The fate of coal industry in India is simply cursed with misfortunes. Even after 4 years of Apex court’s economically destructive order declaring 204 coal block allocations done since 1993 as illegal, the sector has still not revived to break the shackles of adversity it once got it hit with. Inevitably for the case of India, it seems that ‘coal’, in disguise, has perpetually fit itself in the phrase ‘stumbling block’.
In the XII 5-year plan, the estimated captive coal production in a good scenario was envisaged to be going up from 100 MT in 2016-17 to 315 MT in 2021-22. However, this has significantly fallen down to 33 MT in 2017-18 owing solely to de-allocation of coal blocks. The ill-effects of this low captive coal production due to de-allocation are felt across multiple instances in the economy. Following throws light on few of them.
Deallocation, the root cause of NPAs
According to a report by Nomura Holding, the stressed assets amount in the country amount to Rs. 16.3 lakh crores. The single most reason behind this is the de-allocation of 204 coal blocks. This amount is approximately two-third of India’s Union budget. India ranks 5th in bad loans after countries like Portugal, Italy, Ireland and Greece. Power and infrastructure sectors are the major shareholders of overall Non-Performing Assets (NPA) and stressed assets in the economy. According to RBI, the conversion of standard advances into NPAs is the highest in Power sector. The Ministry of Power has identified a total of 34 stressed thermal power companies with capacity of 40 GW which are likely to go to National Company Law Tribunal for insolvency resolution. Such stressed power assets have placed major pressure on the balance sheets of lenders including Scheduled Commercial Banks. A report by Jefferies Research states that power sector exclusively faces a loss of Rs 2.1 lakh crores accruing to NPAs. This results from an average 59 percent haircut to the creditors out of total debt of Rs. 1.76 lakh crores plus the equity loss of Rs. 1.14 lakh crores from 34 stressed thermal power plants. Hence, the real loss to the economy amounting to Rs. 2.2 lakh crores from NPAs in power sector over just 4 years is much higher than hypothetical potential gain of Rs. 1.86 lakh crores across 30 years calculated by the CAG in 2012.
Steel was the first sector to come under stress in NCLT the reason for which is also attributed to coal shortage due to de-allocation. Creditors of steel sector companies like Bhushan Steel Ltd and Electrosteel have already undergone a loss of Rs. 286 Lakh Crores in the process of restructuring. In the resolution process of Monnet Ispat Ltd., banks lost an amount of approximately Rs 7803 crores after an imposition of additional levy worth Rs. 253 crores on Monnet in 2014 coal deallocation judgment i.e. 30 times higher loss to banks than the amount government earned from the imposition of levy. A perfect example of being penny wise and pound foolish.
The 37th and 40th Parliamentary Standing Committee Report on Energy released in 2018 have stated that power sector has challenges extraneous to the capital sector i.e. shortage and non-availability of coal. While refusing to extend the insolvency deadline for power projects, the Allahabad High Court in IPPAI v UOI has also stated “It is not in dispute that the reasons for stress in most of the Thermal Power Projects have been attributed to non-availability of fuel and cancellation of coal blocks”. In an answer to a Parliamentary Question, the Minister of State for Power, Mr. R.K. Singh, also stated that non-availability of coal to power producers is causing the NPA crisis.
Deallocation, the root cause of rising coal imports
India has about 300 BT of coal reserves – among the highest in the world. Despite running in a coal-abundant country, industries of core sectors of the economy such as power, steel, cement and fertilizer, have reported coal stocks of less than a day. Therefore, to fill the gap between demand and supply, they are resorting to coal imports. India imported 212 MT of coal spending close to $20 billions of forex or Rs.1.40 Lakh Crores in FY 18.
Unlike dependency on imported crude oil, the reason for rising imported coal is that one judgement which stalled the operations of 204 coal blocks declaring them illegal, thereby, reducing the country to a state of coal-shortage. Without coal imports, Current Account Deficit (CAD) would have been $29 billion, which otherwise has gone up to $49 billion, thereby worsening the deficit by 70 percent. Coal import spike is even weakening the rupee against the dollar as it touches an all-time high exchange rate of Rs.72. The 1.86 Lakh Crores of potential gain estimated by the CAG in its 2012 report looks miniscule against 42 Lakh Crores of loss to GDP due to coal imports alone for 30 years. The effective loss in infrastructure due to losses in production of power, steel, cement etc. is 10 times higher, i.e. ranging up to 400 Lakh Crores.
Hope Mr Vinod Rai and his team will realise the damage they have done to their motherland.
The claims made by the government in 2014, “CIL can fill the void and take things forward” and “production from blocks shall not get affected due to de-allocation”, fell flat. Four years later, detrimental effects on the economy such as country-wide coal shortage, loss to GDP accruing to coal imports, declining opportunities of employment generation and crores of stressed assets are being felt due to deallocation of coal blocks. If coal mines were quarried to their utmost potential, the country could have easily dodged these deadlocks. Hence, the government must adopt measures that augment production of coal by CIL, auction more captive coal blocks and expedite commercial mining. This will help the country revive its assets by invoking more economic activities which substitute the imports thereby stimulating the overall GDP.
Disclaimer: The opinions expressed in this article are the personal opinions of the author.