation Act, 1973. The proposed

amendment to allow private participation for

commercial mining of coal is still pending in

parliament since 2000. Therefore, in absence of

laws for reforms, Mark = 0

China: China doesn’t have law to sustain

economic reforms in the coal mining sector and

most of the decisions for reforms are guided by

safety concerns (Qiu & Li, 2012). Therefore

Mark = 0

2 Existence of Coal Sector

Economic Regulators

Australia: Australian coal sector is a highly

competitive and is self-regulating in nature.

Joint Coal Board, regulatory body, was

abolished in 2002 because no need of further

regulation was felt (Lucarelli, 2011). Therefore

Mark =1

India: Interim Coal Regulatory Authority of India

was established in 2014 through an

administrative order of Government of India.

Coal Regulatory Authority Bill is still pending in

Parliament. (The Financial Express, 2014).

Therefore Mark = 1

China: Administrative reforms in China under

State Council failed to establish Energy

Regulation Commission (Qiu & Li, 2012).

Therefore Mark = 0

3 Restructured Coal

Sector


competitive and is self-regulating in nature

(Lucarelli, 2011). Therefore Mark = 1

India: Coal sector in India is highly dominated

by the government companies (more than

90%), further railway transportation has

government monopoly and coal retailing is not

allowed under Coal Mines Nationalisation Act,

1973 (CCO, 2012) (MoC, 2014). Therefore

Mark = 1/3

China: Coal sector is dominated by state

players and coal transportation also is

dominated by state (Tu, 2011). Therefore Mark

= 1/3


Distributors


competitive and with large number of coal

miners playing role of distributors as well

(Lucarelli, 2011). Therefore Mark = 1

India: More than 90% of coal produced is sold

through Fuel Supply Agreement determined by

Standing Linkage Committee (which is an inter-

ministerial and inter governmental committee).

Hence coal distribution is also dominated by

government companies. Therefore Mark = 1/3

China: More than 33% of coal is distributed in

market by private entities (Tu, 2011). Therefore

Mark = 2/3

5 Regulated Coal Australia: Coal prices are de-regulated and are

Distribution Business market determined. Therefore Mark = 1

India: Coal prices are de-regulated and are

determined by the state owned companies

hence inefficiencies are also passed onto

consumers. Also, the coal regulator’s office is

very new and was set-up in March 2014 and till

date has not passed on any tariff orders.

Therefore

China: Coal prices are de-regulated and are

market determined. More than 38% of coal

comes from private players. Therefore Mark =

2/3

6 Incentive Regulation for

Coal Transportation

Australia: Coal transportation operators are

different from coal transport infrastructure and

are majorly dominated by private player

(Lucarelli, 2011). Therefore Mark =1

India: Railway transportation is completely

owned by Ministry of Railway and hence the

freight is determined by Ministry. Further, the

truck based transportation of coal is not

regulated to promote infrastructure

development. Therefore Mark = 0

China: Most of the coal transportation is done

through state dominated railways (Tu, 2011).

Therefore Mark = 0

7 Independent

Transportation System

Operator

Australia: Coal transportation in NSW and

Queensland are operated by private players.

The infrastructure is leased by government for

long term (Lucarelli, 2011). Therefore Mark = 1

India: Railway, MGR and other modes of

transportation are by the owners are they are

not independent either through any facilitating

agreement or legally. Therefore Mark = 0

China: Transport is dominated by state owned

companies not operating as system operator

(Tu, 2011). Therefore Mark = 0

8 Wholesale Coal Market Australia: Coal is entirely sold in wholesale

market with high degree of competition.

Therefore Mark = 1

India: Less than 10% of coal produced in India

is sold through wholesale market via e-auction

(MSTC, 2014). Therefore Mark = 1/3

China: More than 38% percent of coal is sold in

wholesale markets (Tu, 2011). Therefore Mark

= 2/3

Degree of competition and market power

1 Coal production free

market power

Australia: BHP Billiton, the largest coal

producer in Australia, produced 35.36 million

tonnes of coal in 2012 (BHP Billiton, 2012),

while Australia produced 421 million tonnes of

coal in the same year (The World Coal Institute,

2014). Therefore

Mark = 1 – 35.36/421 = 0.91

India: Coal India Limited is largest coal

producer with coal production share of 80.7%

(CCO, 2012). Therefore

Mark = 0.807 ~ 0.81

China: Shenhua coal is the largest coal with

market share of 7.5% in production (Booz&Co,

2012). Therefore

Mark = 1-0.075 = 0.925~ 0.93


market power

Australia: 200 million tonnes of coal is moved

by Aurizon of total exports of 301 million tonnes

in 2012 (Aurizon , 2014). Therefore

Mark = 1- 200/301 ~ 0.44

India: 54.8% of coal is transported by Indian

Railways, a state owned entity. Therefore

Mark = 1-0.548 = 0.552 ~ 0.55

China: 44% of coal is transported by National

Rail in 2010 (Tu, 2011). Therefore

Mark = 1-0.44 = 0.56


market power

Australia: The coal producers are distributers

of coal in Australia. Since all the producers are

privately owned entity this implies all the

distributor are privately owned (Lucarelli, 2011).

Since Mark coal production free market power

is equal to 0.91, therefore Mark for this indicator

=0.91

India: Coal producers in India are coal

distributors too. Since Mark coal production free

market power is equal to 0.19, therefore Mark

for this indicator = 0.19

China: Coal producers are distributors of coal.

Since Mark coal production free market power

is equal to 0.93, therefore Mark for this indicator

= 0.93

4 Rules for third party

access have been laid

out

Australia: Third party access is well laid out

between infrastructure owner (government) and

operator (private players, usually group of

mines (Lucarelli, 2011). Therefore Mark = 1

India: Monopoly by government, no third party

access allowed. Therefore Mark = 0

China: Limited third party access is allowed.

Therefore Mark = 0

5 Provisions of congestion

pricing is available

Australia: Congestion pricing is well laid out

between infrastructure owner (government) and

operator (private players, usually group of

mines (Lucarelli, 2011). Therefore Mark = 1

India: Average freight rate determined by

Ministry of Railway. Therefore Mark = 0

China: Average freight prices are determined

by National Rail. Therefore Mark = 0

Degree of marginal cost based pricing

1 Coal prices for non-

power producers

Australia: Coal prices are market determines.

Therefore Mark = 1

India: Coal prices are de-regulated. Therefore

Mark = 1

China: Coal prices are de-regulated. Therefore

Mark = 1


producers

Australia: Coal prices are market determines.

Therefore Mark = 1

India: Coal prices are de-regulated. Therefore

Mark = 1

China: Coal prices are de-regulated. Therefore

Mark = 1

Degree of propensity of physical assets for reforms

1 Propensity of coal sector

assets for reforms

Coal demand in each country, Australia, India

and China, is more than one million tonnes per

annum. Therefore Mark for each country is 1.

Degree of sustainability of reforms

1 Politically acceptable7 Australia:

Mark = (96.21+ 80.57+ 94.26+ 97.13+ 94.79+

95.69)/(6X100) = 0.93

India:

Mark = (58.29+ 11.85+ 47.37+ 33.97+ 52.61+

34.93)/(6X100) = 0.40

China:

Mark = (4.74+ 28.44+ 55.98+ 43.54+ 38.86+

39.23)/(6X100) = 0.35

7 http://info.worldbank.org/governance/wgi/index.aspx#reports

2 Government considered

removal of subsidy in

phased manner.

Phased manner include

removing subsidy in a

planned manner to shift

the burden of increased

cost of coal to

consumers gradually.

Australia: The prices are market determined

and there are no subsidies. Hence there are no

plans to remove the subsidies. In absence of

subsidies, it was assumed that country doesn’t

need subsidy. Therefore Mark = 1

India: The coal prices are de-regulated and

there are no subsidies. However the subsidies

to power sector are being gradually removed.

Therefore Mark =1

India: The coal prices are de-regulated. The

subsidies have been removed gradually.

Therefore Mark =1

3 Percentage of production

from underground coal

mining technologies

Australia: As per IPCC8 report, Australia

produces 25% of coal through underground

technology. Therefore Mark = 0.25

India: As per CCO (2012), report, India

produced 10% of coal from underground mining

technologies. Therefore Mark = 0.10

China: China9 produces roughly 86% of coal

through underground mining technologies.

Therefore Mark = 0.86


like coal beneficiation

have been introduced

Australia: Yes, it has been introduced10.

Therefore Mark = 1

India: It has been introduced11.

Therefore Mark = 1

China: It has been introduced12.

Therefore Mark =1

8 http://www.ipcc-nggip.iges.or.jp/public/gp/bgp/2_7_Coal_Mining_Handling.pdf 9 http://www.coalage.com/features/593-understanding-the-chinese-coal-industry.html#.U_RTP_ldV0A 10 Coal beneficiation in Australia, Accessed on 22 August, 2014, http://www.mineraltechnologies.com/coal 11 Coal beneficiation in India, Accessed on 22 August, 2014, http://www.new1.dli.ernet.in/data1/upload/insa/INSA_1/20005b80_515.pdf 12 Coal Beneficiation in China, Accessed on 22 August, 2014, http://www.sciencedirect.com/science/article/pii/S1672251507601614


like coal mine methane

or underground coal

gasification are

commercially introduced

in at least one mine

Australia: Yes, it has been introduced13.

Therefore Mark = 1

India: No, they have not been introduced14.

Therefore Mark = 0

China: Yes, they have been introduced15.

Therefore Mark =1

6 Legal framework

provides for

implementation16

Australia:

Mark = (94.26+ 97.13+ 94.79)/(3X100) = 0.95

India:

Mark = (47.37+ 33.97+ 52.61)/(3X100) = 0.45

China:

Mark = (55.98+ 43.54+ 38.86)/(3X100) = 0.46

Degree of technical efficiency

1 Output per man shift

(OMS) (In absence of

country level OMS, OMS

of largest producer could

be considered as

representative OMS of

country)

Australia: Average OMS in 1986 were 34.10

which grew at a rate of 5.4% per annum for last

26 years (Lucarelli, 2011). Extrapolating the

OMS, at historical rate of 5.4%, results in OMS

of 132 tonnes in 2012. Therefore Mark = 1

India: OMS in 2012 is 5.32 tonnes17.

Therefore Mark = 1/3

China: OMS grew from 0.912 tonnes to 2.18

tonnes during 1980 to 1998 at a rate of 5% per

annum (Peng, 2009). Extrapolating the OMS, at

historical rate of 5%, results in OMS of 4.29

tonnes in 2012.

Therefore Mark = 1/3

Source: Author and various sources referenced within the table and at the footnotes

13 Link Energy’s UCG, Accessed on 22 August, 2014, http://www.lincenergy.com/underground_coal_gasification.php 14 India auctions coal blocks for UCG, Accessed on 22 August, 2014, http://articles.economictimes.indiatimes.com/2013-09-03/news/41726490_1_gasification-cbm-coal-india 15 Carbon Energy’s UCG, Accessed on 22 August, 2014, http://www.carbonenergy.com.au/irm/content/inner-mongolia-china.aspx?RID=305 16 http://info.worldbank.org/governance/wgi/index.aspx#reports 17 http://economictimes.indiatimes.com/coal-india-ltd/directorsreport/companyid-11822.cms

4.2 Comparative analysis of coal sector reform initiatives

Table 9: Comparative analysis of Australia, India and China

Sl.

No. Indicator Australia India China

Degree of private participation – Maximum marks: 3

1

Degree of private


production

1.00

0.09

0.38

2

Degree of private


transportation (interstate)

1.00

0.25

0.19

3

Degree of private


distribution

1.00

0.09

0.38

Subtotal 3.00 0.43 0.95

Degree of adherence to elements of reforms – Maximum marks: 8

1

Existence of Coal Reforms

Act (promoting economic

reforms)

1.00 0.00 0.00

2 Existence of Coal Sector

(Economic) Regulators 1.00 1.00 0.00

3 Restructured Coal Sector 1.00 0.33 0.33


Distributors 1.00 0.33 0.66

5 Regulated Coal Distribution

Business 1.00 0.33 0.66

6 Incentive Regulation for Coal

Transportation 1.00 0.00 0.00

7 Independent Transportation

System Operator 1.00 0.00 0.00

8 Wholesale Coal Market 1.00 0.33 0.66

Subtotal 8.00 2.32 2.34

Degree of competition and market power – Maximum marks: 5

1 Coal production free market

power 0.91 0.19 0.93


market power 0.44 0.55 0.56


market power 0.91 0.19 0.93

4 Rules for third party access

have been laid out 1.00 0.00 0.00

5 Provisions of congestion

pricing is available 1.00 0.00 0.00

Subtotal 4.26 0.93 2.52

Degree of marginal cost based pricing – Maximum marks: 2

1 Coal prices for non-power

producers 1.00 1.00 1.00


producers 1.00 1.00 1.00

Subtotal 2.00 2.00 2.00

Degree of propensity of physical assets for reforms – Maximum marks: 1

1 Propensity of coal sector

assets for reforms 1 1 1

Degree of sustainability of reforms – Maximum marks: 6

1 Politically acceptable 0.93 0.40 0.35

2

Government considered

removal of subsidy in phased

manner

1.00 1.00 1.00

3

Percentage of production

from underground coal

mining technologies

0.25 0.10 0.86

4

Efficient technologies like

coal beneficiation have been

introduced

1.00 1.00 1.00

5 Efficient technologies like 1.00 0.00 1.00

coal mine methane or

underground coal gasification

are commercially introduced

in at least one mine

6 Legal framework provides for

implementation 0.95 0.45 0.46

Subtotal 5.13 2.95 4.67

Degree of technical efficiency – Maximum marks: 3

1 Output per man shift (OMS) 1.00 0.33 0.33

Total Maximum marks: 26

Grand total of individual countries 24.39 9.96 13.81

Jena Reform Index (24.39/26)*100

=93.80

(9.96/26)*100

=38.30

(13.81/26)*100

=53.11

Source: Author (copied marks of individual indicators from table 8 to table 9)

5 Interpretation & Recommendation

Table 10: Interpretation & Recommendation

Sl.

No.

Parameters Interpretation Recommendations

1 Jena

Reforms

Index

Australia has highest

index value at 93.80

followed by China at

53.11 and India at 38.30.

This indicates that

Australian coal sector has

experienced more

successful reforms than

China and India

China and India have to take more

steps to reform their coal mining

sectors. This may require effort on

the part of all the stakeholders

including government, industry

players and constituency to press

for reforms.

2 Degree of

private

participation

From the analysis it may

be inferred that the

degree of private

participation in India and

China are almost

negligible.

Government of India

1. May allow commercial

mining by the private

mining companies by

passing the Coal Mines

Nationalisation

(Amendment) Bill which is

pending in parliament since

2000. Also, Government

may initiate the bidding for

the planned ultra-mega coal

projects with high

capacities.

2. Government may

encourage private


transport infrastructure

development. This may

require private investment

in the railway sector.

Railway freight sector which

has been under

government control may

also be split and then

privatised.

3. Further, Government may

consider appointing a coal

regulatory authority with

statutory powers (unlike

through administrative

order, where independence

of regulator is not ensured

as it functions under

Ministry of Coal)

Also, Government of China may

look forward to liberalise the coal

sector to allow

1. Foreign ownership in

mining companies

2. The transport infrastructure,

particularly railway lines

should be augmented

through private partnership.

3. The national rail may be

split into small entities to

promote better services to

consumers.

3 Degree of

adherence to

elements of

coal sector

reforms

India and China seem not

to have adhered to the

basic elements of

reforms. The key areas

where India lagged

Both, Indian and Chinese

governments may focus on:

1. Enacting coal laws to push

for reforms

2. Allow private participation in

behind both Australia and

China are

1. Coal distribution

rights and

2. Wholesale coal

market.

Further, both India and

China lagged behind

Australiain

1. laws to promote

reforms and

2. Private


transportation

coal transportation

especially coal

transportation through rail

infrastructure.

3. Government may allow

private participation for

operating transport system

independently.

Further, India should specifically

focus on creating wholesale coal

market by opening up the sector

for coal trading by private entities.

Therefore amendment of Coal

Mines Nationalisation Act 1973 is

important.

4 Degree of

competition

and market

power

India performed poorly in

terms of production and

distribution market power.

Also, both India and

China lagged in terms of

provisions for third party

access and congestion

pricing of transportation

network

1. India should split the large

state mining companies into

small entities. Government

has already proposed

splitting of Coal India

Limited which has share of

80.3% in coal production.

2. Both India and china should

frame rules and regulations

for third party access to

transportation systems like

railways, large overland

conveyors etc.

3. Both counties must provide

for congestion pricing for

transportation.

5 Degree of

marginal cost

All the three countries

have de-regulated the

India and China must continue to

reform the sector where the prices

based pricing coal pricing mechanisms is determined by the market

forces.

6 Degree of

sustainability

of reforms

1. Both China and

India seem to have

poor legal

framework and

governance to

implement reforms.

2. Australia and India

have fallen behind

China in terms of

underground

mining capacities

3. India needs to

successfully

demonstrate

underground coal

gasification (UCG)

technologies at

commercial level.

1. Indian and Chinese

governments must frame

laws and policies to clearly

state their intention to

support the reforms

process in the coal mining

sector.

2. Australia and India need to

promote underground coal

mining to address the

issues of GHG emissions.

3. Further, India has till date

not demonstrated UCG

technologies at commercial

levels. Though government

has set aside two coal

blocks for UCG but the

development works are yet

to start on them.

7 Degree of

technical

efficiency

Productivity in India and

China are very low as

compared to Australia

India must introduce

mechanisation in its underground

mining such as continuous miners,

road-headers and Longwall

technologies. Also, bigger sized

shovels, dozers and dumpers may

be introduced in new large

opencast mining projects.

China may like to close the

relatively unsafe coal mines

owned by village and towns to

decrease production from un-

productive mines as well as to

increase safety

Source: Author

6 Conclusion

This project report sought to identify the key indicators for coal sector reforms.

Further, it attempted to measure the indicators of successful reform based on the:

1. Nearness to competitive market; and

2. Sustainability of reforms programmes

The key indicators for coal sector reforms have been successfully identified and

have been presented in the Jena Reforms Framework. The framework consists of 26

different indicators.

The framework was used to conduct comparative analysis of the success of coal

sector reforms in Australia, India and China. Australia was found to be the most

successful of the three countries in terms of successful coal sector reforms followed

by China and then India.

6.1 The key areas of improvement for India alone

It was also found that, India required improvement in the following areas:

1. Creation of wholesale market for coal;

2. Splitting of large state owned mining companies (such as Coal India Limited &

their subsidiaries) to reduce concentration of market power; and

3. Demonstrating commercial UCG technologies.

6.2 The key areas of improvement for China and India

These include:

1. Framing laws and policies for supporting coal sector reforms including

appointment of coal sector economic regulators.

2. Opening up coal transportation and distribution sector for competition:

a. Private participation in rail infrastructure development

b. Appointment of transport system operators and setting clear codes for

third party access to rail/transport infrastructures

c. Congestion pricing principles should be well laid out

3. Continue to improve mechanisation by safe technologies.

6.3 The key areas of improvement for Australia and India

Australia and India both need to create significant capacities in underground coal

mining. This would not only help in reaching out to deep seated deposits but will also

help in reducing emissions.

6.4 Key limitations of the framework

Jena Reform Framework is a simple framework. This framework could be easily

developed from secondary information. However, the possible limitations of the

framework are stated below:

1. It has been assumed that the entire 26 indicators contribute equally to the

reforms process. However, depending upon the country situation some of the

indicators could be assigned higher (or lower) weightages.

2. Primary surveys could be used to improve the qualitative parameters which

were difficult to quantify (the qualitative parameters included “high, moderate

and low” ranks with corresponding marks of 1, 2/3 and 1/3 respectively).

7 Bibliography

Aurizon , 2014. Interim Results 2014, s.l.: Aurizon.

Bacon, R., 1999. A Scorecard for Energy Reform in Developing Countries,

Washington, D.C.: The World Bank Group.

Bacon, R. W. & Besant-Jones, J., 2001. Global Electric Power Reform, Privatization,

And Liberalization of The Electric Power Industry In Developing Countries. Annual

Review of Energy and the Environment, pp. 331-359.

Benavides, J. M., 2003. Can Reforms be Made Sustainable? Analysis and Design

Considerations for the Electricity Sector, Washington, D.C. : IFM Publications.

Bhattacharyya, S. C., 2007. Sustainability of power sector reform in India: what does

recent experience suggest?. Jornal of Cleaner Production, Volume 15, pp. 237-238.

Bhattacharyya, S. & Dey, P., 2003. Selection of power market structure using the

analytical hierarchy process. Int. J. of Global Energy Issues, 20(1), pp. 36-57.

BHP Billiton, 2012. Annual Report, 2012, s.l.: BHP Billiton.

Booz&Co, 2012. Coal Industry Trends in China, Achieving Sustainable Growth,

Beijing: Booz & Company.

BP p.l.c., 2014. BP Energy Outlook 2035, London: BP p.l.c..

BP p.l.c., 2014. BP Statistical Review of World Energy 2014, London: BP p.l.c..

California Independent System Operator, 2002. Predicting Market Power Using the

Residual Supply Index, California: California Independent System Operator.

CCO, 2012. Provisional Coal Statistics, Kolkata: Ministry of Coal, GoI.

Dawson, Blake, 2011. Mining in Australia: An Introduction for Investors, Brisbane:

Blake Dawson.

EIA, 2014. Australia Overview. [Online]

Available at: http://www.eia.gov/countries/cab.cfm?fips=as

[Accessed 18 August 2014].

Erdogdu, E., 2013. Essays on Electricity Market Reforms: A Cross-Country Applied

Approach, Cambridge: Girton College, University of Cambridge.

Haselip, J. & Hilson, G., 2005. Winners and losers from industry reforms in the

developing world: experiences from the electricity and mining sectors. Resources

Policy, 30(2), pp. 87-100.

Hunt, S. & Shuttleworth, G., 1996. Unlocking the grid [electricity industry

restructuring]. Spectrum, IEEE (Volume:33 , Issue: 7 ), pp. 20-25.

IEA, 2003. World Energy Investment Outlook, Paris: International Energy Agency.

International Energy Agency, 2005. Lessorns Learnt from Liberalised Electricity

Market, Paris : Organisation for Economic Co-Operation And Development/

International Energy Agency.

International Energy Agency, 2014. World Energy Investment Outlook, Paris:

International Energy Agency.

Jamasb, T., 2004. Between the state and market: Electricity sector reform in

developing countries. Utitilities Policies, pp. 14-30.

Jamasb, T., Newbery, D. & Pollitt, M., 2005. Core Indicators for Determinants and

Performance of the Electricity Sector in Developing Countries, Cambridge: World

Bank.

Joskow, P. L., 2004. Electricity sector restructuring and competition: a transactions-

cost perspective. In: E. Brousseau & J. Glachant, eds. The economics of contracts.

Cambridge: Cambridge University Press, pp. 503-530.

Lucarelli, B., 2011. Australia's Black Coal Industry: Past Achievements and Future

Challenges, Stanford: Freeman Spogli Institute for International Studies.

Matthias, F., Julian, S. & dennis, V., 2012. Ccs Retrofit: Analysis of the Globally

Installed Coal-Fired Power Plant Fleet, Paris: Sustainable Energy Policy and

Technology Directorate, International ENergy Agency.

McKetta Department of Chemical Engineering; The Univesity of Texas at Austin, n.d.

Coal Processing and Pollution Control. [Online]

Available at:

http://www.che.utexas.edu/course/che359&384/lecture_notes/topic_3/Chapter4.pdf


Millán, J. & M. von der Fehr, N.-H., 2003. Keeping the lights on: Power Sector

Reform in Latin America, Washington, D.C.: Inter-American Development Bank.

Mitchell, G., 2007. Longwall Mining. Monograph - Autralasian Coal Mining Practice,

Volume 26, pp. 340-375.

MoC, 2014. Annual Report 2014, New Delhi: Ministry of Coal, GoI.

MSTC, 2014. Bidder's guide. [Online]

Available at:

http://www.mstcindia.co.in/MSTC_Static_Pages/Coal/CoalAuctionHandOut17092011

.htm


Newbery, D., 2002. Issues and options for restructuring electricity supply industries:

DAE Working Paper WP 0210, Cambridge: Department of Applied Economics,

University of Cambridge.

Peng, W., 2009. The Evolution of China's Coal Institutions, Stanford: Freeman Spogli

Institute for International Studies .

Pollitt, M. G., 2011. Lessons from the History of Independent System Operators in

the Energy Sector, with applications to the Water Sector. [Online]

Available at:

http://www.ofwat.gov.uk/future/markets/upstream/rpt_com110317sysoppollitt.pdf

[Accessed 2014 July 27].

Qiu, X. & Li, H., 2012. Energy Regulation & Legislation in China, Washington DC:

Environmental Law Institute.

Rudnick, H. & Montero, J.-P., 2002. Second Generation Electricity Reforms in Latin

America and the California Paradigm. Journal of Industry, Competition and Trade,

2(1-2), pp. 159-172.

SOG, Australia, 2014. Delivering Reliable Australian Coal Exports to the World: Coal

Transport Infrastructure. [Online]

Available at: http://ncc.gov.au/images/uploads/DERaFoSu-034.pdf


The Financial Express, 2014. Govt issues executive order for ‘interim’ coal regulator,

New Delhi: The Indian Express.

The World Bank, 2003. Mining Reforms and the World Bank, Washington, DC: The

World Bank.

The World Coal Institute, 2014. Coal Statistics. [Online]

Available at: http://www.worldcoal.org/resources/coal-statistics/


Trehan, K., 2014. Essentials for Enhancing Coal Production, s.l.: International

Institute for Sustainable Development.

Tu, K. J., 2011. Industrail Organisation of Chinese Coal Industry, Stanford: Freeman

Spogli Institute for International Studies.

U.S. Department of Justice; The Federal Trade Commission, 2010. Horizontal

Merger Guidelines. [Online]

Available at: http://www.justice.gov/atr/public/guidelines/hmg-2010.html

[Accessed 28 July 2014].

U.S. Energy Information Administration, 2013. International Energy Outlook 2013,

Washington, DC: U.S. Energy Information Administration.

UN Economic and Social Development, 2014. The Electricity Governance Initiative,

New York: UN Economic and Social Development.

Volata River Authority, 2014. VRA's mandate. [Online]

Available at: http://www.vraghana.com/mobile/our_mandate.php

[Accessed 03 May 2014].

Vrolijk, C., 2004. Climate change and power: economic instruments for European

electricity. Energy Policy, 32(14), p. 1668–1670.

Wellenius, B., Foster, V. & Malmberg-Calvo, C., 2004. Private Provision of Rural

Infrastructure Services: Competing for Subsidies, Washington, D.C.: World Bank.

Williams, J. & Ghanadan, R., 2006. Electricity reform in developing and transition

countries: A reappraisal. Energy, Volume 31, pp. 815-844.

World Bank, 1995. Bureaucrats in Business: The economics and politics of

government ownership, New York: Oxford University Press.

World Energy Council, 2004. Energy Market Reform: Lessons Learned and Next

Steps with Special Emphasis on the Energy Access Problems of Developing

Countries, London: World Energy Council.

World Energy Council, 2013. World Energy Resources: 2013 Survey, London: World

Energy Council.

what are the indicators of coal sector reforms_a comparative analysis of australia, china and india

Documents

degree of competition

degree of sustainability

sustainability of reforms

degree of propensity

degree of adherence

elements of reforms

reforms process

degree of marginal cost