Coal Crisis- The States should collectively voice their concern



Respected Chief Minister


Kindly see my letters addressed to you sometime ago (accessible at the following links) on the need for the States to come together to set up a federal front to take up common issues with the Centre, so as to uphold the spirit of federalism that lies at the core of the Constitution.

The current unprecedented coal crisis, occurring for the second time within a span of hardly six months, has caused widespread power cuts across the country, imposing far reaching economic costs. In that context, the Centre has been trying to put the blame entirely on the States, whereas it is the Central agencies which are squarely responsible for anticipating the electricity demand at the national level, coordinating adequate coal supplies to support the power utilities in meeting the summer demand surge and planning the necessary logistic support.

Had the Centre fully appreciated the crucial role played by the States in taking electricity far and wide across the country to promote all round economic development, especially in ensuring the food security of the nation and understood the reasons for the financial problems faced by the State-owned DISCOMS, partly attributable to the Centre’s own imprudent policies, it would have desisted from castigating the States and, instead, adopted strategies that would preempt a crisis situation of the kind faced today and helped tide over the problem collectively in a more constructive manner.

While the CIL, the SCCLand the Railways, the three premier public sector companies, are doing their best to ramp up coal production and transport coal to mitigate the present mismanaged coal-power crisis, it is several domestic private coal developers, expected to produce coal in line with a predetermined plan, who have let down the country miserably. On the other hand, many of these very same private companies, having overseas coal mines from which coal is exported to Indian power utilities, have brazenly exploited the shortage by charging astronomically high prices for coal imported into India. The prices quoted by them bear no relationship whatsoever to the cost of production and, therefore, it amounts to nothing less than outright, anti-national profiteering.

In the past, some of these companies were found prima facie to have over-invoiced coal exported by them to India and the Enforcement Directorate (ED) had undertaken investigations which they tried to hamper. Apparently, they enjoy considerable political patronage.

At the same time, the Centre’s insistence on the CIL paying high dividends to the government, and the Centre also depriving the company of its own greenfield coal blocks by auctioning the same to private companies, has hindered CIL’s own efforts to enlarge its  coal development programme, thereby hurting the public interest. In a way, the present coal crisis could be indirectly attributed to this, as otherwise, the CIL would have had a wider shelf of coal projects from which it could have delivered much larger quantities of coal more efficiently, compared to its private counterparts.

On the other side, having created an artificial coal-power crisis, the Centre has resorted to extraordinary ways to promote the interests of the private companies, those exporting coal to India from their overseas mines, by issuing unduly regressive directions to the State power utilities to import a minimum quantity of coal at any cost, irrespective of the price charged, to bridge the coal supply-demand gap, created through sheer mismanagement and lack of anticipation and planning. This has imposed a huge cost burden on the State utilities.

For example, according to one estimate (, such expensive coal imports would impose an additional cost burden on Punjab and Haryana to the extent of Rs 800 crores and Rs 1200 crores respectively. The corresponding cost burden in respect of each State would depend on the landed cost of imported coal and the quantities imported. On a rough approximation, the total financial burden on the States would exceed Rs 24,000 crores.

Considering that each thermal plant in the States is designed specifically w.r.t the characteristics of the coal linked to it, imposition of imported coal with higher sulphur and moisture content would lead to inefficiencies in the operation of the thermal plants, reflected indirectly through additional costs.

Since coal imports have been forced upon the States as a consequence of the Centre’s imprudence, in all fairness, the Centre should own its responsibility and compensate the States for the same.

There have been other similar unilateral diktats issued by the Centre that have imposed undue costs on the States.

For example, the Centre’s direction that the States “must buy” solar energy from large centralised solar plants, mostly belonging to the big business houses, has imposed an undue cost burden on the State utilities whose option to buy from alternate sources has got severely curtailed, apart from causing grid stability problems. Even power purchases from the Solar Energy Corporation of India (SECI) are heavily tilted in favour of corporate solar companies charging high prices and impoverishing the State power utilities.

There seem to be several other ways in which the Centre is coercing the State utilities. Tying the hands of the utilities in the matter of renegotiating the past asymmetric power purchase contracts, through an uncalled-for provision in the recent Bill introduced by the Centre to amend the 2003 Electricity Act, is one such attempt. Further accentuating this position, the new electricity Bill also paves the way for private companies “cherry picking” the remunerative loads from the State utilities and adding to their losses.

In all such cases, the Centre should compensate the State utilities fully, well in advance, as it would otherwise compound the precarious financial condition of the utilities.

The Centre should know that it is the State power utilities that have facilitated food security for the country by providing electricity to the farmers for lift irrigation and enabling them to produce food grain surpluses. This would not have been possible without the utilities having the ability to cross-subsidise the farmers by correspondingly charging the commercial and the industrial consumers. Similarly, without cross-subsidisation, the utilities would not have been able to provide electricity to the vast majority of disadvantaged families and help their socio-economic development. Instead of depriving the utilities of their ability to cross-subsidise and help promote the welfare of the people, the Centre ought to share their problems, empower them in fulfilling their national obligations and duly compensate them.

In the true spirit of federalism, instead of blaming the State power utilities for no valid reason, the Centre should reach out to them, understand and appreciate their problems adequately and find satisfactory solutions, rather than creating new problems.

On my part, I have requested the Union Cabinet Secretary to bring these concerns to the attention of the Hon’ble Prime Minister and deal with the overall power situation in a manner that is consistent with the spirit of federalism (

I would earnestly appeal to you to come together and set up a federal front to put forward these concerns collectively, so as to persuade the Centre to function in harmony with the States for the common good of the nation. The Centre should realise that its strength primarily lies in the strength of the States.


Yours sincerely,

E A S Sarma

Former Secretary to Govt of India


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