Coal is the key to India's goal of Power for All, but there are a plethora issues related to its pricing and availability. In this presentation, AskHow tries to help you understand some of those issues.

1. Understanding the
CoalConundrum
The Analysis

2. Coal Conundrum The AnalysisWhy Worry?
Coal and Lignite based Electricity generation
accounts for 2/3rd of India’s power generation.
Source: Central Electricity Authority
ALL other sources together, provide balance 1/3rd.

3. Coal Conundrum The AnalysisWhy Worry?
But the PRICE of coal is rising sharply
PRICE
SUPPLY
And the SUPPLY is unable to keep pace with Demand
To supply Power for All, India needs to
ensure coal availability at cheap rates.

4. Coal Conundrum The AnalysisImport Addiction?
This is almost 20% of India’s requirement.!
When we have the world’s 3rd largest reserves!
$8,500,000,000 (8.5 billion) of forex and jobs
INDONESIA
AUSTRALIAINDIA
Last year we imported: 110,000,000 (110 million) tonnes of Coal

5. Coal Conundrum The AnalysisImport Addiction?
Between 2008 and 2013,!
Coal Imports grew by 37%, while!
Domestic Coal production grew by 2.1%!
!
!
!
!
!
!
!
And in 2011-12, !
7,800,000,000 KWH of Power!
was lost due to shortage of coal
37%
2.1%
7.8bn KW
H
Source: Salva Report, Australia

6. Coal Conundrum The AnalysisThe Price Escalation
From 2000 to 2013, Coal prices have tripled
Source: CIL’s Annual Reports, AskHow Analysis for sample state of Haryana
2000
2013
0 500 1000 1500 2000
This price increase, would translate to an electricity tariff increase of Rs 1.50 / kWh. OR it could be said that:
100%of the price hike for domestic consumers is because of coal price increase!

7. Coal Conundrum The Analysis
Recoveries!
for 2012-13!
!
!
!
Excise Duty!
4,674 cr
Why High Price?
1. Govt of India treats Coal India Ltd as a Cash Cow
Income Tax!
7,623 cr
Dividend!
7,957 cr
From another point of view, !
this translates to:
Rs 0.34 !
per unit (kwh)
Source: Mint http://www.livemint.com/Companies/LupU2C1VURIZ6tk5ejeFkI/Coal-India-declares-special-dividend-of-29-a-share.html

8. Coal Conundrum The Analysis
Recoveries!
for 2012-13!
!
!
!
Excise Duty!
4,674 cr
Why High Price?
1. Govt of India treats Coal India Ltd as a Cash Cow
Income Tax!
7,623 cr
Dividend!
7,957 cr
From another point of view, !
this translates to:
Rs 0.34 !
per unit (kwh)
Also, in 2013-14 CIL declared a Special
dividend Rs 18,317.46 crores, of which the
Govt of India got Rs. 16,485 crore.
This !
adds to:
Rs 0.30 !
per unit (kwh)
Source: Mint http://www.livemint.com/Companies/LupU2C1VURIZ6tk5ejeFkI/Coal-India-declares-special-dividend-of-29-a-share.html

9. Coal Conundrum The AnalysisWhy High Price?
2. State Govts treat Coal India Ltd as a Cash Cow
Source: http://www.pfcindia.com/writereaddata/userfiles/file/ResearchReport/Report%20on%20the
%20Performance%20of%20State%20Power%20Utilites%20for%20the%20years%202009-10%20to%202011-12.pdf!
The collection of
Royalties, Cess, Tax and
Duties by State Govts:!
15,303 cr
But, all State governments, are not lucky.
Only those where Coal mines operate,
would benefit from these inflows.

10. Coal Conundrum The AnalysisWhy High Price?
Source: http://www.pfcindia.com/writereaddata/userfiles/file/ResearchReport/Report%20on%20the
%20Performance%20of%20State%20Power%20Utilites%20for%20the%20years%202009-10%20to%202011-12.pdf!
However, the flip side is that while some
State govts benefit from inflows, most states
have to eventually pay subsidies to Power
companies, for power supplied cheaply to
agriculture / domestic consumers.
And the big coincidence is that there is a near perfect balance
of these inflows and subsidies! The receipts of the State and
Central govts, and the subsidies paid by all the State govts,
both added up to roughly Rs 30 thousand crores in 2011 -12.

11. Coal Conundrum The AnalysisWhy High Price?
3. Raw Material transported, instead of Final Product!
If we take the sample of a Power Plant in Haryana …
Source: http://www.fois.indianrail.gov.in/foisweb/view/RateDtls.jsp?txtRateClss=150, HERC Order on Distribution
& Retail Supply ARR & Tariff of UHBVNL & DHBVNL for FY 2013-14, and AskHow Analysis!
>Coal is transported at Rs 1.172/km ton, which adds to 40-45% of the coal cost! !
• The lower cost alternative is to generate power at pit head / near coal mining regions, and transmit the
generated electricity. !
- The charges for transmission and the cost of the transmission losses would be one third of coal
transport! !
- But States want Power plants within their borders so that they are not dependant other states

12. Coal Conundrum The AnalysisWhy High Price?
4. Coal India Limited is a Monopoly!
And whether public or private, Monopolies seldom perform efficiently
Source: http://businesstoday.intoday.in/story/coal-india-chairman-narsing-rao-interview/1/196164.html
• When Power producers asked for a
penalty when CIL fell short of
promised supply…!
! ! ! … CIL offered 0.01%! !
• Imported coal, the only alternative to
CIL, is approximately 70% costlier!

13. Coal Conundrum The Analysis
Privatisation seems like an option, but …
• If coal allocation to a private (or public
sector) company is on a nominated or non-
competitive basis, it stands to make
windfall gains. !
• Such windfall gains increase the probability
of corruption in allocation.
Why High Price?

14. Coal Conundrum The AnalysisWhy High Price?
5. Delays in Environmental Clearances!
For mines, and for railway tracks to reach them, environmental clearances take time
Environmental concerns of local citizens and their
desire for appropriate compensation, are legitimate. !
But we need a transparent and swift system for
environment clearances and land acquisition, which
balances the local people’s concerns and the
nation’s development needs.

15. Coal Conundrum The AnalysisWhy High Price?
Summarising!
The Reasons for High Coal Prices …
So agreeing that price of coal is high, then: !
What should be the price of Coal?
Coal India Ltd treated as
Cash Cow by Central
and State governments
Transportation of raw
material instead of the
finished product
Monopoly operating
environment stifles
efficiency
Environmental
clearances unclear,
and take time

16. Coal Conundrum The AnalysisThe Price Puzzle
Typically Price is at the equilibrium of the
upward pressure of Costs, the downward
pressure of Customers and the balancing
influence of Competitor pricing
But for Coal - the dynamics of
Costs, Customers and Competitors
just does not exist. So then: !
How should we decide the price
of Coal?
Customers
Costs
Competitors PRICE

17. Coal Conundrum The AnalysisThe Price Puzzle
We have seen the Reasons for high Coal prices, but does that
mean that Coal should be sold at the lowest price possible?
NO. Because if domestic Coal prices crash then power will be
cheap, and there will be no incentive for energy conservation.!
!
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!
!
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!
!
And the unbridled use of energy would have it’s own set of
repercussions, for India’s economy and environment.

18. Coal Conundrum The AnalysisThe Price Puzzle
Pricing is at the core of the Coal Conundrum, and the coal price
must be fine tuned through Policy and Politics to…
Reduce the burden on Industry!
to cross subsidise tariffs
Incentivise the States who mine coal while helping
them to deal with the environmental impact
Maximise the evacuation of coal to !
meet India’s goal of Power for All
Tip the balance in favour of
domestic, rather than imported coal
Incentivise the
conservation of energy
Penalise States who narrow mindedly insist on
generating power inefficiently within their borders

19. Coal Conundrum The AnalysisThe Solutions
1. Reduce taxes or use the tax
money to combat
environmental impact.
2. Break CIL into many
independent companies and
have both private and public
miners so that their efficiencies
can be compared. !
3. Encourage development of
power plants near coal mines
so that coal does not need to be
transported thousands of miles.

20. Coal Conundrum The AnalysisThe Solutions
4. Reduce the timeframes for mining
approvals from the current 8-10 years, by
setting up a fast-track approvals process.
5. Have a transparent price for next 20 years. !
The price should be high enough to incentivize
efficiency and low enough to encourage industry.

21. Coal Conundrum The AnalysisThe Solutions
6. Auction coal blocks with the future pricing
known and with stringent environmental
conditions. !
!
Auction mines after buying land and getting
environmental clearances. !
!
Stick to the auction rules. !
!
An auction without fixing a price cap could lead
to very high prices. !
!
An allocation which is not an auction could lead
to windfall gains for the producer.

22. IN CONCLUSION!
Please Ask your Lok Sabha MP
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How should
we price coal? How can we
eliminate imports
of coal?
How can we
generate power near
the mines to reduce
transport of coal?
How can we !
eliminate Coal India’s
monopoly?

23. Coal Conundrum The AnalysisASSUMPTIONS
All calculations in this analysis are ‘back of the envelope’, so that we
understand the Coal Conundrum, without getting lost in the details.
Assumption 1: Coal India Ltd sells many grades of
coal. The price an approximation arrived by dividing
Gross Revenue by Total Coal Dispatch.
, , , =
Assumption 3: Electricity tariff depends on many factors such as the coal price, the power plant’s efficiency
(Station Heat Rate), the energy content of Coal (Calorific Value) and also the distance of power plant from
coal mine. Calculations assume an indicative SHR (2800 kcal / kwh) and Calorific Value (3500 kcal / kwh)
Assumption 2: Coal is of 2 types: Coking & Thermal. Coking
coal is used for converting iron ore to steel, while Thermal coal’s
energy content is used for electricity generation. This Analysis
assumes broader numbers to be applicable for Thermal coal.
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