Understanding India’s coal shortage: Captive blocks

something doesn’t add up here. over the last few months, the country has been awash in news reports about the sudden coal shortage being faced by power projects and others across india. these assertions are somewhat puzzling. for instance, india needs 731 million tons of coal every year. however, the total coal allocated to companies as captive blocks stands at 44,000 million tons — enough for the next 60 years if everything gets extracted, and enough for the next 20 years if just a meagre one-third is extracted (which is a very, very conservative estimate). why has so little of that coal come into production? that would have, even if it is for captive use, reduced the overall demand for coal from coal india.

there are other questions. like the puzzling case of coal india. ever since nationalisation, it has been adding 20-30 million tons of coal to its production numbers each year. this stops around 2009. since then, the company’s production has been close to stagnant. why?

ask coal india this question, or ask the companies given coal blocks this question about delays in operationalising blocks, and they blame the environment ministry. but the environment ministry says that it has cleared all projects before it — that any projects getting delayed are stuck at the state government level — for forest clearances and environment clearances and land acquisition. this is something that senior babus say as well. coal rich states like orissa and jharkhand have not okayed a single coal project in the last 4.5 years. again, why? what is the logic that underlies this disinclination to grant clearances?

there are yet other questions. how does it make sense to give captive blocks to a handful of companies when the total number of companies participating in coal india’s e-auctions to buy coal is around two lakh? wouldn’t it have been better to mine these blocks commercially and put all that coal in the open market for companies to buy? it would have fetched the government more money and it would also have been a great deal more equitable.

questions. questions.

over the last 45 days, i have been groping about in the dark trying to understand why there is a coal shortage in india. here is the first instalment of relatively better researched stories which seek to understand just what happened on the captive coal block front.

first, following from the interview with the BJP’s hansraj ahir, a story on how companies (page one) in nagpur (page two) are trading coal blocks.

Even as the CBI is probing the allotment of coal blocks to private companies for captive use, an ET investigation has uncovered instances of such blocks changing hands, suggesting individuals have profited at the expense of the exchequer.

this story was written by my brilliant colleague john samuel raja with some moral support (i am useless with numbers) from me. an accompanying story, on the mechanics of these transactions, was also written by him.

second, when you start looking at some of the companies trading coal blocks, you cannot not wonder just how they got a coal block in the first place. here, a story on how unsuitable companies won coal blocks. or, the discretionary manner in which coal blocks were alloted by the coal ministry’s screening committee.

Records of the coal ministry show that, between 2005 and 2010, the government offered 150 coal blocks for captive use. Well over 1,400 companies applied for these. No price-based auctions took place. There was a basis of selection that chose 178 winners—some companies were asked to exploit coal blocks jointly—from the 1,400-plus applicants, which was lambasted by the government auditor while scrutinising these allotments.

and third, the coal ministry is not using discretion only while alloting coal blocks, but also while deallocating them.

As it was seen to do while allotting coal blocks for captive use, the coal ministry seems to have exercised discretion while taking back blocks from allottees in June 2011 for not beginning production in time. This list of 24, out of the total allotments of 218, is dominated by small and state-owned companies. Large companies are conspicuous by their absence, despite several projects of this set being at a similar stage of completion, sometimes even behind, as that of the set whose blocks were taken away.

The question is “Why?”