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Deloitte's View on CMPDI as Sectoral Planner and Coal Scenario in India

CMPDI as sectoral planner: In the wake of changing dynamics in the coal sector, Deloitte, in its draft report, has called for elevating the role of Central Mine Planning & Design Institute Limited (CMPDl). CMPDI is a fully owned subsidiary of Coal India Limited having its headquarters at Ranchi. It provides technical functions in each stage of the mining life cycle. Considering the technical expertise of CMPDl, Deloitte has suggested that CMPDI should be elevated as a sector planner. The consultant has recommended three restructuring options for CMPDl.
Under this first option CMPDl may be made an independent organization reporting directly to the Ministry of Coal. The role of CMPDl would be principally similar to that of CEA for the energy sector with the exclusion of the Drilling and exploration activities. As a technical excellence entity for the sector it can work for CIL as well as other private parties.
Another option which can be considered is to retain CMPDI as a subsidiary for CIL along with the additional responsibilities of the national coal sector planning. This needs to be designed such that it functions and services provided to CIL and its subsidiaries producing more than 80% of the coal as a technical excellence arm continues in current shape. Thus it is imperative that CMPDI acts as a part of CIL yet takes up more responsibilities of that of a sector planner
Under the third model, CMPDI as an existing subsidiary of CIL would continue to stay in its current role. It would continue to act as a technical excellence arm for CIL and other private players. A separate organization should be carved out / created from the employees of CMPDI which would act as sector planner. This organization would report directly to the Ministry of Coal. The function of this organization would be effective planning of the mining industry. The employees of this organization should have rich experience and knowledge of the mining industry for addressing the issues and challenges faced by the mining sector and effectively plan the mining activities.
In its final analysis, Deloitte feels that the objectives of creating a sector planning agency and providing technical services to CIL and captive players is best met through the third option.

Also Read: Coal India Limited (CIL) Restructuring Plan - A Concise view of Deloitte's Draft Report

Coal market scenario in India: According to Deloitte, India's overwhelming dependence on coal is likely to stay. The following are the views of the consultant in this regard:
It is reasonably sure that in the next two decades India will be overwhelmingly depend up on coal for fulfilling its primary energy needs. 2013 BP Energy Outlook predicts the same. It mentions that although Coal consumption in OECD countries will decline by 2030, it will continue to grow in non-OECD countries such as India and China. Interestingly the report predicts that China will remain the largest coal consumer (52% of the global consumption now), while India (12% of global consumption) will overtake US to become the second largest in 2024. China and India will account for 63% and 29% or a combined 92% of overall global coal growth till 2030. For India's energy security, adequate domestic coal production is extremely critical.
However, there is a mismatch between CIL Coal Production and demand for coal from power and other sectors. In the last decade, Coal Production by CIL has grown by 4.5%, with dispatches to the Power sector growing by 4.6%, while the installed capacity base of coal fired power plants in India has grown by 7.4% in the same period. This mismatch has led to imports of coal. Imports have grown significantly over the last 2-3 years and are estimated to reach around 200-250 MT by the terminal year FY17 of the 12th Plan period. This level of imports is not good for India - as it drains our foreign exchange, exposes the country to the volatility of international coal prices, and puts pressure on the allied infrastructure such as ports. Thus, there is increasing impetus from Government of India to improve the domestic coal production.
The introduction of the Coal Regulatory Authority Bill will impact on Coal India Limited's operations. The advent of the Coal Regulator would also create a need for an independent technical body which could offer its services to the Regulator. The Regulator would need technical inputs to facilitate its functioning. Also with the increasing production envisaged in the 12th plan period from captive coal blocks and blocks allocated to the private utilities, there is a requirement for a sector planning agency which would work in tandem with CIL, Captive Block developers and others in order to increase the production and productivity for the entire sector. Comprehensive Integrated Planning (Mine Planning, etc.) would also become a necessity for these captive block developers leading to the requirement of an independent organization who can these provide services. Currently CMPDIL within CIL does these functions and any future structure will have to take into consideration these new requirements.
Based on a consumer complaint, recently Competition Commission of India (CCI) imposed a heavy fine on CIL accusing it for exploiting its monopoly position. . Although CIL is going to appeal against this order, it does brings home the facts that there will be increasing scrutiny of its market power in the coming days by different agencies and CIL should gear to mitigate these incoming challenges.
As part of the restructuring study a customer survey was conducted covering clients of CIL from all regions in the country. One common complain of consumers was regarding Quality of coal. They have mentioned that CIL is not able to supply the grade of coal for which they charge the consumer. The calorific values are much lower than what the consumer is supposed to get. Customers also felt that the organization is not very responsive in its customer service in terms of resolving disputes invoices etc.
There are issues plaguing the sector some due to inherent Ownership and Regulatory structure defined by the Coal Mines (Nationalization) Act 1973 and some due to issues related to Coal India. The consumer choices and competition as envisaged by induction different players is severely impacted by this law. In our study we have explored options that are feasible within the overall framework of this Act without any further comprehensive amendment to induct private sector participation. The legacy arrangements of fuel linkages, Fuel Supply agreement and their longer term nature also act as a constraint to make any significant overhaul of the system. However we understand there is need to critically look at areas of improvement in CIL, including need for structural changes, which will bring in efficiency in operation and higher production for the country.

Source: Praveen Patlolla, BHEL Executive, RCPuram.

Also Read: Coal India Limited (CIL) Restructuring Plan - A Concise view of Deloitte's Draft Report

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