Saturday, September 8, 2012

Coal Part I - Indian history of the energy queen

When I heard about Comptroller and Auditor General (CAG) report on Coal, first thing came to my mind was - can I believe the numbers? It’s higher, bigger than any scandal we previously heard in India – mind blowing 1.85591 Lakh crores.

Let's go through CAG report on Coal and understand how they arrived at this figure and what exactly scandal is. Please note that this article is drawn heavily from CAG report.

In India, even if you own the land, minerals below it don’t belong to you but to the government. This is not unique to India, many countries follow this convention, and many don’t.

Coal mining in India from 1947 to 1972 and Nationalization

Cocking coal mines were nationalized in 1972, followed by non-cocking coal mines in 1973. So coal was not entirely a government business for the first 25 years of independent India. On 1975 Coal India (CIL) came into existence; next year Coal mines (Nationalization) Amendment Act terminated all the private mining leases except those with iron and steel producers.

Opening the sector - Roaring 90's

After sleeping for the next 16 years, GOI identified 143 coal blocks - not in production plan of CIL and SCCL (Singareni Collieries Company Limited) - for captive mining by private sector.

Government allowed power companies (in 1993) and cement companies (in 1996) to do captive mining. In 2000, authorities planned to accept commercial coal mining by Indian private companies, but this measure met with stiff resistance from trade unions.

In 2005 T.L Shankar committee proposed a road map for reforms in the sector. Subsequently in 2006, government allowed FDI in companies operating in certain industrial segments like power, cement, Iron & steel etc. Mines and Minerals (Development and Regulation) Act 1957 was enacted in 2010, which envisaged to put in place a system of Competitive bidding. In Feb. 2012, Ministry of Coals notified competitive bidding for the allocation of Coal blocks.

Coal reserves in India

According to CAG, there are around 114,002mn tonnes of proved; 137,471mn tonnes of indicated and 34,390mn tonnes of inferred (means 40% chance to hit the resource base) geological reserves in India as of April 2011. However all this can't be mined due to natural and practical limitations.

Demand and Supply of Coal - 11th plan

At the same time the demand for coal (according to Planning Commission's revised estimates) stands at 713.24mn tonne and production estimates (revised) stands at 629.91mn tonne only.

Visiting this blog to read the second part of this article

Sajeev.

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