Coal India Ltd To Pass the Hat to Steel Companies for Raw Material?

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On the domestic coal shortage in India: no end in sight to the reliance on imported coal for power generation – electricity may soon get costlier for the end-consumer.

India’s coal shortage for power derivation has seen folks proposing some, shall we say, “unique solutions.”

The country’s electricity suppliers are going through some turbulent times, with a shortage of domestic coal, leading to an over-dependence on imported coal. Some days ago, based on an idea tabled by rather “desperate” power supply companies, the Indian government proposed that the state-run Coal India Ltd (CIL) borrow surplus coal from the captive mines of power-generation and steel companies to meet shortages in the local market.

Not amused by the idea, the coal miner rejected the proposal outright, causing some measure of embarrassment for its owner – the government.

A report in The Mint said CIL’s main question was how would it be able to return the coal to those it had “borrowed” from on a future date, as it would not have enough in its own stock to do so?

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The proposal was put up in a high-powered meeting of officials from the coal and power ministries, and chaired by Planning Commission member and former cabinet secretary B.K. Chaturvedi.

Coal India had recently reduced the “minimum assured” quantity of coal to be supplied to generation companies, forcing the government to direct power generators to import coal to bridge the shortage. The cost of imported coal is obviously far higher than that of domestic material, because of the dwindling value of the Indian rupee versus the US dollar. Domestic coal can also be purchased through e-auction, but that method is far costlier than the one under which coal is supplied under a long-term agreement.

The Mint story said the industry lobby group Power Producers Association of India mooted the proposal. The idea was to take the surplus coal from captive coal mines held by power and steel companies and make it available to CIL to meet its fuel-supply obligations. CIL would thus be acting as a coal bank. Like any other bank, it would be left with the obligation of returning the “security,” in this case the raw material, to the concerned steel or power company at a later date, something which Coal India said it was not capable of doing.

Still, a persistent government has forwarded the proposal to the law ministry to find out the legal hurdles that may arise out of its implementation.

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