Why is electricity tariff going up in India? Who is the beneficiary? A random reflection

By Thomas Franco* 
Union Ministry of Power has used its power under Section 11 of the Electricity Act, 2003 to force States to import coal which has led to an increase in the cost of electricity production and every consumer is paying a higher tariff. In India, almost everybody from farmers to MSMEs are consumers of electricity.
It is the duty of the Union Government which collects GST from every citizen to deliver electricity at affordable prices to the remotest parts of the country and reach out to the most disadvantaged sections of society. The singularly crucial part played by the State utilities in providing electricity for promoting self-reliance in agriculture and small industries is well known.
Peoples Commission on Public Sector and Public Services (PCPS) in its Statement dated June 2nd 2022, attributed the coal shortage entirely on account of mismanagement of coal supplies on the part of the Central government. “Having created such a situation, instead of owning responsibility for it and offering to share the cost burden, it is unfortunate that the Centre should wash its hands off and transfer the resulting liability to the States”, said the Commission. 

But the Union Government has not only ignored it but also has supported one company in the country to import coal at higher prices. States were mandated to buy the imported high-cost coal which at times is not even suited to the existing production units.
The PCPS has once again issued a statement now which states:
"The diktats issued by the Ministry of Power in recent times under Section 11 of the Electricity Act, 2003, forcing the State power utilities to import coal has not only impacted the interests of the utilities adversely but also imposed a heavy cost burden on electricity consumers in the following ways: 

• Power plant boilers are designed with reference to the specifications of the coal to be used. Forcing imported coal with different specifications on the power plants, without the necessary blending facilities, affects the boilers and reduces their efficiency, which indirectly results in additional costs to the utilities. With inadequate facilities for making sure that the coal traders deliver coal of the right specifications at the ports has incentivized the traders to resort to false certification of coal quality to make matters worse.
• Forcing the utilities to import coal has created a sellers’ market for coal traders, who have exploited the artificially created crisis to quote astronomical prices to the disadvantage of the utilities and the consumers.”

The Union Ministry of Power issued several directives to the State power utilities to mandatorily import coal, 4% by weight, failing which the State would also lose entitlement to coal supplied by Coal India and other Indian sources. At the same time, there was no notice given to the states to prepare for the import of coal. 

At the least the States or end-use consumers needed to ensure independent and satisfactory certification of the quality of coal at the domestic ports, preparation for blending of coal and budgeting and financial arrangements to adjust the massive increase in the cost of generation due to firing imported coal.
Meanwhile, there have been reports of fake certification of the quality of coal supplied from Australia to some countries including India. It is reported that “coal companies in Australia ‘are knowingly using fraudulent quality reports for their exports. 

This has allowed them to falsely claim, for years, that Australian coal is cleaner than coal from elsewhere, even though it’s often simply not true. This shocking misconduct includes exports to Japan, South Korea, China and India.
It is possible that such false certification of coal quality is not confined to Australian coal alone. False certification leads to utilities in India not only bearing the burden of over-invoicing of imported coal; but also over-paying for it on the basis of inflated coal quality.

Reported over-invoicing of coal supplied to domestic utilities by the Adani Group

Since 2009, the Directorate of Revenue Intelligence has been investigating allegations against several domestic private companies for over-invoicing of coal as well as over-invoicing of power generation equipment. More recently, in 2023, the Financial Times, London published a report which indicated that the Adani Group had over-invoiced coal supplied to India from their overseas coal mines, sometimes the extent of over-invoicing being twice the market price. 

While what the news organization has revealed amounts only to an allegation based on a comprehensive investigation, it certainly calls for an independent investigation. If the FT allegations are found to be true, it implies that the power utilities in India have paid dearly for the coal supplied by the Adani Group from their overseas coal mines, which in turn would have imposed a heavy cost on the utilities and eventually on the electricity consumers.
While the FT report specifically referred to the over-invoicing of imported coal by the Adani Group, it is possible that other private coal traders supplying coal to domestic utilities have also similarly over-invoiced it.

The Union government should own responsibility for the coal crisis

It is important that the circumstances that led to coal shortages in India are analyzed and how they resulted in the State power utilities bearing the brunt of it.
In the view of PCPS, the primary responsibility of forecasting the demand for electricity and the requirement of coal and matching logistics for fulfilling it rests entirely with the Union government agencies. That includes the Ministry of Power, the Central Electricity Authority (CEA), the Ministry of Coal, Coal India Ltd (CIL), the Railways and the Shipping Corporation of India Ltd (SCIL). 

The contention repeatedly put forward by the Centre that excessive rains and flooding of coal mines etc. resulted in a shortfall in coal supplies is unacceptable as it is not the first time that such seasonal factors have affected coal production. As part of prudent coal supply planning, the concerned agencies ought to have built sufficient cushions to meet such contingencies. 

Apparently, there were shortcomings in planning. It should be noted that at one point in time, there were railway bottlenecks to move coal to power plants, which once again points to shortcomings in planning coal supplies.

Union Ministry of Power issued several directives to State power utilities to mandatorily import coal

Compounding this is the fact that the Centre has, deliberately or otherwise, weakened the ability of CIL to meet the coal requirements for increased demand for electricity. 

The Centre, in its over-exuberance to privatise coal mining, put many greenfield coal blocks for auction to private companies, which in turn, apart from not having enough ability to develop coal, already stand heavily indebted to PSU financial institutions and are driven once again to borrow from them. 

Had the Ministry of Coal strengthened the CIL financially and managerially, the latter could have readily developed many of those greenfield coal blocks more efficiently and on time to match the increased demand. 

Unfortunately, instead of allowing the CIL to retain its surplus funds for the exploration and development of greenfield coal, the Centre, as a result of its own imprudent fiscal policy, has been forcing the CIL to divert its resources for excessive dividend pay-outs to the Centre.

Having thus created a situation in which the Central agencies have failed to step up coal supplies to state power utilities to match their demand, it is ironic that the Centre should then direct them to import coal, creating a sellers’ market for domestic coal trading companies to exploit the situation.

The PCPS states that the Centre should own responsibility for the prevailing coal shortages and offer to share the bulk of the financial liability, as otherwise, the financial ability of the State power utilities will further get crippled, which in turn would adversely affect electricity supplies to priority sectors such as agriculture.
In the past, some analytical reports indicated that over-invoicing of imported coal resulted in an increase in the cost of electricity to the consumer by as much as Rs 1.50/kwh.
The PCPS demands the following

1. A white paper on the irregularities in the import of coal over the last ten years or so, more particularly with reference to over-invoicing of coal by the Adani Group supplied to domestic power utilities as alleged in the FT report
2. The Centre expediting penal proceedings against those found to have over-invoiced both imported coal and imported power plant equipment
3. The Centre, on the basis of an independent investigation into the allegations in the latest FT report, take urgent penal action, if those allegations are found to be true
4. An independent assessment of the cost burden imposed on the State power utilities as a result of the Centre forcing them to import coal, both on account of damage caused to power plant equipment and the additional costs arising from over-invoiced coal and the Centre adequately compensating the State Governments
5. Strengthening the CIL and positioning it as the primary agency to undertake exploration and development of both existing and greenfield coal blocks in the country
6. Ban on the usage of imported coal by domestic power plants which have boilers specifically designed to burn indigenous coal
7. Strengthening BHEL to scale up “clean coal” technologies suitable for using indigenous coal with high ash content.

While these demands are just and the Union Government has to act on them, we the consumers are paying more as electricity bills without knowing who is being benefited and we end up blaming the State Governments and their Electricity Boards. In Tamil Nadu, the industry associations went on a strike demanding a reduction in the power tariff. Similar demands are being made across the country. 

Yet in all these discussions, the main beneficiary of the decisions of the Union Government is not discussed. Can you guess, who could that be?
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*Former General Secretary of All India Bank Officers’ Confederation and a Steering Committee Member at the Global Labour University. Source: Centre for Financial Accountability