[Updated] Coal Sector in India – Reserves, Significance, Issues, Reforms

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Coal is variously referred to as the ‘black gold’, ‘black diamond’ etc. in reference to its value in driving the economy. In January, the cabinet approved the ordnance for liberalising the sector further- only the latest addition to a series of measures by the government to stimulate the sector. This is noteworthy given India’s stand in the fight against climate change. It shows the significance the carbon based material has on the Indian economy despite its proven deleterious effects on the environment. Recently, the opening up of 41 coal blocks to commercial mining along with the reforms to the sector are expected to boost coal production in India.

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What is coal?

  • Coal is a carbon based material noted for its use as a fossil fuel. It contains other elements in lower percentages: sulphur, nitrogen, oxygen and hydrogen.
  • It is formed from dead and decaying plant matter over a period of millions of years by a process called coalification.
  • The coalification first involves the conversion of plant matter into peat. Then, the heat and pressure converts it into coal over many years with the expulsion of carbon dioxide, water and methane.
  • There are different types of coal:
  1. Peat– It is the coal’s precursor and is the partially decayed plant material.
  2. Lignite– it is the lowest grade of coal and is also known as the ‘brown coal’. Since it has a high moisture content, it gives off the most smoke and hence, is harmful to health. Its carbon content can range from 40% to 55%. It is used for electricity generation.
  3. Bituminous coal– also known as the ‘black coal’ and is a higher grade of coal than lignite. It contains bitumen or asphalt, which is a tar like substance. It has a higher calorific value and its carbon content range from 60% to 80%. It is used in manufacturing coke and in power generation.
  4. Anthracite– It is the highest grade of coal with very high carbon content (80% to 95%). Consequently, it has the highest calorific value.
  5. Other types include graphite, cannel coal, etc.
  • The coal is also classified as,
  1. Steam coal– also called thermal coal. It is used for electricity generation through steam.
  2. Metallurgical coal– also called coking coal. It is used in steel manufacturing.

What is the history of coal sector in India?

  • Coal sector in India started in 1774 with the commercial exploitation of the Raniganj Coalfield in West Bengal by the East India Company.
  • However, it was only in 1853 when the sector really surged forward with the introduction of steam engine, driving the demand for coal.
  • From an annual production of 1 million MT in 1800s, the production increased over 6 folds by 1900 and 18 folds in 1920.
  • The two World Wars also contributed to increase in coal production.
  • In the post-Independence period, the 5 year plans contributed to the increase in production to 33 million MT.
  • The National Coal Development Corporation was set up in 1956 to improve the sector further.
  • The growing demand from the steel sector and the inefficiencies of the private coal mining sector, like poor working conditions for the workers and the unscientific mining techniques, led the government to nationalise the sector.
  • The nationalisation of the private coal mines was by 2 phases:
  1. The nationalisation of the coking coal mines in 1971-1972.
  2. The nationalisation of the non-coking coal mines in 1973.
  • Coal Mines (Nationalization) Act, 1973 was enacted to nationalise all the coal mines in India. It was repealed in 2018.
  • The demand-supply mismatch started in 1991 (the liberalisation period) and started widening. This led the government to allow captive mininge. mining for own use only. This coal cannot be sold to other players.
  • The 2003 power sector reforms contributed to the widening gap between demand and supply of coal.
  • The 2015 legislation (Coal Mines (Special provisions) Act, 2015) allowed re-entry of private players into the sector. It enabled auctioning of coal mines.
  • The 2018 Cabinet Committee on Economic Affairs allowed the auctioning of mines to the private players on basis of offer of highest price/ tonne.

What is the nature of India’s coal reserves?

  • The coal reserves in India are some of the largest in the world (5th biggest reserve).
  • Most of the coal deposits in India is of the bituminous type. These are mostly non-coking coal. This is the reason for our import dependence in the sector.
  • Most of the coal deposits in India is of the Gondwana type (about 99%). This coal formed 600 to 300 million years ago in the Carboniferous period.
  • Geologically, there are 3 major Gondwana coal formations in India:
  1. Raniganj Formation
  2. Karharbari Formation (oldest coal formation in the country)
  3. Barkar Formation
  • About 1% of the coal is the Tertiary type. While Gondwana coal is bituminous in nature, the Tertiary coal is of the lower grade lignite type. It is also younger than the Gondwana coal.
  • In terms of distribution, the coal deposits are concentrated in the eastern and south-central parts of India.
  • More than 98% of the deposits are in Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Telangana and Maharashtra. Jharkhand and Odisha hold the largest reserves in the country.
  • The largest lignite deposit is in Tamil Nadu. It is also found in Gujarat, J&K and Puducherry.

How is coal mined?

  • Opencast mining: Also called surface mining, is used when the coal is found deposited close to the surface. The coal is mined from an open pit instead of a tunnel. The pit is expanded until the deposits are exhausted.
  • Strip mining: The earth above the coal seam is called overburden. The overburden is removed in form of strips and deposited elsewhere before mining the coal underneath. It’s a type of surface mining.
  • Contour mining: This is used in hilly region with rolling/ steep terrain. The overburden is removed from along the contours of the hill before mining the coal.
  • Mountaintop mining: the coal is mined after the mountaintop is removed to reveal the seam. Valley fills are used for storing the removed overburden in case of limited disposal alternative.
  • Room and Pillar coal mining: in this method, the coal is mined from a horizontal plane and an array of rooms and pillars.
  • Longwall mining: it is a type of underground mining. The coal is mined in the form of a long wall/ a slice.
  • Rat hole mining: This is a banned practice of underground mining where small holes are created for the miners to extract the coal. This is illegally practiced in the north-east region especially as a community or familial practice.

Why is the coal sector so significant?

  • India is the world’s 2nd largest coal producer after China.
  • The energy sector is highly dependent on coal sector. The energy that India generates from coal is twice the energy generated from oil.
  • The coal sector (including the coal powered electricity generation) accounts for 10% of Index of Industrial Production (IIP).
  • Major industries that drive the Indian economy, like iron and steel, aluminium, cement industry etc., are dependent on the coal sector.
  • India is one of the largest energy consumers. By 2040, the demand is expected to more than double. Even then, coal is expected to constitute a major part of energy generation means.
  • About 72% of the electricity needs is satisfied by the coal sector despite the push for renewable energy
  • India is greatly dependent on imports for high quality coal- especially for the steel industry.
  • On the other hand, coal is a non-renewable resource and its continued use is not sustainable.
  • It is also not a clean fuel and contributes to the climate change
  • Coal mining is also linked to many health hazards among the workers. The practice of rat hole mining is an example of how economic necessities force workers to overlook dangers to safety, environment and health. The rat hole mining accident in Meghalaya is a case in point.

What are the issues faced by the sector?

  • Coal mafia has sprouted a parallel economy in the coal mining dependent areas. This has contributed to deleterious outcomes like coal black market, diversion of good quality coal, expropriation of government lands, etc.
  • High import dependence for the higher grades of coal. It puts stress on the forex reserve and the fiscal numbers. The restrictive policies have created artificial shortages which gave the manufacturing sector 2 choices- either shift the input or to import coal.
  • High dependence of key industries like steel and power on the coal sector. Disruption in supplies cause significant impact on these industries’ productivity and result in a domino effect. Eg: 2018 power crisis in Tamil Nadu due to coal supply shortage.
  • The coal sector has low productivity. The use of unscientific mining methods is a major contributor.
  • The delay in clearance for mining coal impedes the realisation of the reserves’ actual potential.
  • The sector requires high operational and maintenance cost.
  • Lack of price discovery mechanisms for the reserves.
  • The allocation of coal blocks faces arbitrariness and lack of transparency and low consideration of merit.
  • Poor level of technological upgradation and adoption.
  • Low international investment and high dependence on debt financing from state banks.
  • Mining as a sector is hazardous. Coal mines pose a number of dangers to the miners and the residents of the vicinity- wall failure, roof collapse, gas poisoning, explosions, outbursts, lung diseases like the black lung disease, silicosis etc.
  • Severely affects the atmosphere through coal particulate pollution.
  • Solid wastes from the coal mines affect the environment. Bottom ash, fly ash, etc. affect the air and the water. Heavy metal containing sludge is also a source of pollution.

What are the initiatives of the government in this sector?

  • The cabinet had approved the Mineral Laws (Amendment) Ordnance 2020 in January. This is expected to democratise the sector by liberalising the norms and regulations. This will be by amending the 2015 Coal Mines (Special Provisions) Act and the MMDRA of 1957.
  • UTTAM application: Unlocking Transparency by Third Party Assessment of Mined Coal. It was launched by the ministry of coal in 2018. It is an application for improving transparency and efficiency in coal quality monitoring.
  • SHAKTI scheme: Scheme to Harness and Allocate Koyla Transparency in India. It is a coal linkage policy, linking coal producers and the power producers through discoms. Some of its advantages include reduction of import dependence, reduction of power costs for consumers, ensured coordinated power supply, etc.
  • Coal Mitra Portal: launched by the coal ministry to encourage use of domestic coal for power generation. It allows transparent swapping of coal between private and public sector to reduce costs.
  • 2018 decision to open up commercial coal mining to the private sector by the Cabinet Committee on Economic Affairs is one of the most ambitious since the 1973 nationalisation measures. This will reduce the monopolistic nature of the sector (Coal India has been the only commercial coal miner for over 40 years).
  • The CCEA has also approved the methodology by which the auctioning of the blocks are to be carried out. This will standardise the process and address the discretionary nature of the process.
  • Online Coal Clearance System: Developed by the coal ministry to enable easier submission and clearance of applications to the ministry.
  • CAMS: Coal Allocation Monitoring System. It is to monitor the allocation process and improve transparency.
  • Signing of MoUs with international players like Commonwealth Scientific and Industrial Research Organisation (CSIRO) of Australia to encourage cooperation in R&D in field of data driven mining decision, addressing dust emission from opencast mining, mine gas capture and utilisation, development of economic yet efficient technology for coal cleaning and preparation, mapping coal seams, etc.
  • Government has allowed 100% foreign direct investment in coal sector.
  • Efforts to treat mine water through the Jal Shakti Abhiyan to provide safe water supply to the settlements in the mine’s vicinity.

What is the way forward?

  • There is an urgent need to address the environmental impact created by the sector. There is a need to look for ways to minimise pollution while also ensuring compliance with the existing norms. Eg: fly ash generated from the mines can be used in cement manufacturing.
  • Labour welfare aspects are to be addressed too. The Meghalaya rat hole mining accident illustrates that bans are not abided by in remote and economically weaker areas.
  • Entrance of private players in the sector will improve the coal quality and supply. At the same time, the reasons why the 1973 nationalisation measures were implemented must not be forgotten. Functional regulations must be in place.
  • Improving the productivity of the sector is lucrative only in the short term. There is an inescapable need to understand the fact that it is a major contributor to climate change and our economy must shift to renewables.
  • Coal gasification is one of the technology that can be potentially used. It is the conversion of coal into syngas which can be used for power generation.
  • R&D is necessary for improving the sector’s efficiency. Simultaneously, training and awareness programs are needed for information dissemination.
  • If the Carmichael Coal Mine project of Adani in Australia takes off, the coal would fuel not only India’s thermal plants but the power would also be exported to neighbouring countries. The fact that even big players like Adani group continue to invest in coal despite the dropping prices for renewable sources like solar and wind power, shows that coal continues to remain the most reliable and affordable.
  • In recent times, there has been reduction in banks funding thermal power plant projects. However, of those thermal power plant projects being funded, most are by state owned banks. There is a need for the state owned banks to set an example by funding more renewables.

What are the recent coal sector reforms?*

  • In June, the centre launched the auction of 41 coal blocks in Jharkhand, Madhya Pradesh, Odisha, Chhattisgarh and Maharashtra for commercial mining- a part of the Atmanirbhar Bharat campaign.
  • The centre has changed certain rules to boost the coal mining sector. It has opened up the sector for commercial mining, based on a revenue sharing mechanism.
  • This has replaced the fixed price regime and the restrictions of the captive mininge. removed the end-use restrictions.
  • Prior mining experience as a bidding criterion has been relaxed.
  • Under the new reforms, auctioning will be by a 2 tier electronic process:
  1. In the initial offer, the companies have to bid to qualify for the technical terms and then for the financial terms.
  2. This is followed by the forward auction. In this stage, the companies bid against each other. The parameter is the royalty that the company offers to share with the government.
  • Pre-bid meetings are to be conducted and the details of the proceedings are to be made available on the coal ministry’s website and the MSTC Ltd website for the stakeholders to see.

What are the pros of the reforms?

  • The move is expected to increase the bandwidth of participation as well as the scope of usage and the opportunity for market access.
  • The move is seen as a revival of the coal auction process- which has been in a limbo for a while- only 31 blocks have been auctioned since 2014.
  • This is a step to make India a major exporter of the dry fuel.
  • India is the 2nd largest producer and has one of the largest reserves in the world. Yet it is the 2nd largest importer of coal.
  • Experts argue that focusing on self-sufficiency in this sector is justified as just last year India imported 243 million tonnes of coal. This is 1/3rd of the domestic output last year (729 million tonnes). This would only increase in the near future.
  • Commercial mining is expected to save nearly a sixth of coal import billse. 30,000 crore INR in imports.
  • Most of this domestically produced coal came from Coal India Ltd (more than 600 million tonnes). The current reforms are expected to break the monopoly of the public sector unit.
  • It will also stimulate competition in the sector and hence improve efficiency.
  • The reform to virtually end captive mining restriction is being welcomed by experts as the coal sector has been struggling to meet the demands of input industries.
  • The reforms are expected to bring in 20,000 crore INR revenue per annum for the mining states in the form of royalty, direct taxes, dividend distribution, cess, district mineral funds, etc. This would greatly help states especially now as they are in dire need of funds.

What are the cons of the reforms?

  • A stimulus to the coal sector may undermine the push for the shift to renewable energy.
  • The environmental impacts of coal gasification is still unclear.
  • Opening up coal mining to the commercial sector means that there would be more forest loss.
  • Increasing coal mining activity would aggravate air pollution, especially if unwashed coal is to be used.
  • Even as other countries are phasing out the use of coal, India moves towards increased coal use. Germany decided to phase out coal use by 2038. Spain ceased operating half of its coal-based thermal power plants by the end of June this year. Earlier, it had shut down all its coal mines. Japan is to shut down a 100 low efficiency coal based power plants by 2030. Even the USA has plans to shut down several of its coal plants.

What is the way ahead?

  • Experts have noted that the real loss in the coal sector is because of policy stasis. Due to the delayed coming of these coal reforms, a large part of the manufacturing industry has moved away from coal towards alternative fuels. These fuels are costlier than coal and hence made manufacturing costlier.
  • The current reforms are expected to give a much needed boost to coal production in India.
  • However, to get the maximum out of the new reforms, there is a need to simultaneously boost the evacuation infrastructure. Railways are a key player in coal evacuation. A 50,000 crore INR investment in the railways for improving its coal evacuation capacities is being mulled.
  • At the same time, it must be realized that the interests of Coal India Ltd are not the interests of the coal ministry. The ministry must avoid giving CIL any preferential treatment to encourage healthy competition.
  • Restricting imports will aid the achievement of self-sufficiency in coal production.
  • There is a need for a regulatory authority– especially with regards to coal pricing. Coal Authority can be considered for the role of a regulator- however, it struggles from shortage of personnel.
  • There has been a call for the establishment of a coal exchange platform.
  • Time is of essence and hence how quickly the efficiency parameters are scaled up, clearances and approvals are given will dictate how much benefit will come out of these changes.
  • Automation in mining can be considered at a larger scale. Eg: automating truck movement at mines, introduction of electric vehicles in coal mining, use of silos and conveyors for last mile loading onto rail wagons to reduce pressure on the roadways, etc. could be considered.
  • In general, an investment in fuel material tends to have a cascading effect on the rest of the economy- i.e. a multiplier effect.

Conclusion:

Coal sector is still a major determinant of the country’s economic health despite the adverse impact it has on its environmental health. This calls for efforts to simultaneously wean the economy away from it towards renewables while also making the coal productivity more efficient.

Practice question for mains:

The cabinet recently approved the ordnance for amending mineral laws to liberalise the coal sector. Comment on the move in reference to the sector’s bearing on the economy and the environment. (250 words).

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