Do India's poor need coal from Adani's Carmichael mine?

Not if it restricts the Indian consumer’s options to source affordable energy

By Tarun Gopalakrishnan
Published: Tuesday 14 January 2020
An anti-Adani protest in Australia. Photo: Flickr

With protests raging in Germany against Siemens AG's decision to supply technological services to Adani Mining’s Carmichael coal mine in Australia, the Adani name is now infamous on at least three continents.

For most companies, the past near-decade of controversy around the Carmichael mine would constitute a crippling public relations disaster. Yet Adani forges on. Legitimate regulatory oversight and multiple unwilling banks (some of whom were previously its biggest backers) have prompted little reconsideration. The protest against Siemens looks likely to go the same way.

Even this pursuit of self-interest must veil itself in the garb of higher principle. Adani spokespersons have been busy in Australia admonishing ‘privileged’ opponents for denying millions of poor Indians their right to energy. The conglomerate is apparently working in our national interest, with the oft-vocal blessing of the Indian government.

This is a tricky issue for the grassroots mobilisation in Australia against the Carmichael mine. If it were true, their concerns over pollution, water use, climate and indigenous people’s rights can be dismissed as a form of not-in-my-backyardism. These are movements which are reasonably aware of global equity concerns, they know better than to deny the energy needs of the developing world.

So it is for us in India to try and honestly answer the question — how badly do our poor need Australian coal? On the face of it, this is a matter of projecting India’s energy demand out to the future (say the year 2040), projecting our domestic coal production out to the same year, and hence deriving a number for the amount of import required.

There are some excellent analyses of this type, which indicate that a combination of India’s domestic renewables targets, the slowdown in construction of coal-fired power plants and the government’s (especially Coal India Limited’s) push toward boosting domestic production means that the need for imports, particularly from Australia, is limited (see here & here).

There are also analyses indicating it is cheaper to supply communities lacking energy access through decentralised renewable energy, than importing coal to feed the grid.

Still, the coexistence of seemingly contradictory trends is not uncommon in energy policy. In India’s case, the sheer size of the population and low per capita energy consumption mean that the scope for demand growth in the coming decades is gargantuan.

It is possible that the quantum of imports increases, even as the share of imports (as a percentage of total consumption) declines. In that situation, is there harm in insuring our energy future by adding another source of supply?

A seductive argument

For decades, the ‘flexibility’ of having the option to import fossil fuels has been a seductive argument. Setting aside the multiple military misadventures resulting from this outlook, it bears examining whether importing coal has expanded India’s energy options or constricted them.

That story begins with the Ultra Mega Power Plants (UMPPs) that Adani and Tata Power set up in Mundra, Gujarat, which were supposed to be supplied by a mix of Indian and Indonesian coal. Indonesia changed its regulations on coal exports, which drove up the cost of import (and hence, the cost of generating power).

The conglomerates promptly approached the government to increase the price (aka tariff) they would receive for electricity generated, as a ‘compensatory tariff’ for the increased cost of generation.

The Supreme Court rejected that argument in 2017, because the Electricity Act only allows compensatory tariffs based on a change of law by the Union government (not based on changes in laws by foreign governments). The apex court also rejected the companies’ arguments that variations in the cost of imports are an un-anticipated ‘act of God’.

If the interest of poor energy consumers is paramount, the matter should have ended there, with these companies absorbing the hit to their margins. But the companies made their hurt feelings clear, offering to sell the power plants to the government for the TV-serial-inspired fee of Re 1.

Inevitably, the legal gave way to the political, with a high powered committee empowered to consider the question of what to do with these apparently unviable power plants. That panel came back with a series of recommendations based on the understanding that “Gujarat has a share of 4,805 MW from these three projects in question, which contribute around 45 per cent of its total energy requirement” and hence “on the touchstone of 'consumer interest', it can be safely concluded that these projects need to be salvaged.”

It recommended that the cost of import be passed on to the consumer, undermining the Supreme Court order a year earlier. The benefit to the companies involved is estimated at Rs 1.29 lakh crore; in Gujarat alone, consumers will bear an estimated additional burden of Rs 90,000 crore. Public banks will lose an estimated Rs 18,000 crore.

This is the first of a two-part series.

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