Context

With inflation at unprecedented levels in many countries, concerns over energy security have gained centre stage.

National Coal Index to factor in the increased price of imported coal

• This index was created to provide a benchmark for revenue-sharing contracts being executed after the auctions for commercial mining of coal.
• The NCI had to be introduced as the wholesale price index (WPI) for coal has no component of imported coal.
• For the last six months, the WPI for Coal has been stable at around 131.
• Over the same period, the NCI has jumped from about 165 to about 238 reflecting the sharp increase in international coal prices.

Needs to increase domestic coal production

• High prices of coal and coal-based generation will only encourage imported coal and expose the country to price risks from international energy prices.
• The domestic coal industry has responded to increasing internation prices with an increase of over 30 per cent in coal production from April to June this year.
• Anticipating these problems, a big effort toward permitting commercial mining has been made to get the private sector to produce more coal.
• Gradual transition: Looking at coal from a singular focus on GHG emissions will give a myopic view of energy requirements for a growing economy like India.
• The path to achieving 500 GW of renewables needs to be gradual, ensuring an orderly transition as coal is unavoidable in the near future.
• Reducing coal imports and increasing domestic production of coal needs focused attention

Suggestions to increase domestic production of coal

1] Sensitising the financial community

• The financial community has to be sensitised to the need of increasing domestic coal production to meet the growing energy demand.
• The draft National Electricity Policy released in May 2021, recognised the need to increase coal-based generation.
•  This policy has not yet been finalised.
• It should clearly articulate the importance of domestic coal-based generation.
• Holistic approach in ESG criteria: Apart from the government, the industry should also take up this issue with the financial community in adopting a more holistic approach toward environmental, social, and governance (ESG) criteria.

2] The regulator needs to facilitate  greater role of private sector

• There is the need for a regulator to address the issues arising from a greater role of the private sector.
• The current arrangements were put in place at a time when the public sector dominated.
• There are several issues where new private commercial miners would need help.
• Single point of contact: A single point of contact for the industry in the form of a dedicated regulator would give great comfort to private players and would help to overcome problems that could arise in due course.

3] Diversifying the production base

• Increasing domestic production of coal and diversifying the production base are both needed.
• This must be complemented with efforts to improve the quality of the coal produced.

4] Remove financial burden due to cross subsidies

• The undue financial burden on the coal sector due to various cross subsidies needs attention.
• The regime needs to be reformed.

Conclusion

Action on the issues discussed above will only help to deepen and strengthen these reforms which are needed to overcome the challenges that have resurfaced over the past few months.

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