The coal sector remains beset by problems. It is highly regulated under government control, is monopolistic in nature, faces mining and exploration bottlenecks, particularly in underground mining, has attracted low levels of private investments over the years and faces logistical bottlenecks as well as technological obsolescence.
India ranks third amongst the coal-producing countries of the world in terms of annual coal production. However, in respect of coal resources, it is endowed with less than one per cent of the world`s coal resources. Of the 293.5 Bt of Indian coal resources up to a depth of 1200 m, about 118.1 Bt fall under the proved or confirmed category. This constitutes about five per cent of the world’s proved coal resources.
The cement industry uses coal for cement production as well as for captive power generation. Fuel costs thus, contribute significantly to cement production costs. Currently, the cement sector is not getting fair treatment w.r.t. allocation of coal linkages/coal blocks, and so, a large number of players meet their fuel requirements through procurement of market coal (e-auction and pet coke, etc), as well as international coal and alternate fuels. Market coal prices are much higher than the domestic administered prices and continued dependence on international coal/ market coal is causing a significant increase in cement prices. As cement is a key input in infrastructural development, high fuel costs (due to poor availability of administered price coal by way of linkage) increases its cost and thereby adds to high inflation.
NA Viswanathan, Secretary General, Cement Manufacturers Association, (CMA) says, "In terms of the Report of the Working Group on Cement Industry for the 12th Five- Year- Plan constituted by the Planning Commission, the total coal requirement for cement and CPP under high scenario (growth projection from 9 to 10.75 per cent) is 46.2 MT for cement and 17.8 MT for CPP, totalling 64 MT for the FY 2012-13. In the terminal year of the 12th Five- Year- Plan i.e, 2016-17, the coal requirement indicated in the the report is 69.3 MT for cement and 26.6 MT for the CPP, totalling 95.9 MT. There is a deficit of about 65 per cent of the fuel requirement."
As per the Report of the Working Group on Cement Industry for the 12th Five- Year- Plan, post- 2007, no new linkage has been granted to any cement manufacturer. Thus a lot of manufacturers are deprived of supply of linkage-based coal. Further, Captive Power Plants (CPP) of the cement industry in a way augment the overall power generation capacity in the country; they contribute towards meeting the overall power requirement of the country and thus need to be treated on par with IPPs in terms of fuel linkage. Even in cases where linkage has been granted, actual supply against such linkages is poor. Given the current level of linkage supplies being less than 50 per cent of the industry’s requirements, it is clear that there is going to be a big deficit between coal requirement and the available administered price coal in the 12th Plan. Thus, unless the linkage coal is quickly increased, the fuel supply gap will put upward pressure on cement production costs. On the other hand, as regards equal priority in the grant of coal linkage vis -a-vis other sectors, cement is accorded low priority in allocation of coal linkage vis-a-vis the power and fertiliser sector. Since cement is equally important for the growth of the economy, priority linkage needs to be provided for a hundred per cent requirement to all cement players, at administrative prices. This will enable all players to have equitable treatment with regard to fuel costs.
Highlighting the current demand-supply scenario, Viswanathan had this to say: "The supply of coal to the cement industry through linkage was as high as 75 per cent of the total procurement in 2002-03; this has gradually come down to 35 per cent in 2012-13. The steep reduction in percentage supply has taken place due to change in coal distribution policy, due to which only 75 per cent of the normative requirement of cement industry is to be met through FSA/linkage instead of the earlier 80 per cent; delay in signing of FSA between LOA holders (cement companies) and coal companies; and no meetings of the Standing Linkage Committee (LT) since November 2007 for the sanctioning of linkage to new/enhanced cement capacities."
He adds, "During the FY 2012-13, the coal requirement of the industry was about 44 M.T, about eight per cent of the total coal production of 558 MT in the country. However, the industry was supplied with barely around 16.5 MT of coal from CIL/SCCL against the coal linkage through fuel supply agreements, which is three per cent of the coal produced in the country. The balance fuel requirement of the cement industry had to be met through the imports, e-auction and purchase from the open market, as also usage of alternative fuels like pet coke and lignite at a higher price varying between 35 per cent and 55 per cent."
The coal sector is not yet truly open for commercial mining. Problems and constraints abound in underground mining, like the use of old technology and labour- intensive processes for mining and safety issues. This issue of ICR gives a clear perspective of the issues at hand.