Stanford University

World’s Largest Coal Producer

Radhika Kapoor Lalit

Case Study

Disclaimer:Thetextinthiscasestudymustbeusedforthesolepurposeofdiscussion.

Revamping Coal India Limited “World’s Largest Coal Producer”

I. Introduction

Piyush Goyal was affirmed as the Minister of State with Independent Charge for

Power, Coal and New & Renewable Energy in the incumbent Bharatiya Janata

Party (BJP) government led by Prime Minister Narendra Modi in 2014. While a

Chartered Accountant and Lawyer by education and investment banker by

profession, Goyal has been in politics for well over 28 years and has held several

important positions within the BJPi, one of the two most prominent parties in the

country. Goyal represents a new generation of Indian politicians within the BJP

who were selected by Prime Minister Modi to support his vision of rapid

economic development in the country. The young spirited minister of state was

handed over a “very complex, reform-resistant and scandal prone sector”ii. “An

alleged Rs 1.8 lakh crore coal scam, stranded thermal power plants, acute coal

scarcity and mounting losses of state utilities were some of the problems he

inherited”iii. Goyal is confidently leading three of the most important ministries

in the country – power, coal and renewable energy. He is tasked with fulfilling

Prime Minister Modi’s ambitious commitment to provide ‘24/7 electricity for all

Indians’ by the end of this decadeiv. Goyal is cognizant of this onerous task,

given that at least 400 million of India’s 1.3 billion people live without electricityv

and that the economic, demographic and urbanization trends will drive India’s

rising energy demand.

India is trying to diversify its energy basket to meet its ever growing energy

requirements. However, the relatively low cost of coal and its natural abundance

make coal a preferred energy source for strategic industries in the countryvi. In

2012, electricity from coal-fired thermal power plants accounted for 60% of

India’s total installed capacity and 71% of its electricity generationvii. India is now

expanding its “existing coal-fired electricity generation capacity, with around

113 gigawatts of new capacity already under construction or approved in

addition to the 205 gigawatts of existing capacity” viii . These considerable

investments in the coal sector are an indication of the fact that coal is likely to

remain a pivotal part of India’s electricity generation. However, over the past few

years, there has been an acute shortage of coal at most thermal power plants in

the country, which has led to power shortages in the country as well as increase

in imports from Indonesia. This shortage of power is also a huge deterrent to

Foreign Direct Investment (FDI) in key manufacturing sectors, which the Modi

government has been striving hard to incentivize under the scheme “Make in

India”.

To tackle this issue from the forefront, the incumbent BJP government

announced plans to increase domestic coal production to 1.5 billion metric tons

by 2020ix. Coal India Limited (CIL), the state-owned enterprise responsible for

supplying 80% of domestic production, was also asked to double its output to 1

billion tons by 2020x. It is expected that the other 500 million tons of production

would come from private sector, thus taking India’s total coal output to 1.5

billion tons by 2020 compared with 612 Mt in FY2015xi. "That target I will meet

even if (private companies) don't come in," Goyal shared in a written reply to

Lok Sabha (lower house of India’s Bicameral-Parliament) on March 3, 2016,

adding, "In the days to come I'll be auctioning out more mines. I've already got

my plans in place"xii.

Goyal is known as a tough taskmaster and reformer who sits with his team while

they burn the midnight oilxiii. Anil Swarup is one of Goyal’s most important team

members, driving momentum within the Ministry of Coal. Swarup, an IAS (Indian

Administrative Service) officer from the UP (Uttar Pradesh) cadre of 1981 batch

was additional secretary in the Cabinet Secretariat, before he became the Coal

Secretary in 2014. Between 2006 and 2013, Swarup was with the union labour

ministry, first as joint secretary and then as additional secretaryxiv. In the labour

ministry, he led the implementation of “the national health insurance scheme –

the Rashtriya Swasthya Bima Yojana (RSBY), a cashless and smartcard-based

health insurance scheme which benefited about 90 million people and was

chosen by UNDP as one of the best social security schemes for its publication”xv.

Known for his paperless style of working and active social media presence,

Swarup has helped in implementing the online monitoring system for key

projects across several ministries and has been considered a change agent in all

the departments he has worked inxvi.

Both Goal and Swarup understand the urgent need to work together with CIL to

reinvigorate its performance to support the ministry’s ambitious goals and

reduce India’s coal import dependency, as the coal sector in India opens up for

commercial mining.

CIL’s current Chairman-cum-Managing Director (CMD), Sutirtha Bhattacharya, an

IAS officer of 1985 (Telangana cadre) was appointed to the position only in

January 2015xvii. Bhattacharya succeeds S. Narsing Rao, an IAS officer of 1986

batch from Andhra Pradesh for this rolexviii. Bhattacharya has experience in coal

sector and a proven track-record of leading the Singareni Collieries Co Ltd

(SCCL) as Chairman. During his tenure, the mines under SCCL extracted 55

million tons of coal every year in Telanganaxix. The position of CIL’s CMD was

one of the most sought after position for several bureaucratic officials in the

country. However, “marred with controversies and held to ransom by unions for

reasons ranging from commercial mining to disinvestment, the post was touted

as a crown of thorns”xx.

Right after Bhattacharya’s arrival, on January 31, 2015, “the government

divested 10% of its stake in CIL through the offer-for-sale (OFS) route at Rs 358

per share and brought its holding down to 79.65%”xxi. The government raised Rs

22,557 crore from this sale. Given this as a precursor, Bhattacharya, Swarup and

Goyal decide to hold a meeting to solve for the host of problems that Coal India

is facing today and is likely to face in the near future.

As the dynamic trio sit together in early February 2015 to discuss the future

strategies1, the Power minister conveys his strong resolve to help revive this

ailing sector at the outset. He stresses that he wants to reinvent the jaundiced

image of the power sector, address fuel shortages, massive debt of state owned

utilities and help the thermal power plants in the country to produce electricity. 1Thisstoryiscreatedforthepurposeofvisualization.Itisnotafact.

Goyal emphasizes the need for CIL to achieve the production target of 1 billion

tons by 2019/2020. As Swarup listens to Goyal, he is reminded of Prime Minister

Narendra Modi’s first message to him when he became the Coal Secretary -

“Recover the coal sector for me, the entire economy will rebound.”xxii Swarup

understands that the these targets are challenging given the weak performance

of coal mining companies in the past few years, the difficulty in land acquisition

for mining, environmental and forest clearance issues, and transportation

bottlenecks.

Bhattacharya, the newly appointed CMD of CIL, nods in approval of Goyal and

starts by sharing his three main concerns - “The key issues that the coal miner is

basically relying on, are timely completion of three critical railway lines, land

acquisition and green clearances.”xxiii

Swarup, known for his unconventional and dynamic approach to problem

solving, rises to the occasion and suggests Bhattacharya to concentrate just on

the mining and leave the rest to him. Swarup offers to coordinate with state

governments and negotiate with them if there are any issues. And almost every

week, proposes to meet the chief secretaries of some mining state or the other.

Bhattacharya, on the other hand, assures both Swarup and Goyal, that CIL will

draw a mine-wise plan to meet the production target by 2019-20. He

emphasized that Chhattisgarh-based South Eastern Coalfields and Odisha-

based Mahanadi Coalfields will most likely account for half the targeted output.

Goyal, Swarup, and Bhattacharya now need to work together to provide CIL a

much needed turnaround, and reduce India’s coal imports. They also need to

ensure that India’s enormous power needs are met both sustainably and

responsibly. However, the powerful trio is posed with several challenges in the

immediate future to transform this frail sector due to the multitude of

stakeholders involved. To analyze the complexity involved, it is important to

understand the history and context of India, its power sector as well as CIL.

II. India’s Growing Appetite for Coal

India’s economy grew at 7.3 % in 2014-15xxiv. Between January to March that

fiscal year, India even outperformed China’s GDP growth rate of 7 %, becoming

one of the fastest growing economies in the worldxxv. With a population of

around 1.3 billion, India is the fourth largest energy user in the worldxxvi. “The

IEA estimates that around 300 million people in India have inadequate access to

electricity in India. This represents around a quarter of the population, with

nearly 93 % of these 300 million people located in rural areas” (IEA 2014b)xxvii.

Coal plays a pivotal role in tackling some of India’s grave energy challenges.

India has large domestic reserves of coal which account for 45% of its total

energy mix, 60% of installed electricity capacity and 71% of electricity

generation in 2012xxviii. Coal will continue to be a key constituent of India’s

energy mix even in the future as there are plans in place to add over 100GW of

new coal fired power generation by 2017xxix. India needs to ensure its energy

security and fuel its economic growth but at the same time reduce its emissions

to help tackle the global problem of climate change. Despite mounting global

pressures about environmental concerns, India’s coal consumption will continue

growing, while its share of coal in the power mix is expected to decline to 55%

by 2040. xxx

While India is the 3rd largest coal producing country in the world after China

and USAxxxi, India imports 80% of its oil, 18% of its gas, and 23% of its coal to

meet its growing energy appetitexxxii . In 2005, India was around 90% self-

sufficient in coal supply. However, India’s imports have substantially increased

after 2009. Between 2000 and 2013, India’s coal imports increased from 20

million tons to 180 million tons, which accounts for more than 25% of the total

coal consumption in the countryxxxiii. As India’s coal production grappled to keep

pace with demand, thermal coal imports increased from 10 million tons in 2000

to 81 million tons in 2010 and 142 million tons in 2013, accounting for around

80% of total importsxxxiv. As a result, in 2013, India surpassed Japan as the

second largest importer of thermal coalxxxv. India’s total coal imports (including

both thermal and metallurgical coal) in 2014 are estimated to have been around

200 million tons.

Details of import of coal and products i.e. coke in the last five years (in million

tons) is given below:

Coal 2011-12 2012-13 2013-14 2014-15(Prov.)

Coking Coal 31.80 35.56 36.87 43.71

Non-Coking Coal 71.05 110.23 129.99 168.39

Total Coal Import 102.85 145.79 166.86 212.10

India’s coal is typically low in calorific value and high in ash content. Most of

India’s coal imports have been sourced from Indonesia because its specifications

match closely with India’s domestic coal, it is relatively inexpensive; and because

several Indian companies own Indonesian minesxxxvi. However, an increased

dependence on import of coal, will bring with it greater price volatility,

exchange rate risks, problems of current account deficit and balance of

payments for the countryxxxvii.

III. India’s Power Sector

The power sector in India accounts for more than 70% of India’s coal use. This

has led to a five-fold increase in coal use in electricity generation over the past

few decadesxxxviii. The remaining coal is utilized primarily by India’s prominent

industries such as steel, cement, among others. Steel production in India has

increased by around 25% over the past 5 years to around 83 million tons in

2014, driving the demand for coal production. “The cement industry, the

second largest globally after China, is also a major coal user, accounting for

around 5% of total coal use. Other industrial sectors, including brick

manufacture, also consume small quantities of coal”xxxix.

However, the power sector in India has been making significant losses over the

past several years due to “regulated electricity pricing, power theft, transmission

and distribution losses, poor billing practices, consumers failing to pay and the

misclassification of customers as subsidized users” (IEA 2014b)xl. A steep rise in

the cost of inputs has also increased the overall cost of generation. On the other

hand, the costs of fuel inputs have increased because of declining CIL’s

production and poor procurement planning by distribution companies which

leads to last minute, higher cost power purchases from the spot market as

opposed to buying power in long-term contracts (Pargal & Banerjee 2014)xli. In

2011, the losses of the sector as a whole were to the tune of US$10 billion,

which is almost 17% of India’s gross fiscal deficit and 0.7% of its GDP. Low

profitability in the sector has discouraged power companies to invest in new

capacity, improved efficiency and other vital infrastructurexlii.

IV. Indian States with production

In India, ownership of mineral rights rests with the State. However, the Central

government has control over major minerals like iron ore, bauxite, copper, coal,

while most State governments have control only over minor minerals like sand,

stone, granite, etc.xliii. Most of coal reserves in India are located in the eastern

region, with Jharkhand, Odisha, Chhattisgarh and West Bengal accounting for

around 78% of total proved reserves and for around 65% of India’s coal

production. A further 23% of India’s coal production is sourced from Madhya

Pradesh and Andhra Pradesh. See Figure 1 for India’s coal reserve potential.

Figure1:India'sprovedcoalreservesbyregion,2014(Source:CoalinIndia2015Report)

Unfortunately, a majority of India’s coal resources are geographically

interspersed and require substantial evacuation infrastructure to transport the

coal resources from mine sites to generatorsxliv.

V. Coal Sector at a Glance

The Ministry of Coal is “responsible for development and exploitation of coal

and lignite reserves in India”xlv. It looks into the entire supply chain, starting from

exploration, production, distribution as well as pricing. The CIL, the central

government owned enterprise, has a monopoly over coal production in the

country. However, there are a few other organizations owned by state

governments as well as private players in the sector, as can be seen from the

Figure 2.

Figure2:Coalsectorataglance(Source:CoalinIndia2015Report)

VI. Coal India – History and structure

Coal India Ltd (CIL), headquartered in West Bengal, is a 'Maharatna' Public

Sector Undertaking (PSU) under the Ministry of Coal. The company is the largest

coal producing company in the world as well as holds the largest coal reserve in

the world. The company primarily produces coking as well as non-coking coal

coal of various grades for diverse applications. The company's coal production

operations are primarily carried out through seven of their wholly-owned

subsidiaries in India.

Coal India Ltd was incorporated in 1973 as a private limited companyxlvi. “Today,

the Government of India holds almost 90% stake in CIL, with the remaining 10%

held by Indian and overseas financial institutions, pension funds and other

investors”xlvii.

Open cast mines in India are usually dug at depths of less than 150 meter due to

cost and technological constraints. These mines account for almost 90% CIL’s

production, However, a sizable proportion of India’s coal reserves are located at

depths of more than 300 meters (IEA 2012)xlviii. Today it has roughly 338,000

employees8 and currently holds 81% of Indian market share. CIL has eight

subsidiaries which mine coal in different parts of India. CIL has about 124 coal

projects and 27 non-mining projects at different stages of implementations.

However, out of these 124 planned coal mines, 82 have now got delayed while

out of the non-mining projects, 13 are running behind schedulexlix.

CIL has been missing its production targets for the last several years. It’s

production in 2014–15 was 3% below its target of 507 million tons. CIL cited

heavy rain, labour disputes and environmental laws as being the key reasons for

missing the target (Dogra 2015) l . CIL’s inability to meet the domestic

requirements is a significant concern, especially because CIL’s low quality coal is

around 30–40 % cheaper than equivalent imports (Sengupta 2015b)li.

“Although there were some calls to break up CIL, it quickly became clear this

was unpalatable for Goyal. Perhaps this was based on the conclusion that

keeping CIL intact may be necessary for it to compete with international mining

companies at a time when India is looking to open up commercial mining to

Indian and foreign players”lii. Having said that, tackling the bottlenecks to make

CIL productive is no easy task for Goyal. If nothing works well, the government

always has the option to divest its share in the organization for some revenue.

VII. The Problem

As Goyal, sits in his office, he decides to do a quick back of the envelope

calculation to estimate the investment required for CIL to achieve the 1 billion

tons’ target by 2019-20. He estimates that an investment of anything between

$20-25 billion would be required over the next five years. He evaluates that

most of this investment would probably have to go in technologies, equipment,

in upgrading facilities and opening new minesliii. He is aware that CIL sits on a

reserve of about Rs. 70,000 crore (~$10 billion) liv , however, getting the

additional $15-$20 billion investment in the next 4-5 years would certainly be an

arduous task and would require CIL to achieve and possibly exceed its

production targets. Goyal shares his concerns in a memo with Swarup and

Bhattacharya as he moves out for his next meeting.

Later that day, Swarup calls other members of his team to brainstorm on the

various problems CIL and the coal sector in general are facing, in order to come

up with possible solutions.

1. Coal Production, Quality and Price Figure3:India'sdomesticcoalconsumption,productionandproductiontargets(FY2005-20)inmillionmetrictons(Source:EIA)

Between 2004 and 2012, CIL’s production increased by just 65 million tons to

436 million tons, growing at a rate of 2.3% per year on an averagelv.

However, between 2005 and 2012, the situation became slightly better -

“India's coal production grew at 4.7% per year to about 600 million metric tons

while the country's coal-fired electric power capacity grew by a much faster rate

(about 9.4% per year), reaching 150 gigawatts” lvi. Clearly, this was the biggest

problem at hand because the shortfall in coal supply was affecting power

generation in the country.

Limited mining experience and expertise below 150 meters for deep coal

deposits in the open cast mines is perhaps a major reason why CIL is unable to

fulfil its yearly targets. Experts believe that introduction of “continuous longwall

mining” at some operations, could help CIL extract 70% more coallvii. Therefore,

CIL would have to exploit deeper seams in existing open cast mines and

significantly increase investment in underground mining capacity. However, this

would place upward pressure on extraction costs, market prices and the price of

power in India”, said Swarup to himself, as he makes these notes.

Meeting consumers' expectations on price and quality are other equally

important concerns of CILlviii. India is by far the only “heavily industrialized

country” in the world where coal is transported with all the debris as welllix.

As Swarup lists the concern, he asks - Given the financial constraints, should CIL

just look at meeting the target production quantities or must it balance the

production targets with quality considerations and also increase investments?

2. Labor Unions

CIL’s production inefficiencies are also linked to lower employee productivity.

According to a study, CIL only produces 1100 tons of coal per employee per

year while Peabody produces 36,700 tons/employee and Shenhua Energy

12,700 tons/employeelx.

Perhaps one of the most important challenge is being able to work effectively

with CIL’s strong labor union something which the previous government was

unsuccessful with. Goyal wants to introduce the ‘Coal Mines (Special Provisions)

bill 2015’ in the parliament in a couple of months to allow private companies to

mine and sell coal in the open market, ending four decades of state monopolylxi.

As of now, private companies can mine coal only for captive consumption. The

union is bound to be up in arms if their interests are not protected.

In January, CIL workers went on a 5 day strike to protest opening up of the coal

sector beyond CIL. In response, Goyal quickly flew again to Kolkata and after

hours of discussions the union members returned to work.15 It seems that

despite proposed reforms to the coal sector, Goyal and his team, are dealing

better with the union than the previous UPA government.

If all CIL workers were to leave their jobs for one day, around 30,000 MW of

electricity generation capacity could be immediately affectedlxii. The labor union

recognizes this collective bargaining strength, especially when it comes to

stalling government’s plans for modernization and outsourcing. “High-tech

mining will mean fewer job opportunities for laborers and no job guarantee for

existing employees,” said Baij Nath Rai, president of Bharatiya Mazdoor Sangh

(BMS), which says it represents 100,000 Coal India employees and contractors.

“We strongly protest this, and have already taken up the issue with the

government. They will not dare do anything if there is a strong protest.” The

BMS’s view might carry some weight, as it is loosely affiliated with the Hindu

nationalist group Rashtriya Swayamsevak Sangh (RSS), which is the ideological

parent of Modi’s Bharatiya Janata Party (BJP)lxiii.

3. Coal Evacuation Infrastructure

Transportation of coal to thermal power plants is another challenging concern,

since it requires a separate network of railroad evacuation infrastructure to be

built in the country. Goyal, Swarup and Bhattacharya need to work together with

the Ministry of Railways as well as Ministry of Road, Transport and Highways “to

transport more than 300 MT of coal annually by 2017”lxiv. Swarup and his

colleagues in the Coal Ministry estimate that three railway lines

connecting “Tori-Shivpur-Kathautia (in North Karanpura, Jharkhand),

Jharsuguda-Barpalli-Sardega (in Ib Valley, Odisha), and Bhupdeopur-Raigarh-

Mand (in Chhattisgarh) could help transport an additional 150–200 MT annually

by 2021”lxv. Although some ground work has started on these railway lines

nearly a decade ago, but due to substantial “delays with land acquisition,

environmental clearances, and complex relations between the regional and the

central governments have hampered progress”lxvi. Despite the clearances, the

states of Jharkhand, Odisha, and Chhattisgarh have yet to start the process of

handing over land.17 One of the potential solution to this problem is forming

Special Purpose Vehicles (SPVs) in which CIL holds the majority stake, followed

by the Indian Railways and the respective state governments, since the

estimated investment required to get these 3 lines off the ground is to the tune

of about Rs 8,000 crore ($1.23 billion)lxvii. However, there are other risks in this

proposal as well.

4. Land Acquisition and Rehabilitation

Acquiring land for mining rights and rehabilitating those who were displaced

from their land is an important aspect of open cast mining in Indialxviii. However,

the process of acquiring land is both complex, and long drawn. As of July 2014,

CIL’s 20 new coal mine projects got delayed due to difficulties in acquiring land

and environmental clearanceslxix.

The Coal Bearing Areas (Acquisition and Development) Act, 1957 provides for

government’s acquisition of land containing or likely to contain coal deposits.

However, this law is complemented with ‘The Right to Fair Compensation and

Transparency in Land Acquisition, Rehabilitation and Resettlement (LARR) Act,

2012’. LARR requires a detailed report “assessing the social impact of the land

to be purchased on those living in the area in consultation with the village

council in rural areas and local resident associations in urban areas. The report is

then evaluated by a panel of experts consisting of 2 independent social

scientists, 2 experts on rehabilitation and a technical expert on the subject

relating to the project for which the land is being acquired. The government

then publishes a declaration to acquire the land and goes ahead to take hold of

it”lxx”. This law stipulates “mandatory consent of at least 70 % for acquiring land

for public-private-partnership (PPP) projects and 80% for acquiring land for

private companies”lxxi. “The amount of compensation is expected to be between

two and four times the market value in rural areas and up to twice the market

value in urban land purchases”lxxii. LARR tries to provide a fair compensation to

small land owners but on the other hand, deters investment, and delays the

much needed development of infrastructurelxxiii. However, it is said that many

states are expected to come up with their own land acquisition proposals. To

acquire lands faster, CIL not only has to deal with state governments and their

cumbersome procedures but also ensure that the people in the area are

rehabilitated in some way to ensure peace and stability in the area.

Interpretations of land related laws and rules can be complex with really

different problems on ground.

CIL has an option to offer of one job for every two acres. This strategy will

increase the speed of acquisition but employment and training of the personnel

will increase the cost of acquisition. lxxiv “Is this a feasible strategy given the

relatively low productivity of CIL employees? What are the alternatives?” Swarup

thought to himself.

5. Coal-Gate Scam: Re-auctioning the Coal Mines

Between 1993 and 2011, the government of India allocated 206 coal blocks for

free to government and private companies in order to expedite growth in

captive production lxxv. However, the allocation did not result in a rapid increase

in production. Infact, of the 109 coal blocks allocated before 2007, only 28

blocks had commenced production by 2010–11 (Prayas Energy Group 2013).

The Comptroller and Auditor General (CAG), took notice of the allocation

process and estimated a loss of Rs1.86 lakh crore ($2861 billion) worth of

potential revenue to the exchequer.

This coal allocation scam is popularly referred to as ‘Coalgate’. The political

scandal rocked the UPA government in 2012 since only 41 out of the 206 blocks

were allotted for free before 2003, which meant that 165 blocks were allotted

for free by the UPA government between 2004 and 2011.

In August 2014, India's Supreme Court cancelled 214 coal licenses allocated to

the private and public sector, representing 9% of FY2013's production due to

accusations of non-transparent coal block allocationslxxvi.

Goyal and Swarup have to be swift to now auction these blocks so as to begin

production on these mining blocks. In October last year, the government

released the ordinance amending the Mines and Minerals Act to allow for the

participation of private playerslxxvii. It is expected that together these mines could

produce an additional 100 MT of coal annuallylxxviii. Swarup, a proponent of

technology, proposes e-auctioning of these mines to his team. As a conservative

estimate, reallocation for all the 206 mines under the new law will require at

least a year. There has yet to be a decision on how to compensate the existing

operators that have made genuine investments. Transparent auctioning is the

most immediate challenge for Swarup and his team at the Coal Ministry, since

this is an important determinant of the speed of production in the near future.

Swarup reiterates that this is also the ministry’s last chance to steer its image

clear from the scams of the past.

6. Environment and Forest Clearances

While India’s emissions are growing, it produces annually only two tons of

CO2 per capitalxxix. The current priority for India is development, although it is

undertaking some steps to decrease its carbon intensity of electricity. India in its

INDC (Intended Nationally Determined Contributions), pledged to “achieve

40% cumulative electric power installed capacity from non-fossil fuel based

energy resources by 2030”lxxx. Ever since, India has set a target of 175 GW of

new renewable energy capacity by 2022lxxxi. Increased renewables would reduce

the need for 70 GW of coal-based capacity, providing saving of about 250–300

million tons of coal while avoiding around 500 Mt of CO2 emissions lxxxii .

However, this may not be enough for India to tread on the path of sustainable

development, given the scale of development it is undergoing.

57% of CIL’s reserves lie in coalfields with extensive forest coverlxxxiii. In order to

keep up with the production target, “more than 40 environment and forest

clearances have to be procured in the next year”lxxxiv. To reduce stringency in the

environmental impact assessment for Coal Mining would certainly boost

production but at the cost of the environment. At the same time, it is important

to understand that the environmental lobby in the country has been really active

in its role and in some instances has been instrumental in delaying land

acquisition (IEA 2014b). Environmental and social consequences of coal mine

development may result in increased opposition to the industry in local

communities (Prayas Energy Group 2013).

Government, in the recent past, has used the polluter-pays-principle of levying a

a cess on coal to divert more funding towards renewables and protecting the

environment. In the upcoming 2016-17 budget, government could propose an

increase its environment cess on coal, lignite and peat from the existing Rs 200 a

ton. The environment cess is a kind of carbon tax, levied on the price of coal

which goes to the National Clean Environment Fund (NCEF). The NCEF

allocates its revenue to projects in clean energy sector, and other areas of

environmental conservation. While this would increase CIL’s coal price, it could

provide a clear indication to the market of rising regulatory risks in the fossil fuel

industry in coming times, which might draw investments away from it. This move

might also help in building the renewable industry by narrowing the price

difference between the power obtained from thermal power plants and that

obtained from solar and other renewable sources.

Swarup and Piyush can request the federal government to expedite

environmental and forest clearances and relax requirements for environmental

assessment. However, what will be its impacts in the time to come on the India’s

degrading environment? Will the sense of urgency be an impetus for growth but

a compromise for public health and the environment in the long run? Swarup

and his team think about these questions, as they move to address another

major problem.

7. More Private Sector Participation

The Coal Mines (Special Provisions) Bill, together with the the ‘Mining Law’

(Mines and Minerals [Development and Regulation] Amendment Act 2015), is

proposing to open up the coal sector to domestic and foreign companies for

commercial mining, thus trying to end the 40 years of state monopoly on coal

sales. The bill also details the process of allocating (using auctions) coal blocks

for captive mining in a transparent and effective manner. Lack of competition in

an undersupplied market, was blocking industrial growth in India. The bill is

aimed to incentivize private producers to enter the market and, alleviate the fuel

shortages in the systemlxxxv. However, it will be faced with opposition both in the

parliament as well as within the labor unions.

8. Theft

The world's largest miner, CIL suffers from $1 billion in loses in output every year

due to theft lxxxvi .The losses tantamount to about 20% of CIL’s annual

productionlxxxvii. The problem is significant as it not only continues to disrupt

production targets but also could scare off potential new producers. Therefore,

CIL must look at enabling all its mining sites electronically to monitor all its

systems and processes from a distance. The movement of trucks should also be

monitored through a global positioning system (GPS) system to strengthen

monitoring and vigilance. Swarup and his team recognize this as a relatively low

hanging fruit which CIL can address immediately.

9. Naxalism

Areas with mineral and coal abundance within the states of Jharkhand,

Chhattisgarh, Bihar, and Orissa suffer from the proverbial ‘resource curse’. There

is considerable influence of left wing extremists called Naxals in the area, which

is popularly called the Red Corridor. The tribal communities who live in forests

near or above these coal-rich fields, do not share the government’s foresight for

growth. Lack of basic education further exasperates the situation since most

locals do not benefit from the new jobs that are created through the new

investmentlxxxviii. Therefore, it is a challenging task to convince these people and

even operate in these insurgency inflicted regions. Swarup indicates that he

does not have immediate answers to this problem but he wants it to be on the

list of issues to be resolved.

10. Modernization Concerns

Modernizing is critical to revamping coal production. 90% of India’s coal is

mined from open cast mines on lands that are often not reclaimedlxxxix. Ultimately

India has to bring its mining practices to international standards. The technology

up gradation would require “high capacity equipment, operator independence

Truck Dispatch System, Vehicle tracking system using GPS/GPRS, Coal Handling

Plants (CHPs) and SILOS for Faster Loading and monitoring using Laser

Scanners” xc . As far as productivity improvement in underground mines is

concerned the steps taken by CIL will have to include “introduction of

Continuous Miner Technology in large scale, Long-wall Technology at selected

places, Man Riding system in major mines and Use of Tele monitoring

Techniques”xci. Overall, it is clear that CIL will have to utilize ICT, remote sensing

geophysical technologies and proper monitoring and evaluation methodologies

among other technology driven processes if it wants to achieve its production

targets in the futurexcii.

11. More Divestment

The government recently notified rules of public shareholding for listed state-

owned firms. To comply with these norms, CIL will need to raise its public

shareholding to minimum 25% from 10% by 21 August 2017, as per a

notification for amendment to the Securities Contracts (Regulation) Rules.xciii.

While disinvestment would greatly help the government to raise more funds, it is

bound to be protested against by members of the labor union at CIL.

VIII. Next Steps

After having drawn out an extensive list of problems and understanding the

numerous stakeholders involved, Swarup asks his team “What would you do to

revive Coal India’s performance in the next 6 months?”

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