Structural problems fuelling the coal crisis

Structural problems fuelling the coal crisis

Subject – Economy

Context – The Centre and States have recently been locking horns over the shortage of coal and power supply

Concept –

• The sudden surge in demand for power as the economy recovered from the pandemic, heavy rains in coal bearing areas, coupled with global supply crunch may have been the short-term reasons for the crisis, but there are structural problems with coal supply in the country that need to be addressed.
• Despite the availability of adequate reserves, coal extraction has been declining in the larger coal producing States.
• The gap between demand and domestic supply of coal is widening.
• Also, coal production in two of the three major coal producing States has dipped in the last three years.
• For 2021-22, the actual demand for coal is pegged at 1,142 million tonnes and up to June 2021, about 195.17 million tonnes of domestic supply was available.
• Two major contributors to the total energy supply in the country are coal and crude oil.
  • Coal accounts for 64.19 per cent of the total supply while crude oil accounts for 27.99 per cent.
  • The electricity sector is the biggest consumer of raw coal and lignite, accounting for as much as 64.86 per cent of the total consumption of coal and 85.96 per cent of the total consumption of lignite in India in 2019-20 (provisional).

Reserves and production

• Of the total coal reserves in India, proven reserves — that is reserves available for extraction which are economically viable, feasible and at geological exploration level — account for almost 47 per cent.
• About 44 per cent coal reserves are indicated while 9 per cent are inferred according to the Energy Statistics India 2021 report published by the Government of India’s Ministry of Statistics and Programme Implementation.
• The total estimated reserves of coal in 2020 were 344.02 billion tonnes. This is an addition of 17.53 billion tonnes over 2019 in the corresponding period. This translates to 161.68 billion tonnes of proven reserves available for extraction.
  • So, less than 0.45 per cent of available reserves are being extracted annually, showing that paucity of reserves is not behind the lower supply of coal.
• The top three States with the highest coal reserves — Jharkhand, Odisha, and Chhattisgarh — account for approximately 70 per cent of the total coal reserves in the country. Despite the availability of coal, actual production has gone down in the last three years
• The overall trend of coal production in the last ten years (2010-11 to 2019-20) shows an increase, with a CAGR of 3.58 per cent.
• India is one of the largest producers and consumers of coal in the world. There has been an upward trend in the consumption of coal in the country during the period 2010-11 to 2018-19.
  • CAGR is 5.28 per cent from 2010-11 to 2019-20.
• Not surprisingly, there has been an increasing trend in the import of coal in recent years. Over the last ten years, the net import of coal steadily increased from 68.92 million tonnes in 2010-11 to 212.1 million tonnes in 2014-15

What needs to be done?

• The Coal Ministry needs to walk the talk in increasing domestic production of coal through the allocation of more coal blocks, pursuing with States for assistance in land acquisition, and coordinated efforts with Railways for movement of coal.
• The government also needs to move faster towards commercial mining to bring more coal into the market which will reduce the demand-supply gap and encourage market-determined prices.
• Auction of coal mines for the sale of coal is expected to encourage transparent pricing of coal, based on the market forces.
• The onus finally falls upon the public sector behemoth, Coal India, to address the structural supply issue. It needs to get serious about increasing its output towards the annual target of one billion tonne from its mines.
  • The target may not be achieved by 2023-24, as envisaged since the production target of CIL for the financial year 2021-22 is just 670 million tonnes.