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February 11, 2013

The Great Indian Coal Bailout

India Coal PlantsThose paying attention to the Indian coal sector know that it's in a state of crisis. Coal supplies for the number of planned plants are largely an illusion, plants that have been built are going bankrupt, and financiers publicly call it a 'distressed sector'. Add to that the ongoing Coal-Gate scandal and it's clear that politicians facing elections would want to steer far clear of this mess.

Instead they have doubled down with their latest move to bail out financial boondoggles like the Tata Mundra project by approving skyhigh subsidies to imported coal-based power plants. But with elections around the corner this may prove a step too far in the great Indian coal bailout.

This latest move came in response to high profile lobbying from companies like Tata, Adani, and Reliance who demanded help for a 'surge' in imported coal prices that threatened the economic viability of some of India's flagship coal projects. Though the scheme is currently only for power producers entitled to Fuel Supply Agreements with Coal India (CIL), the big players have already lined up for subsidized supplies. With the subsidies starting at $32/ton, and likely to get larger as international coal prices rise, it's clear why.

The problem is, the only reason society accepts the devastation that coal brings to communities and environments is that we get a devil's bargain: cheap power in return. Now these coastal coal projects are anything but. In fact, they're downright expensive. That means the devil's bargain is broken, which should signal an end to handouts to a financially unviable, environmentally and socially destructive industry.

Instead, the ruling Congress party has bowed to the demands of private companies who want ever more support from the public purse. The problem for India's politicians is that while the Tata's and Adani's of the world win, many important constituencies will lose. The first and most obvious victim is Coal India itself, which has decried the fact that it will be forced to accept huge losses to subsidize the import needs of private companies. Next are the State governments who are justifiably miffed they have to prop up private profits. Last, and most important are voting citizens all across the country who will see their electricity prices rise, even those in communities that don't depend on imported coal.

It's the impacts on this last constituency that should worry India's politicians. The Coal-Gate scandal awakened the Indian middle class to the blatantly corrupt nature of the coal sector and the role that companies like Tata, Adani and Reliance played in securing cheap coal at rock bottom prices. Now they are in the process of successfully securing Coal-Gate 2.0 even as the coal ministry is forced to continually defend itself against Coal-Gate 1.0. This is like handing out free 2G spectrum at the height of Anna Hazare's anti-corruption movement; Like providing BP with a tax break for clean up efforts during the Gulf oil spill; Like a golden parachute for bankers during the financial crisis. It's an egregious use of public funds and it’s the proverbial straw that should break the camel's back.

In fact it already has, as the Congress 'man of the moment' Rahul Gandhi has been unable to counter an attack on the party that has resonated with the masses. Masses that are dealing with the real impacts of this reckless support for a destructive industry: water wars a land rush brought on by unchecked coal plant development, and the abuse of the rights of tribal communities over the forest land under which much of the remaining coal lies. If Congress has any hopes of clinging to power it needs to act like its job depends on reigning in the coal gate scandal, not deepening it. That is, if the Indian middle class has anything to say about it.

-- Justin Guay, Sierra Club International. Photo is of several coal plants in India at night, courtesy of Nicole Ghio.

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