Unprecedented coal crisis arising from the failure of the Centre to coordinate coal supplies and logistics to meet the summer surge in electricity demand



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.





More recently, in the context of the unprecedented coal crisis, arising largely from the failure of the Central agencies to coordinate coal supplies and logistics to meet the summer surge in the electricity demand, instead of owning responsibility for the crisis and adopt a consultative approach with the States, the Centre has issued a series of unilateral diktats to the States, which indirectly benefit the overseas coal suppliers, many among whom are also business houses in India, at the cost of the State power utilities, already under a severe financial stress. I have annexed here a copy of my letter dated 11-5-2022 addressed to you on this, for your ready reference.

The States should take note of the following developments that have led to the crisis.

  1. Coal India Ltd. (CIL) has the primary role of being not only the major supplier of coal to the States but also the agency to explore for new coal deposits and develop the same to be able to meet the rapidly increasing demand for coal. Unfortunately, the Centre has systematically weakened the CIL by taking away its greenfield coal blocks and giving them to private companies having inadequate experience and expertise. As if to accentuate this problem further, the Centre has also stripped the CIL of its surplus cash resources by taking the same as dividends, thereby disabling the CPSE from investing in new coal blocks to be able to enlarge its own shelf of projects and meet the increasing coal demand
  2. The Centre had unilaterally decided to auction coal blocks in the recent years without consulting the States and, worse, without obtaining the consent of the local tribal Gram Sabhas where such blocks are located in the areas notified under the Fifth Schedule to the Constitution, where such prior consent is mandatory under the two Central legislations, namely, the PESA and the Forest Right Act, a fact that renders some of these auctions prima facie illegal, apart from its affront to the spirit of federalism.
  3. Many private companies among those who obtained the coal blocks in the auctions have failed to develop and produce coal as per the mining plans, partly leading to coal shortage, without the Ministry of Coal penalising them. Some among them are also known to be prolific contributors of funds to the political parties.
  4. It is the primary responsibility of the Ministry of Power (MOP)/ CEA to anticipate the electricity demand from time to time, including the usual summer surges, coordinate coal supplies and the logistics to meet the coal requirements of the States. Had the MOP consulted the CEA and acted in advance, it would have been in a position to plan the logistics etc. and meet the coal demand without any difficulty. Apparently, there has been a failure on this front.
  5. instead of owning the responsibility and consulting the States to find ways to tide over the crisis, the MOP has adopted a unilateral approach of issuing one-sided diktats to the States, both under the Electricity Act and through executive instructions (Nine such diktats issued between 7-12-2021 to 1-6-2022), forcing the latter to import coal, ignoring the fact that many old power stations in the States are not designed to use such coal with high sulphur/ high moisture etc., which could damage the equipment. Some of these diktats are so regressive that they even impose penalties on State Gencos.
  6. The MOP had issued directions to the States, invoking its authority under Section 11 of the Electricity Act of 2003. A reading of that Section with the definition of an “appropriate government” in Section 2(5) seems to imply that the MOP could issue such directions only to generation companies controlled by it, not those run by the States. The legality of this needs to be examined carefully.
  7. By resorting to such an extraordinary approach, the MOP has created a sellers’ market in coal, facilitating the overseas suppliers, many among whom are also Indian companies, to quote astronomical prices and profiteer at the cost of the States. In one case, the landed cost of imported coal turned out to be Rs 23,000 per tonne, compared to Rs 4000 per tonne for domestic coal. It is clearly a case of deliberately allowing a few influential business houses having overseas coal mines to exploit the crisis situation and impose a huge burden on the States, a situation that calls for an independent probe.
  8. The additional cost burden on account of the imported coal should be quantified and made good by the Centre to the States, as it is the Centre that is responsible for the crisis.
  9. There was a similar coal crisis during 2021 and the Centre had then tried to justify it as resulting from the second wave of Covid. It could not have cited the same excuse for this year’s crisis. From all indications, it looks as though we are moving from one coal crisis to another in the coming months, as a result of inadequate planning

I request you to take the initiative in moving forward on setting up a Federal Front on behalf of the States and urgently take up issues such as this, as it would not augur well for the nation, if the Centre tries to weaken the States, ignoring the harsh reality that the Centre derives its strength from the combined strength of the States.

In matters such as the role of the CPSEs such as the CIL, RINL, LIC etc., since their activities impact the national economy, the States should press the Centre to take them into confidence, while taking decisions..


yours sincerely,

E A S Sarma

Former Secretary to Govt of India



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