Context: Since the onset of the pandemic and over the past few months, after the Ukraine-Russia war, commodity prices, especially that of energy, have surged worldwide.
With inflation at unprecedented levels in many countries, concerns over energy security have gained centre stage.
Coal crisis
For the last six months, national coal index (NCI) has jumped from about 165 to about 238 reflecting the sharp increase in international coal prices.
This development shows the importance of increasing domestic coal production to reduce the exposure of the domestic economy to the price volatility of international markets.
A big effort toward permitting commercial mining has been made to get the private sector to produce more coal, but that’s not sufficient.
What’s need to be done?
First, the financial community has to be sensitised to the need of increasing domestic coal production to meet the growing energy demand.
The Ministry of Power recognised the need to increase coal-based generation in the country in its draft National Electricity Policy
This policy has not yet been finalised. It should clearly articulate the importance of domestic coal-based generation.
Second, is the need for a regulator to address the issues arising from a greater role of the private sector
There are several issues where new private commercial miners would need help.
A single point of contact for the industry in the form of a dedicated regulator would give great comfort to private players and would help to overcome problems that could arise in due course.
Third, increasing domestic production of coal and diversifying the production base are both needed.
This must be complemented with efforts to improve the quality of the coal produced.
Fourth, the undue financial burden on the coal sector due to various cross subsidies needs attention. The regime needs to be reformed.
And Fifth the path to achieving 500 GW of renewables needs to be gradual, ensuring an orderly transition as coal is unavoidable in the near future
The changes in the coal industry in the last few years are in the right direction. These were long overdue. Action on the issues discussed above will only help to deepen and strengthen these reforms which are needed to overcome the challenges that have resurfaced in recent world order.
National Coal Index (NCI)
NCI was rolled out in June 2020.
It is a price index which reflects the change of price level of coal in a particular month relative to the fixed base year.
The base year for the NCI is Financial Year 2017-18.
Compilation:
Prices of coal from all the sales channels of coal, including import, as existing today are taken into account for compiling the NCI.
The amount of revenue share per tonne of coal produced from auctioned blocks would be arrived at using the NCI by means of defined formula.
