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Indian Coal Sector Reforms More Change is Necessary?

Presentation at 9th Coal Trans India 2010

9 March 2010

By

T.L SANKARAdministrative Staff College of India

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Energy has been an important issue in all discussions on economic and social development.For several decades, energy discussions in India revolved mainly around:a. The role of indigenous coal as the primary source of supply of

commercial energy and its sustainabilityb. The limited resources of hydro-carbon resources and the accessibility and affordability of hydrocarbon imports.

After the Stockholm discussions the environmental impacts of energy consumption were added to the agenda.

TO DAY: After Copenhagen discussion, climate change consequences have become the core of energy discussions.Will the new context call for a review of India’s coal policy and long-term coal development plans?

The New Context

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The role assigned to coal in India’s Energy Future in the IEP.Measures designed to enable India’s coal sector fulfill the assigned role.Action Taken Report on the Coal Sector reform measures so far.An evaluation of the Action Taken so farWhat further action needs to be taken and what new measures have to be added to the Reform Agenda

The Agenda for Discussion today:

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To sustain the recently achieved high rates of GDP growth India has to ensure energy security.

Energy security in India’ s is defined: o there should be adequate quantity of energy to meet all the legitimate

demands of “all people”. o “All people” should include the poor and the remote area residents.o The supply of energy should of appropriate quality and in the desired

fuel form.o The supply should be at prices affordable by all.o The production, transport and utilization of energy should be achieved

at all times with minimum adverse impact on environment and with minimum addition to GHG emission.

Energy Security Plans should be harmonious with the National Security plans.

India’s Concern for Energy Security

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India set up a High Power Committee to evolve an Integrated Energy Policy (IEP) for the country with a 25 year time horizon.

IEP (2006) on the basis of rational consideration of the relative availability, accessibility and affordability of all sources of commercial energy, concluded that Coal is and will continue to be the primary source of supply of commercial energy in India.

In the changed context today, does this view need re-examination?

The issues for examination are:a. Does the forecast of demand for different fuels need change?b. Even if it needs no change, are reform measures proposed so far

adequate and efficiently implemented?c. If on re-examination coal is to be continued as the dominant source

of supply of commercial energy, what further policy measures and programme initiatives would need to avoid/mitigate the adverse impact of large coal use on environment and the climate change consequences?

Energy Security – Reliance on Coal

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Energy Consumption Pattern (1980 – 2005)Total

PCES In Mtoe

Coal Mtoe / (%

Share)

Oil Mtoe

NG Mtoe

Primary Electricity

Mtoe

Imports Mtoe

As % of TPCES

Total Electricity Generation

BkWh \ Mtoe

1980-81 98.0 58.5(59.7)

34.0(34.7)

1.3(1.3)

4.2(4.3)

23.7(24.2)

119.2(10.2)

1990-91 191.5 114.4(59.7)

59.7(31.2)

10.9(5.7)

6.5(3.4)

32.1(16.8)

289.4(24.9)

2000-01 314.1 175.2(55.8)

107.4(34.2)

23.9(7.6)

7.6(2.4)

93.6(29.8)

560.8(48.2)

2003-04 351.9 200.5(57.0)

117.1(33.3)

26.5(7.5)

7.8(2.2)

109.0(31.0)

633.3(54.5)

2005-06 387.6 229.2(59.1)

121.8(31.4)

26.8(6.9)

9.8(2.6)

129.9 730.0(62.8)

Growth Rate % per year 1980-2005

5.7 5.6 5.2 - - - 7.5

Figures in bracket in the table represents percentage share of the fuel in TPCES Total Primary Commercial Energy Supply of the year.

The share of coal has remained around 60% and oil between 30-35%, natural gas share has increased. In the total electricity generation the contribution from primary electricity has declined steadily on account of the rapid increase in Thermal Power Generation.

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Total Energy Requirement in Different forms in Original Units

YEAR Hydro BKwhr

NuclearBKwhr

CoalMT

OilMT

Natural Gas BCM

2011-12 140 65 690 166 532016-17 209 118 914 214 712021-22 267 172 1270 278 1082026-27 337 272 1722 365 150

2031-32 407 375 2285 486 219

Growth Rates 2011-2031 (%) per year

5.9 11.2 6.3 5.6 7.2

Source: IEP Report Forecast Estimates based on 9% growth of GDP during 2011-31 period

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Misgivings Regarding Coal Forecast

1. The basis of energy demand forecast is 9% growth of GDP for next 25 years. Is this realizable in the context of global recession?

2. The forecast implies a total coal requirement of 2285 Million Tonnes. Is this achievable with our present knowledge of our minable coal resources?

3. The forecast production will call for underground mining of deep mines, below 600 meters. Do we have the technology for UG mining ,particularly deep UG mining ?

4. Such high coal production targets would lead to very large legal and institutional challenges. Can we over come these?

5. Will this rapid increase, raise the level of contribution by India to climate change impacts. What measures are to be taken to mitigate these impacts? How can we avoid global protest against increased use of coal?

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IEP Forecast Needs No Change as of nowIndia’s GDP growth continues is 7-8% even in the recession period

The forecast rate of growth of coal production is 6.3% per year as compared to 5.6% achieved over the past 25 years(1980-2005) when only two PUs were engaged in coal production; now number of producers has increased.

India’ s desired of coal production in 2031-32 is less than China’s production today and likely to be close to USA’s production in the next few years.

The ranking of important countries who produce large quantities of coal;.

Country/ Year 1995 2004USA 1033 1112China 1537 2156India 321 444

In Million Tonnes

The relative price of coal and other fossil fuels has remained in favour of coal with the steep increases and continuing volatility of hydro carbon prices.

The demand of coal in 2031-32 as forecast needs no change.

The questions which remain are Is our knowledge of coal resources are adequate?How do we ensure the acceleration of coal production and productivity?

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Coal Resources of India

As on Geological Resources of CoalProved Indicated Inferred Total

1.1.2004 91631 116174 37888 2456931.1.2005 92960 117090 37797 2478471.1.2006 95866 119769 37666 2533011.1.2007 97920 118992 38260 2551721.4.2007 99060 120177 38144 2573811.4.2008 101829 124216 38490 2645351.4.2009 105820 123470 37920 267210

Geological Resources in-situ are finite . But the total minable quantity of a resource like coal known to each country will depend on the extent of exploration, the state of technology and price of coal relative to other alternate fuel resources. The known coal resources in India has been increasing in last decade due to accelerated exploration activity.

In 2005 the total known resources were 248 Billion Tonnes of with the proved resources were 93 Billion Tonnes. As of 01-04-2009 it has increased 267 Billion Tonnes and the proved resources are 106 Billion Tonnes.

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Extractable Reserves of CoalThe Quantity of Coal that can be extracted is always lower than the proved reserves. An authoritative estimate of the extractable reserves made as part of the National Coal Inventory in 2005 upto 1200 mtrs depth is.

In Billion TonnesArea Geological Reserves as on 1.1.2005* Extractable

Reserves*Proved Indicated Inferred Total

CIL Blocks 67.71 19.42 4.56 91.69 30.03**

Rest 25.25 97.66 33.24 156.15 22.21@

Total 92.96 117.08 37.80 247.84 52.24

* Includes reserves standing on pillars.

** Based on 2004 CMPDI study of 287 blocks

@ Based on CMPDI study of 114 blocks

Can extractable reserves sustain the production targets upto 2031?

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How Long Will Coal LastPlan Period

Upto Demand in end

year-mtTotal Demand in

five years-mtCumulative

consumption mt

2011-12 690 2693 2693

2016-17 914 4010 6703

2021-22 1270 5460 12613

2026-27 1722 7480 20093

2031-32 2285 10017 30110

As seen from slide 12 the extractable / usable reserves is about 52 bt of which the extractable coal from “Proved Blocks” estimated to be 30 bt.

The reserve requirement upto 2031-2032 is only 30.11 bt. At 2031-32 level of production the extractable coal can sustain production for a few more years. Meanwhile the extractable coal limits might increase due to technology and further exploration.

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Institutional & Managerial Reform in the Coal Sector An Expert Committee headed by T.L. Sankar was set up to design the Road Map for

Coal Sector development has suggested (in 2007) several measures: 1. Captive coal mining provisions should liberalized to create competitive conditions.

2. Special incentives should be given to encourage Under Ground (UG) coal mining.

3. Modern Technologies like long-wall face mining, continuous mining etc, should be

adopted towards productivity and quality improvement.

4. Methods to reduce pollution should be adopted at every stage of the supply chain.

5. Coal sector should evolve ways of introducing ultra mega coal mines on the lines of

ultra mega power projects, especially develop under ground mines.

6. Management should be restructure to give greater autonomy through Navaratna status.

7. Procedures for approval of Environmental Impact Analyses (EIA) and Environment

Management Plan (EMP) and for giving clearance for forest lands conversion to mining

should be simplified and should be made time bound .

8. Seller – Buyer Relationship should be rationalized.

9. A regulator should be appointed for the coal sector.

10. R&D in Coal Technologies should be deepened and widened.

11. Coal Policy should be harmonized with National Security Concerns. Many of the Institutional & Managerial Challenges are being faced effectively

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Liberalising Captive Coal Mining to Create Competitive Conditions

1. On the Expert Committee’s recommendation, all coal blocks which are not planned to be exploited till 12th plan end were released from CIL and allotted to private captive coal mining applicants.

2. Now beside 2 large PU coal mining companies there are over 30 captive coal mines operatives.

3. The definition of captive coal mines extended to group captive coal mines.

4. Coal mine allottees could do mining through a joint venture partner with at least 26% of the equity.

Result:1 Large companies including giant power companies like NTPC and

other Private Sector Companies are into captive coal mining.2 The coal users are enthusiastic to take up captive coal mining. The

new applications are likely to be decided by public auction.

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Challenges that Remain for the Coal SectorChallenge 1: Speeding up the efforts to increase competitiveness in coal

exploration and mining by opening it to private sector.Challenge 2: Increasing productivity in OC and UG mines and improving

the share of coal production in UG mines. Even JV with foreign coal companies permitted.

Challenge 3: Creating facilities for washing and transportation of larger quantities of coal.

Challenge 4: Enhancing the capability of the officialdom dealing with approval of mine plans and environmental management in coal mines to speed up the issue of permission & approvals.

Challenge 5: Introducing regulation and more effective governance in coal sector.

Challenge 6: Designing and Implementing an effective programme for reducing the climate change consequences of coal production and usage.

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Response to Challenges in Coal ProductionThe competition between CIL & Private Captive Coal Mines has led to the acceleration of the mine development work by most agencies.

1. Coal India (CIL) has Identified 134 new mines and Implementation started in many of them.

2. CIL has abundant restarted 18 abandoned mines with the appropriate New Technology.3. Seven (7) large under ground mines identified for development by CIL with International

Technology.4. Acquisition of coal properties abroad through Coal Videsh and also by Private Industries.5. CIL as well as private players are introducing larger size dumpers, more modern, heavy

earth moving machines (HEMM).6. Measures have been initiated for importing more coal from Abroad during the next 5 years

till our production could match the requirements.7. A regulator for the coal sector will be appointed in early 2010-11.

But the challenge still remains: How to Expedite the Coal Mine Plans Approval & Issue of Environmental Clearances.

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India’s Position on Climate Change Questions1. All Countries are responsible for the GHG Emissions over time. The action

plan and its financing future action to mitigate GHG Emissions should be based on the “Common but Differentiated Responsibilities of the Countries” accepted in the Stockholm resolution 1992, and under UN Framework Convention on Climate Change (UNFCC).

2. The level of responsibility would depend on the current level of emission, the efficiency of use of energy resources (Energy Intensity of the Economy), current emission levels and the total addition to the accumulated global CO2 and the consequent contribution to temperature increase.

3. Analysis of the relevant data clearly shows that India has responsibility far lower as compared to the developing countries and China. In terms of energy efficiency India has a much lower Energy Intensity than other countries.

4. This position and the data which determine the relative responsibilities have not changed since 1992 and later reiterated in Kyoto discussions.

5. Unfortunately the Copenhagen discussions of 2009 have diluted the principles of “common but differentiated responsibilities”.

The relevant data is in the next few slides

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Name of the Country

Total Emission in Million Tonnes / Year

Per Capita Emission in Tonnes / Year

1990 2002 2005 2006 1990 2002 2005 2006

USA 2241 3276 5323 5606 19.0 19.6 19.5 19.0

China 5001 5763 5967 5697 2.1 2.9 4.3 4.6

India 575 1015 1163 1250 0.8 1.2 1.3 1.2

Emission Levels in India, China & USA

Country % of World (Rank)United States 29.3 (1)

China 7.6 (2)

India 2.2 (3)

Cumulative CO2 Emission 1850-2002

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GDP-PPP per capita

(thousand 2000 $)

Energy use per capita (toe)

Energy intensity (toe per million 2000 $)

CO2

emissions (percentage

of global total)

CO2 per

capita (tC)CO2

Emissions Contribution to temp increase,

1850-2003 (percentage

of global total_

World 7743 1.68 217 100.0 1.13 100.0

USA 35373 7.84 222 22.3 5.42 28.9

Japan 26270 4.05 154 4.90 2.69 4.20

China 5385 1.09 203 17.3 0.95 7.80

India 2731 0.52 190 4.40 0.29 2.20

The GDP – Energy – Emission Nexus in Different Countries

Source: Collected WRI CAIT Tool Courtesy : Ananth Chikkatur, KSG Harvard University Cambridge, USA

1. The CO2 per capita emission in India is only 0.29 tonnes as compared to USA 5.42 & China 0.95.

2. In terms of the percentage of contribution of India to the total global CO2 emission is only 4.4% compare to 22.3% by USA and 17.3% of China.

3. India has contributed only 2.2% to the global temperature increase in over 50 years, while USA is over 28.9% and China 7.8%.

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India’s efforts to meet climate change challengesThough India has consistently rejected the demand for fixing limits to emission with date - lines as in the case of developed economies, it has taken several important measures to mitigate the climate change impact.

India has setup has announced National Action Plan on Climate Change. As per the plan 8 National Mission has been set up1. National Solar Mission2. National Mission for Enhanced Energy Efficiency3. National Mission on Sustainable Habitat4. National Water Mission5. National Mission Coastal Regions 6. National Mission for Himalayan Ecosystems7. National Mission for a “Green India”8. National Mission on Strategic Knowledge for Climate Change

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National Solar MissionAmong the 8 Missions the two which are directly related to the issue of fuel resource utilisation on National Solar Mission and the National Mission for Enhanced Energy Efficiency. o National Solar Mission has outlined a policy to

- Installed 20,000 MW of Solar PV Power Generation Capacity by 2022.- Deploying at least 1000 MW of solar thermal power generation.- Increase production of photo voltaic cells to 1000 MW / year.

o National Solar Mission needs reconsideration on certain aspects; - Proposal is to add additional solar PV power generation of 20000 MW

would have benefits equivalent to adding about 6500 Mw of thermal power capacity when the total power generation capacity would be over 2.5 lakhs of power utility capacity. - Achieving this would involve a subsidy of 40,000 crores - While encouraging PV panel manufacturing capacity panel should first be used for decentralized power generation to electrify the still known electrified villages and the 60 million households which do not have grid connection electricity due to the poverty of such families. - Whatever deployment of strategy is adopted it will be a great contribution to the development of global green power generation

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National Mission for Enhanced Energy Efficiency

The mission builds on the efforts already initiated under the Energy Conservation Act 2001 and through programmes which have been initiated and actively pursued by the Bureau of Energy Efficiency (BEE)This mission set a target of saving 10000 MW of power through energy efficiency improvements through;

- Mandating specific energy consumption decreases in large energy- consuming industries, with a system for companies to trade energy- savings certificates.- Energy incentives, including reduced taxes on energy-efficient

appliances.- Financing for public-private partnerships to reduce energy consumption through demand-side management programs in the municipal, buildings and agricultural sectors.

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Harmonising Coal Policy with National Security Concerns

1. India’s Nation Security rests on maintaining good relationship with all

countries, especially the neighboring countries in South Asia and South East

Asia.

2. Only element in our coal programme impacting other countries is GHG

emission. India would therefore play a leading and responsible role on behalf

of the developing countries in all discussions on climate change.

3. All neighbors like Sri Lanka, Bangladesh and Pakistan are now interested in

coal based power generation. Providing material and technical assistance

would strengthen our relationship with such countries.

4. India can set-up Technical Institutes to train technicians and engineers in coal

related subjects from all the countries of the region.

5. The coal trade and technical assistance could pave the way of South Asian

Power Grid, South Asia Gas Grid etc and enable the development of regional

energy market.

6. All these measures are under consideration and implementation at some level

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Summing UpOn the basis of available information and current knowledge of Indian and global fuel situation. We have to conclude that coal will continue as the primary supplier of commercial energy to India for the next 25 years.A number of measures to realise this possibility and to enable the Coal Industry to retain this primary role, has already been initiated under different programmes of the Government of India and the State Governments. While increasing the role of coal India’s enormous increasing in energy demand calls for the greater utilisation of renewable energy and greater attention to the climate change implications.India is quite capable of balancing the divergent claims of using more coal and taking measures to mitigate climate change impacts. Policies and Programmes have been well delineated already. If these are implemented efficiently, energy security as well as national security could be enhanced with coal continuing to play a crucial role in the energy sector.

Thank You