[Economic Survey Ch11] Infrastructure (Part 1 of 2): Coal, Gas, Fuel Sharing Agreement (FSA), gas hydrate, oil shale

environment gas flaring

[Economic Survey Ch11] Infrastructure (Part 1 of 2): Coal, Gas, Fuel Sharing Agreement (FSA), gas hydrate, oil shale

  1. Prologue
    1. Infra
    2. India Infrastructure Finance Company Limited (IIFCL)
    3. Elasticity of energy use
    4. Consumption pattern
  2. Energy Pricing
    1. Petroleum products pricing
    2. Gas pricing
    3. Coal Pricing
  3. Coal Sector
    1. Types of Coal
      1. Peat
      2. Lignite / Brown coal
      3. Bituminous/ Black-Coal
      4. Anthracite / hard coal
    2. SING-rauli vs reni
    3. PSUs under Coal Ministry
    4. Fuel Sharing Agreement
      1. FSA highlights
      2. TCI
      3. Charges made by TCI
    5. Coal Mining: Open pit vs underground
    6. Coal washing
    7. 12th FYP: Coal
  4. Petro and Natural Gas
    1. NELP
    2. Refineries in India
    3. Alternate Sources of Hydrocarbons
    4. Coal bed methane (CBM)
    5. Oil Shale
    6. Gas Hydrate
    7. Shale gas
    8. TAPI pipeline
    9. The Auto Fuel Policy
    10. Rajiv Gandhi Gramin LPG Vitaran Yojna
    11. Gas flaring
    12. 12th FYP: Oil n Gas
  5. Mock Questions


11th chapter is about infrastructure

Infra related to Example Comment
  • Road
  • railways
  • Shipping
  • Aviation
I’ve already covered this content under Ch.10 (and its 5 sub-articles)
  • Postal
  • Telecom
  • IT
  • Coal, gas, petroleum
  • Electricity
  • Renewable energy
  • Covered here. Although in two parts
  • Part 1 of 2: energy pricing, coal, crude oil
  • Part 2 of 2: electricity and renewable + brief on JNNURM.
Urban infra
  • urban infra (JNNURM)


  • India is the fourth largest consumer of energy in the world after USA, China and Russia but it is not endowed with abundant energy resources
  • 12th FYP Wants 1 trillion dollar investment (~56 lakh crore rupees) in infrastructure. This is nearly double of the investment made during the Eleventh Five Year Plan
  • Infrastructure projects take a long time to plan and implement.
  • Delays in land acquisition, municipal permission, supply of materials, tender process/award of work, operational issues, etc. continued to drag down implementation of these projects. here are some numbers to show the gravity of the situation.
Sector Total infra projects Pending
Coal 51 21
Petro 71 37
Power 98 45
Railways 127 40
Roads 146 86

Performance / production

Sector Performance compared to previous year
Coal, cement, petroleum refinery marginally higher
steel and power-sector production lower
Fertilizer, crude oil, and natural gas production lower

Among the infrastructure services,

Service Growth
Railways (freight) Positive
Civil aviation Negative
Cargo handling negative

Performance / production

  • coal, cement, petroleum refinery was marginally higher than previous year.
  • steel and power-sector production was comparatively lower
  • Fertilizer, crude oil, and natural gas production also declined during the first nine months of this financial year.
  • Among the infrastructure services,
    • growth in freight traffic by railways has been comparatively higher so far,
    • civil aviation sector=negative growth
    • cargo handled at major ports=negative growth

India Infrastructure Finance Company Limited (IIFCL)

  • was set up in 2006 for providing long-term financing for infrastructure projects that typically involve long gestation periods.

PPP initiatives

  • Public private partnership helps bringing private-sector efficiencies in creation of economic and social infrastructure assets and delivery of quality public services
  • According to a World Bank Report on Private Participation in Infrastructure (PPI), India has been the top recipient of PPI activity since 2006
  • By end December 2012 there were 900+ PPP projects in the infrastructure sector with total project cost (TPC) of more than 5 lakh crore rupees.
  • These projects are at different stages of implementation, i.e. bidding, construction, and operational.

Elasticity of energy use

  • defined as the amount of energy consumed (Kwh) for generating one unit of gross domestic production (GDP) (rupee)
  • Its unit= Kwh per rupee.
  • Another unit = Kilograms of oil equivalent/US$
  • for India, the Elasticity of energy use =less than 1.

Consumption pattern

  • Out of the total consumption from all primary sources of energy
  • Electricity > Coal > crude oil

Energy Pricing

  • At microeconomic level, when Government  provides subsidy on petrol, diesel, LPG=underpricing of energy

Underpricing of energy leads to

  1. This reduces consumer’s incentive for being energy-efficient,
  2. Increases fiscal deficit
  3. Leakages (e.g. diesel is subsidized for farmers but even drunk rich brats with SUVs also enjoy the benefits.)
  4. Inappropriate use e.g. Rickshawllas blending subsidized kerosene with petrol = more pollution.
  5. Increased reliance on imports = Trade deficit, CAD, BoP problems.

In recent years, Government has taken several initiatives for rationalizing the energy prices in different sectors

Petroleum products pricing

  • Government dismantled the Administered Pricing Mechanism.
  • however, this decision was not fully implemented.
  • Government announced that the price of petrol was fully deregulated and the oil companies were free to fix it periodically.
  • However, diesel price deregulation was deferred
Sept 2012
  • Government  restricted the supply of subsidized cooking gas to 6 cylinders per household in a year.
January 2013
  • Government announced the new roadmap providing for a gradual price increase for diesel.
1st Oct 2013
  • Government  will give Direct Benefit Transfer (DBT) for LPG throughout the country using Adhar/UID card.
  • The annual subsidy per consumer is estimated at Rs 4,000.
  • 9 cylinders per year for a consumer. (earlier it was 6)

Gas pricing

  • Pricing of gas is presently done under the New Exploration Licensing Policy (NELP).
  • The Government provides the operator freedom to sell the gas produced from the NELP blocks at a market-determined price , subject to the approval of pricing formula.
  • The Government is reviewing pricing under the price sharing contract (PSC) to clarify the extent to which producers will have the freedom to market the gas.
  • For more on this go through Rangarajan Committee article click me

Coal Pricing

Under Integrated Energy Policy

Earlier=Before 2012 Now (from 2012)
On basis of useful heat value (UHV) on gross calorific value (GCV) basis
This even included heat trapped in ash content. No
  • This “price-reform” is likely to increase the prices of domestic coal to some extent
  • but this is a desirable adjustment because domestic thermal coal, continues to be underpriced.

Now let’s looks at the topics in segments: 1) coal 2) oil n gas 3) electricity 4) renewable

Coal Sector

Types of Coal

In ascending order of their quality (and price)

Type Note Carbon content %


  • Highest moisture content = smoke.
  • Most inferior.

Lignite / Brown coal

  • Important states:
  • TN (Neyveli), Gujarat, Rajasthan

Bituminous/ Black-Coal

  • Upon heating, it releases a liquid called Bitumin.
  • Used to make coking coal, gas coal, steam coal
  • Chattisgarh, Jharkhand, WB, MP, Odisha

Anthracite / hard coal

  • Short blue flame
  • Lowest moisture content.

SING-rauli vs reni

Coalfield Singrauli Singareni
State MP AP

PSUs under Coal Ministry

  • Coal India Limited (CIL)
  • Neyveli Lignite Corporation Limited (NLC)
  • Singareni Collieries Company Limited (SSCL)= a joint sector undertaking of Union + Andra state govt.
  • Coal deposits are chiefly located in Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Andhra Pradesh and Maharashtra.

Fuel Sharing Agreement

  • Why? To ensure fuel security to coal-based thermal power plants
  • When? Aug 2012
  • How? Indian Government issued a presidential directive to Coal India Ltd, asking them to sign fuel supply agreements (FSAs) with power companies.

FSA highlights

  • Fuel sharing agreements
  • Signed between coal India ltd (seller) and thermal power companies (buyer/customer)
  • Duration: The FSAs will be signed for a period of 20 years and will be reviewed after every five years.
  • If coal India doesn’t provide 80% of the assured supply, then they’ve to pay penalty to buyer.
  • If CIL cannot meet demand through domestic supplies, it can meet the shortfall through imported coal.
  • But, if a customer does not accept imported coal, CIL doesn’t need to pay any penalties.


  • The Children’s Investment Fund Management
  • UK-based hedge fund TCI, the biggest foreign investor in Coal India ltd (CIL)
  • It is a minority stakeholder in Coal India. (although largest investor in Coal India after Government of India)

Charges made by TCI

  • TCI accuses that Coal India doesn’t protect the interest of minority stakeholders, they just do things to please their political masters (after all Government of India owns the majority shares). It had initiated legal action against CIL in Kolkata High Court.
  • Politically connected companies are receiving fuel supply agreements (FSAs) at half market price or a third of market price for coal.
  • It is a system that encourages corruption because not everybody can get coal at half price. So obviously there is a massive incentive for companies to pay bribes in order to get FSA contracts.
  • The thermal power companies that get cheap coal from Coal India (under FSA)- they don’t sell electricity  at cheap rates. So the benefits are not trnasfered to the final consumer (aam admi).
  • These thermal companies just extract monopoly and profit margins from the benefit of the cheap coal.

In case you wonder why should a UK  based investor worry about all this?

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