India's Starvation Coal Diet

Despite having 14 percent of the world's recoverable reserves of hard coal, India has been unable to meet its domestic requirements and is having to resort to large imports, which were near zero five years back.

However, consumers in the country's fast-growing power, steel, cement and fertilizer industries are becoming increasingly frustrated because of the insufficient supplies from the government-owned Coal India Ltd, which produces 80 percent of the country's output. CIL estimates it will end 2010-11 with a shortfall of 110 million metric tons. Demand is expected to touch 730 million tons by 2011-12 with domestic supply at 520 million tons, leaving a shortfall of over 200 million tons.

As much as 70 percent of the country's electricity is derived from coal, for major consumers including the state-owned NTPC, Reliance Infrastructure, Jindal Steel & Power, Adani Power, Torrent Power, Essar, SAIL and Lanco. Infratech and CIL.

A big part of the problem, analysts say, is that structural changes are needed in the sector to invite foreign and domestic private investment to push up output. Domestic producers now are allowed captive use of coal blocks that are allocated by the government, often to special interests which are not coal producers. These special interests sit on their allocations with no intention of developing them in the hope of selling at a premium should the government allow open sales.

Concerns over sustainable mining, environmental degradation and a Maoist insurrection in the coal-heavy states also mean that output has been cut back. India's federal minister for environment and forests, Jairam Ramesh, said recently that India will prevent top mining firms from tapping 35 percent of the country's coal reserves due to environmental concerns in forested areas.

Ramesh's ministry is the federal authority for environmental clearances that are mandatory for all mining activities in the country. Ramesh has been speaking about his views at various forums and means business. Last November, the ministry rejected coal-mining proposals at a tiger reserve in Maharashtra. Activist groups are praising the minister's efforts to protect India's forests along the Western Ghats, or hills.

Ramesh's Stand

Ramesh recently told local media that "we have identified go and no-go areas, especially in the case of coal mining in nine major coalfields. Almost 35 per cent of coal blocks are in no-go areas, where there is high tree density and forest cover. Coal is serious because we have to double our coal production in the next seven to eight years.''

"I cannot, in clear conscience, clear these projects in the no-go areas. India could no longer afford to approve every proposed mine," Ramesh told another foreign paper. "There are areas where mining has clearly exceeded the carrying capacity. It's all very well to say environment and development have to go hand in hand, but what are the practical implications of that?'' he said, adding he favors applying similar norms to other mineral resources.

"`Mining must go on, legal mining must go on. But even where there is legal mining and if it is in dense forest areas, then we have to have a second look as is in the case of coal. It's a ticklish issue. But unfortunately in our country, mining has not been done in an ecologically sustainable manner so far."

Support For Ramesh

Government sources say Ramesh's views have found resonance with the top establishment, including the Prime Minister's Office, though powerful mining lobbies are clearly not happy.

But rapacious mining in forested and protected areas in the northeastern and central eastern states of Jharkhand, Chhattisgarh and Orissa, Bihar, Madhya Pradesh, West Bengal and Andhra Pradesh has contributed to India's acute Maoist and Naxalite insurgency.

The rebels are spread over the northeastern and central eastern states, which score very poorly on human development charts as the local population has not benefited from mining activities that have instead filled state coffers, politicians, the bureaucracy and few ``outsider'' businessmen.

Maoist-linked violence has killed 10,000 people in India over the past two decades. New Delhi calls it the biggest threat to India's internal security, worse than terrorism.

Coal Output Lags

Praiseworthy as Ramesh's efforts are for environmentalists, however, India will not be able to sustain its high growth levels if coal supplies do not rise. According to the mid-term appraisal of the Planning Commission, domestic industry will need to buy more foreign coal assets as the demand-supply gap will shoot up to 200 million metric tons by the end of the Twelfth Five Year Plan, which spans 2012-2017.

CIL and NTPC, the country's largest power generator, are looking to import coal or acquire stakes in coal mines in Australia, Indonesia, America, Mozambique and South Africa, among other countries.

Indian coal imports were near zero five years back. They have been officially estimated at nearly 85 million tons in 2010/11, up from 70 million tons in the last fiscal year at a time when competition means rising prices. Crisil Research estimates that the increase in international coking coal prices will be more than 50 percent by the year end. The prices have risen by 35 percent in the period October 2009-May 2010.

"We do not see the strong run for prices ending here," Crisil reported. "The structural shift in China's position, and its emergence as a significant importer of coking coal, will push up prices further."

The competition from China is acute. Although China was self sufficient in coal in 2008, with 16 percent of the world's proven hard coal supplies, the country imported 30 million tons in 2009,which is expected to rise to 50 million tons in 2010, and then to 70 million tons in 2011.

Paradigm Change

There are some moves to unshackle the sector. In budget submissions in February, New Delhi ratified a coal ministry move to auction coal blocks for captive use to ensure higher production. The government also proposed setting up a coal regulator to settle issues such as coal pricing. Both proposals are awaiting Parliament clearance.

A healthy mix of government regulation and private sector participation is needed to push India's coal sector.

Ruling recently on the tussle between the billionaire Ambani brothers, the country's Supreme Court held that sovereign right over the country's natural resources (including coal) rests with the government. The court also said that any production sharing agreement between private contractors has to be honored. That goes some way in providing for long- term stability in investment decisions.

Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com