Why Narendra Modi’s government itself is to blame for the looming coal and power crisis

[ad_1]

This article first appeared on The India Cable, a premium newsletter from The Wire & Galileo Ideas, and has been republished here. To subscribe to The India Cable, click here.

Indians are already paying nose for energy as gasoline and diesel prices hit historic highs, propelled by unprecedented taxes.

Now prohibitive tariffs for electricity are looming.

The spot rate for electricity on the electricity exchange reached Rs 20 per unit a little over a month ago, up from Rs 5 not so long ago. States in shortage will have to buy electricity from the market at prohibitive costs. This reflects a coal shortage, as prices have climbed around 300% since January. It has accelerated in recent months as the global economy has entered recovery mode after the second wave of COVID-19. In Europe, too, gas prices rose 400%, causing panic in the gas-based electricity market. China is urgently increasing its coal production.

Inflation in energy prices has become the main risk for the resumption of growth in India and abroad. India responded late. Union Electricity Minister RK Singh only warned of the coal shortage last week, when stocks had already fallen to less than four days at many power plants. Consumers will soon have to pay a higher price for expensive electricity purchased by power discos. Could this coal shortage have been alleviated?

Also Read: As Some States Warn of Electricity Crisis, Coal Ministry Says Supplies Have Been Sorted Out

The Energy Minister has warned that plants generating up to 100 gigawatts of thermal energy have less than three days of coal stocks. The next few weeks, if not months, could see serious power disruptions across the country. Some chief ministers have written to the prime minister about the looming crisis.

Normally, factories carry at least 20 days of coal stocks. Imports, which account for about 30% of coal consumption, declined as international prices climbed to $ 270 per tonne, from less than $ 75 per tonne earlier this year. Some large private importers claim force majeure and fail to meet their commitments. Coal-based electricity accounts for around 66% of the electricity supplied in India.

Representative image of a thermal power station. Photo: Reuters

Why has India not increased its domestic production to protect itself from fluctuations in international prices? To exploit India’s massive reserves, the Modi government implemented major reforms in 2016 to revive the national production of Coal India Ltd and entrusted captive mines to private players with major thermal projects.

Where are the 130-150 million tonnes of extra coal from the blocks auctioned off to the private sector to generate electricity? The then coal minister, Piyush Goyal, described the reforms as a major cleanup of the coal sector after the mess caused by the UPA. In fact, the NDA has created a new mess. Here’s how.

Also read: New report focuses on grim cost of India’s interest in coal power

The Center now says that insufficient coal storage by power plants could lead to major blackouts. But the Center remains the main supplier of coal since it holds the monopoly Coal India Ltd, which supplies more than 50% of the coal consumed. And NTPC, the world’s largest thermal energy generator, is also a power supply! The logical question to ask, then, is, not to mention global shortages and prices, why has Coal India not increased production over the past four years? Its growth has been negative since 2017, even as the Modi government has been eloquent about Aatmanirbharta in coal. CIL’s production has decreased from 7 to 10 million tonnes since 2017-2018. It is the paralysis of policy implementation.

Former Coal Secretary Anil Swarup, who administered coal sector reforms under the Modi regime, wrote in Bloomberg Quint last year that CIL had Rs 50,000 crore in excess reserves in 2016. Instead of the investing to increase production, much of it went in dividend to the Center to fill the growing budget deficit! The Modi government needs to explain how this underinvestment happened, contrary to political goals.

The private sector has also failed us over the past five years. As a result of the much-touted coal sector reforms in 2015-16 under the leadership of Union Minister Piyush Goyal, around 80 blocks of ready-to-mine coal were auctioned off to power producers. Most of them have sat on these assets and have not created new capacities of more than 120 to 140 million tonnes.

The private sector was complacent because world coal prices were consistently low, prompting imports rather than investment in domestic capacity. Typically, private miners invest when world prices are high. As the private sector delayed the production of coal, the Center also dropped the ball and did not give follow-up permits for the exploitation of new coal blocks. Thus, the Modi government has created a new mess in the coal sector, and by extension, in the supply of thermal energy.

Unfortunately, this crisis will not be limited to these sectors. Higher electricity costs will increase the already existing energy inflation caused by high gasoline and diesel prices. This could translate into higher economy-wide inflation and affect people’s real incomes. Not good news for an economy struggling to recover.

[ad_2]