Coal, Where Art Thou?

The future of the Indian coal industry appears dark. The demand is going to increase significantly and the government is not ready to address the potential bottlenecks. This article talks about the evolution of Indian Coal Industry, its current challenges and prospective solutions.

Indian Coal Industry is going through a very tough time. The demand of coal is increasing year after year and is expected to grow threefold in next 20 years. But it appears that the domestic coal production will not be able to meet this increase in demand.

Coal has driven the engine of Indian industries for a long time. The Indian coal requirement can be broadly divided into two categories – Thermal Coal, used for power generation and Coking Coal, also known as metallurgical coal, used for steel production. At present, around 70% of coal in India is used for power generation and rest 30% is used by other industries like steel, cement, paper, chemical and pharmaceutics. The Indian power sector is still dominated by Coal and as per an IEA 2012 report, 68% of Indian electricity is generated by coal. Industry-wise coal usage in India is shown in Exhibit 1.

Coal where art thou

Before proceeding further, let’s have a brief understanding of how the coal industry has evolved in India. The first commercial coal mining was started way back in 1774 by M/s Summer and Heatly, East India Company in Raniganj coal-fields. Since then, the coal industry has moved at a sluggish rate and before independence it just touched 30 million tonnes (MT) mark. After independence, Government of India (GoI) established the National Coal Development Corporation (NCDC) in 1956 to give a push to coal production, with the collieries owned by the railways. During the same time, many private firms also flourished. However, concerned about the low productivity, owing from the use of outdated technology and poor working conditions for labourers, GoI decided to nationalize private coal mines. This was done in two stages – coking coal mines in 1971-72 and non-coking coal mines in 1973. The Coal Mines (Nationalization) Act, 1973, provided the right to GoI to manage all coal mines in India and this act is still a centrepiece of Indian coal policy. Today, there are three state owned firms which control more than 90% of coal production in India – Coal India Limited (with its 8 subsidiaries), Singareni Collieries Company Ltd. and Neyveli Lignite Coal Ltd.

The Coal Mines (Nationalization) Act was amended in 1993 to allow private captive mining by private companies and other public entities for power generation. This amendment led to the allocation of more than 200 blocks by the government to various companies other than CIL, SCCL and NLCL. But, out of these 200 blocks, only 30 have started production till date and the contribution of captive mining was meagre 36 MT in 2010-11 against targeted 104 MT. The reasons for this dismal performance are many – absence of accurate geological statistics; delay in environmental approvals; land acquisition, Rehabilitation & Resettlement issues. This is the first set of issues which limit coal production itself. Logistical concerns like non-availability of enough railway wagons for transportation and lack of road infrastructure from mines to railway sidings is second problem which has affected production capacity. The logistical issues are not limited to rail and road network only. Current coal handling capacity of Indian ports is around 90 MT and this has to be increased by 50 MT in the next 5 years to meet import requirements of 140 MT in 2017.

Third constraint, as mentioned above, is expected increase in coal imports in the future. In 2011-12 India produced slightly more than 550 MT and around 85 MT of coal was imported to meet domestic demand. This gap between demand and supply is expected to increase to 140 MT by 2017 as per estimates by World Energy Council. The expected coal demand in India for the next two decades is shown in Exhibit 2.

Coal where art thou 2

Import of coal brings its own set of problems. India is primarily dependent on South Africa and Indonesia for thermal coal and Australia for coking coal. Australia has shown significant price fluctuations in the past because of the Queensland floods. Further, the changing regulatory and tax scenario in these countries suggests an increase in coal prices in the future. At the same time, other potential geographies like Mozambique and Columbia lack infrastructure facilities to ensure smooth coal transportation.

Fourth issue is coal quality management. Indian coal is low to medium grade with high ash content, low moisture and low sulfur. Indian power plants often complain about high ash content and inconsistency in coal quality. Coal benefaction and washing are potential solutions to this problem and as an initiative CIL has decided to set up 20 coal washeries with aggregate capacity of more than 100 MT/year.

There are a lot of measures that could be taken at various stages of coal value chain to release various bottlenecks mentioned above. At the coal exploration stage government should provide incentives as it does for Oil and Natural Gas exploration under NELP program. At the clearance stage, the government should appoint one single committee with representatives from all the concerned ministries like environment, water, mining, forest etc. This will reduce the clearance time significantly. Adding on, coal recovery from under-ground mines varies from 20% to 70%. To address this issue at mining stage, government should encourage investment in R&D and more efficient technologies to recover more coal. To address logistical issues, the government should adopt PPP model to develop first-mile infrastructure to transfer coal from mines to nearby railway sidings and for development of port capacities for coal handling. Simultaneously, given that imports are expected to augment in future, GoI should use diplomatic approach to make the process of acquisition of coal mines abroad and price mechanisms suitable for Indian industry.

The measures mentioned above are the need of the hour to ensure energy security as well as industrial growth of India. Coal is definitely going to stay as a major force behind Indian development for next few decades and ensuring a timely supply of high-quality coal to power plants and other industries is the key to development.

Mani Mahesh Garg is a PGP2 student at IIM Ahmedabad and a member of the Consult Club. He is a graduate from IIT (BHU), Varanasi with B.Tech in Ceramic Engineering. Prior to joining IIM-A, Mani Mahesh worked at RINL, a public sector steel manufacturer.