No quick relief for coal supply crisis

NEW DELHI (Reuters) – The government on Sunday blamed cost overruns at coal projects and $50 billion in losses at state electricity distributors for a power crisis that has become the first test of Prime Minister Narendra Modi’s management of the economy.
Power and Coal Minister Piyush Goyal warned that it would take years to alleviate coal supply shortages, which have reduced stocks at thermal power stations to their lowest since a huge blackout in 2012 cut off 620 million people.
Any strategic decisions would have to wait until a final decision by the Supreme Court on whether to revoke licences for more than 200 coal blocks awarded since 1993, Goyal told a news conference.
The court has already ruled that these ‘captive’ blocks for industrial use were handed out illegally. It will reconvene on Tuesday to consider whether they should be reallocated, or whether the operators should be fined.
“We will ensure quick action after the Supreme Court decision to get the process rolling and enhance coal output to 1 billion tonnes (a year) by 2019,” Goyal told a news conference.
The “Coalgate” scandal, estimated in a 2012 audit report to have cost the taxpayer up to $33 billion, entrenched the dependence of Indian industry on supplies from lumbering state producer Coal India.
Coal stocks on hand at thermal generators, which produce three-fifths of the nation’s power, have fallen to six days’ forward cover – down nearly half since Modi’s national election victory in May.
Modi’s landslide came at least in part thanks to his reputation for CEO-style competence as chief minister of Gujarat, where he tackled a similar power crisis in 2005 and ensured round-the-clock electricity supplies.
NO PLAN B
Even though India has the world’s fifth-largest reserves of coal, at 61 billion tonnes, supply bottlenecks force many generators to import coal from abroad. While private sector players are sourcing fuel from their own mines in countries like Australia, many state players can’t afford to import.
Goyal said he was “open to all options” on fixing the coal supply situation but said the government would not consider opening up coal production to private competition immediately.
“At the moment we don’t have a Plan B, but for every scenario we are keeping ourselves ready. Whatever the Supreme Court decides on coal block de-allocation, we will ensure that action from our side is implemented immediately,” said Goyal.
Coal India, which accounts for around 80 percent of national production, has warned that it will fall around 30 million tonnes short of its commitment to supply 408 million tonnes to power generators in the year to March 31, 2015.
Mining unions plan a three-day ‘work to rule’ protest later this month to oppose any moves to privatise or break up Coal India, which employs 350,000 workers.
Goyal, a senior figure in Modi’s nationalist party and former investment banker, blamed the crisis on cost overruns at power projects and 3 trillion rupees ($50 billion) at state power distributors.
These losses have piled up in the system because in many Indian states the price paid by consumers of electricity is 20-30 percent below cost – often the result of political favours given by local leaders.
On the supply side, Goyal said it would be vital to build three railway lines in the mining states of Chhattisgarh, Jharkhand and Odisha, that could deliver an extra 60 million tonnes of coal a year by 2017-18 and up to 200 million tons by 2021-22.