Thursday, December 27, 2012

India's coal crisis is a political problem

MR points to this graphic which captures the widening demand-supply mismatch in coal availability for power generators.

This blog has been a strong advocate of electricity deficit being arguably India's biggest growth constraint. The widening mismatch, for whatever reasons, should be addressed with the highest priority. But that is easier said than done.

While the state-owned coal mining monopoly, Coal India Limited (CIL), should its share of the blame for the current crisis, the major problems lie beyond mining per se. The three most critical problems facing the sector are lack of rail transportation facilities, and difficulties in land acquisition and environmental clearance for expansions and new projects. We therefore have a situation where even the mined coal is stuck up at pithead for lack of adequate transportation facilities and capacity addition projects are delayed inordinately.

The conventional wisdom on addressing India's coal crisis is to open up coal mining for private exploitation. But this argument fails to appreciate the aforementioned underlying reasons. Though the private sector would be effective at mining coal, the problems of transportation, land acquisition and environmental approvals would remain.  Its resolution lies in the political and social realm.

Land acquisition and environmental clearances are essential for both laying rail transport lines and establishing new projects. In the prevailing social and political climate, where populist rhetoric and media trials shape the mainstream discourse, both these issues present extremely difficult, increasingly insurmountable, challenges.

The private sector will be even less capable of addressing these non-mining challenges. In fact, private involvement is likely to vitiate the environment and make its resolution even more difficult. It is no wonder that the coal blocks allocated for captive power generation remained mostly unexploited. Governments cannot afford to be seen to be supporting private participants in "dispossessing" poor people and "damaging the environment". Nor would the private sector agree to policies like provision of employment to land losers, long used by the CIL to buy-out local opposition to its projects.

All this means that India's coal crisis can be resolved only through a mature political process. A reasonably generous relief and rehabilitation (R&R) policy, which enjoys bipartisan political support, has to form the centerpiece of any such process. In its absence, no government - whether the Congress or BJP or a third front - will be able to effectively address the problem.

The million-dollar problem then is to achieve a political consensus on such policies. Coal mining is just one of the areas where bipartisan political support is sine-qua-non for any progress. Unfortunately, this looks likely to remain an elusive goal in the current political environment.

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