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Indians are already paying through the nose for energy as prices of petrol and diesel hit historic highs, propelled by unprecedented taxes.
Now, prohibitive rates for electricity loom.
The spot rate for electricity in the power trading exchange touched Rs 20 per unit a little over a month ago, up from Rs 5 not long ago. States with shortages will have to buy electricity from the market at prohibitive costs. This reflects a shortage of coal, with prices climbing about 300% since January. It accelerated in recent months as the global economy got into recovery mode after the second wave of COVID-19. In Europe, too, gas prices have gone up 400%, causing panic in the market for gas-based power. China is urgently ramping up coal production.
Energy price inflation has become the biggest risk to growth recovery in India and abroad. India has responded late. Union power minister R.K. Singh warned about the coal shortage only last week, when stocks were already down to less than four days in many power plants. Consumers will soon have to pay a higher price for expensive electricity bought by power discoms. Could this shortage of coal have been mitigated?
The power minister has warned that plants generating up to 100 gigawatts of thermal power have less than three days of coal stocks left. The next few weeks, or even months, could see severe disruptions of power supply all over the country. Some chief ministers have written to the prime minister about the impending crisis.
Normally, plants carry at least 20 days of coal stocks. Imports, which account for about 30% of coal consumption, have shrunk as international prices soared to $270 per tonne from less than $75 per tonne earlier this year. Some big private importers are reportedly invoking force majeure and not servicing commitments. Coal-based power accounts for about 66% of electricity supplied in India.
Why didn’t India ramp up domestic production to insulate itself from international price fluctuations? To exploit India’s massive reserves, the Modi government had implemented major reforms in 2016 to boost domestic production by Coal India Ltd and handed captive mines to private players with big thermal projects.
Where are the extra 130-150 million tonnes of coal from blocks auctioned to the private sector, for producing power? The-then coal minister Piyush Goyal had described these reforms as a major cleanup of the coal sector after the “mess caused by UPA”. In reality, the NDA has created a new mess. Here’s how.
The Centre today says inadequate coal stocking by power plants could lead to big power cuts. But the Centre remains the dominant supplier of coal as it owns the monopoly Coal India Ltd, which supplies over 50% of coal consumed. And NTPC, the largest thermal power generator, is also a PSU! So the logical question to ask is, never mind global shortages and prices, why did Coal India not increase production in the last four years? It’s shown negative growth since 2017, even as the Modi government waxed eloquent about “Aatmanirbharta” in coal. CIL’s production declined by 7-10 million tonnes since 2017-18. This is paralysis of policy implementation.
Former coal secretary Anil Swarup, who administered coal sector reforms in the Modi regime, wrote in Bloomberg Quint last year that CIL had Rs 50,000 crore in surplus reserves in 2016. Instead of investing it to increase production, much of it went as dividend to the Centre to meet the growing fiscal deficit! The Modi government needs to explain how this underinvestment happened, contrary to policy objectives.
The private sector also failed us in the last five years. Following the much-touted coal sector reforms in 2015-16 under Union minister Piyush Goyal, about 80 ready to mine coal blocks were auctioned to power producers. Most of them sat on these assets and did not create new capacity of over 120 -140 million tonnes.
The private sector was complacent because global prices of coal were consistently low, incentivising imports over investment in domestic capacity. Typically, private miners invest when global prices are high. As the private sector delayed coal production, the Centre also took its eye off the ball and did not give follow-up clearances for exploiting new coal blocks. Thus the Modi government has created a new mess in the coal sector, and by extension, in the supply of thermal power.
Unfortunately, this crisis will not be confined to those sectors. Higher electricity costs will increase already extant energy inflation caused by high petrol and diesel prices. This could translate to higher economy-wide inflation and affect people’s real incomes. Not good news for an economy which is struggling to recover.