Prime Minister Manmohan Singh and his friends in the UPA government just don't get it. Instead of being chastened by the coal scam and at least attempting to conceal their crony capitalism, the Prime Minister's Office and the Coal and Power Ministries are following a 'more of the same' path with the Fuel Supply Agreements (FSAs). In the wake of 'coalgate' the government can no longer give away free coal blocks so it is now trying to benefit the same private power producers with heavily subsidised coal, mined by a taxpayer-owned company. The power these private players produce will be sold at a profit, while the costs are borne by the country.
By way of background, earlier this year, the PMO obtained a Presidential Directive that forced Coal India to sign FSAs with all power projects that would be commissioned up to March 2015. CIL had earlier refused to sign binding FSAs, fearing it would not be able to produce sufficient coal. On Greenpeace's request, the financial research firm Equitorials analysed the likely impact of signing Fuel Supply Agreements on Coal India Ltd. For those who like numbers and scenarios, the entire analysis is here.
The topline: according to Equitorials, CIL is likely to face an annual average shortfall of 82 million tonnes from 2013 to 2017. The cost of importing coal to bridge this shortfall would be an estimated Rs. 25,400 crores every year! Bearing even a part of this cost would involve a significant financial burden for CIL. On the other hand, a failure to supply coal could result in penalties of Rs. 951 crores over the five year period. If CIL were to divert the coal that it currently sells via e-auction towards meeting its FSA requirements, the annual average income foregone could be as much as Rs. 1,598 crores over the same period.
So private producers benefit through guaranteed, long-term access to heavily subsidized Indian coal, while the country has to bear the cost. Sound familiar? There is currently no mechanism to ensure that the benefit of cheap coal is passed on to domestic consumers, so the FSAs will not guarantee affordable electricity for the common man either. As we've seen in the case of the coal block scam, power producers such as Jindal are selling electricity at expensive merchant rates, even after benefitting from cheap coal. The Coal Ministry has now raised this issue with the Power Ministry in the case of coal block allocations; the same principle applies in the case of FSAs, so the deafening silence from all quarters of government is intriguing. Perhaps the CAG is listening?
Not satisfied with these giveaways, the Power Ministry is also lobbying for the 'price pooling' of imported coal. If this goes ahead, some power producers will benefit by getting access to high quality international coal at a steep discount, while consumers of domestic coal will have to shell out more. CIL has been clear that it will import coal only if it can pass on the (higher) costs to power producers. Of course, power producers aren't ready to shell out more when their friends in government can get the national exchequer to foot the bill!
Independent directors on CIL's board have estimated that price pooling of imported coal could lead to annual losses of 3,000 crore per year. Several state governments, including West Bengal, Orissa and Chhattisgarh, have also opposed the move as it will lead to increase in electricity costs for all consumers.
So much for coal guaranteeing cheap electricity. All it seems to guarantee right now is more corruption, crony capitalism and deforestation.
Maybe it's time to end the age of coal?