Importing Coal to India’s New Castle

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Coal need not be thrown open to the private sector for the country to exploit its vast potential

India’s wealth of coal reserves and relative poverty of oil and gas are long established facts. If cries for a reversal of the coal sector’s nationalisation (of the 1970s) have grown louder in recent times, it is because the State monopoly explorer Coal India Ltd (CIL) has failed so abjectly to satisfy red-hot demand—mostly for thermal power generation, which burns up three-fourths of all coal used annually in India. Import dependency is rising alarmingly.

However, since a privatisation policy might face popular resistance, do alternate solutions exist? Yes, believe analysts, if CIL makes a determined bid for efficiency. “What we lack and urgently need are competent mine developers,” says Arvind Mahajan, an energy expert at KPMG, who espouses “a mechanism that facilitates the entry of companies with core mining expertise” (such as Rio Tinto, BHP Billiton and Vale). Currently the right to develop coal mines rests almost solely with CIL, which accounts for over 90 per cent of India’s coal output but has a technological handicap in deep-shaft mining that leaves untouched everything beneath 300 metres, where a quarter of India’s proven reserves lie. Its usual ‘open cast mining’ operations reach no deeper than 150 metres, thereby ‘sterilising the reserves that lies beneath’ in the words of the Centre’s Integrated Energy Report.

The efforts of private players are restricted to a few mines allotted by the State for captive onsite use to generate power, make steel, etcetera. But they are not mine developers. While they can hire global expertise, many have got so badly entangled in the process of getting the numerous clearances needed that their output has been pathetic. Even if the Government clears the clearance logjam, the technological challenge would be daunting.

Mahajan recommends that CIL, which is financially well placed, outsources the job of mine development to hi-tech miners, either via partnerships or the allocation of deep-reserve blocks for coal extraction on its behalf.

Another way out may well be to put an end to CIL’s monopoly by splitting it into smaller units (with separate boards for management oversight), and encourage them to compete with one another. Of course, a multiplicity of miners would require the setting up of an independent coal regulator. At some stage, perhaps private players could be allowed in as well. An open market for coal in India might then boost energy supplies in general and power generation in particular.