Problems choke India's coal industry

India Dispatch: India's coal industry is choking under a heap of problems, including inefficiency, corruption and environmental concerns.

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MUMBAI // India's coal industry is choking under a heap of problems, including inefficiency, corruption and environmental concerns.

With coal being India's main source of power, these issues pose substantial risks to the country's economic growth, analysts warn.

Although India has the world's fifth-largest coal reserves, it is importing coal at great expense because of the mounting challenges holding back the supply of its domestic resources. Power outages are commonplace in many parts of the country and hundreds of millions of citizens do not have access to electricity at all, the Indian government says.

"The absence of power and costlier conditions certainly creates downward pressure on the economic growth," says Sanjay Kaul, the president of the University of Petroleum and Energy Studies in India.

"More energy imports create a severe current account disparity leading to fiscal deficit in a country where inflationary pressures are crippling the common man. There is a need is to encourage development and deploy technologies which involve extraction, transportation and burning of the black gold in the most efficient and environment friendly manner and at the same time maintain the fast depleting green cover in the country."

With India's economy growing to support its burgeoning population of 1.2 billion, energy demands are expected to surge in the coming years.

"In particular the coal sector is important for the power sector in the country given that about 76 per cent of coal consumed in the country is used by the power sector and that 67 per cent of the electricity generated comes from coal," according to a recent report by Prayas Energy Group.

"It is obvious that effective management and efficient utilisation of the country's coal resources are clearly important to the future of the country. Efficient harnessing and use of the coal reserves in the country is also critical if India has to meet its development objectives while minimising local and global environmental impact."

More than 90 per cent of coal production in India comes from government controlled mines, according to a report by PricewaterhouseCoopers. The accumulated losses of power distribution companies in India were estimated to have reached more than 2.4 trillion rupees (Dh162.1 billion) at the end of March last year, according to the country's power minister, Veerappa Moily. This is a result of mismanagement and power being sold at cut-price rates.

The coal sector has also come into focus in recent days amid fresh calls by opposition parties for the resignation of India's prime minister, Manmohan Singh, following what has been dubbed the Coalgate scandal, which surfaced last year. The government has been accused of receiving bribes in return for the allocation of coal blocks.

Many coal mines have been impacted by land disputes or environmental constraints and are awaiting clearances, while some have stopped operating because of a lack of economic viability.

Inefficient production and transport systems mean that the coal is not reaching power stations that have been built at substantial costs.

"In 2011-2012, installed coal-based capacity increased by about 19 per cent while domestic coal production went up by just over 1 per cent, leading to a rapid increase of imports," the report by Prayus states. "Actual production in 2011-12 of 540 million tonnes was well short of even the target defined during the midterm appraisal of the 11th five year plan of 630 million tonnes just three years ago indicating weaknesses in production planning."

Mr Kaul explains that the problems in the coal sector are a massive drain on economic resources for companies. "For instance in Uttar Pradesh, which is suffering acute power outages, SMEs [small and medium enterprises] are forced to shut down or use stand-alone diesel sets, which are six to 10 times costlier. This also poses a big question on the effectiveness of utilisation of investments like FDI [foreign direct investment]."

Viresh Oberoi is the chief executive and managing director of mJunction, which set up to improve the coal supply chain for Coal India by allowing consumers to buy directly from the company.

"Coal India has not been able to increase their production because they have still not got approval to open up new mines to mine in new places, so there are issues in terms of opening up coal blocks," he says. "Some for environmental reasons, some for other reasons, they have not been able to increase their production at the rate that they planned to."

He said that the private sector coal mines are also being held back by similar issues.

"For the country to grow, it needs energy and energy continues to be coal and there's a dependency on coal at least for the foreseeable future," says Mr Oberoi. "There is a lot that can be done and there's a certain amount of work which is being done."

Many energy bodies, including the International Energy Agency (IEA), are urging India to put greater efforts into the development of green-energy solutions, including wind and solar power, to meet the growing demands. But they recognise that this will not happen overnight and believe that efforts should also be put into making coal-fired electricity production far more efficient than it is at the moment.

"We don't have allusions to say that India will dramatically move out of coal, say, within the next five years," says Markus Wrake, the project leader of energy technology perspectives at the IEA. "But what we're very strongly suggesting and recommending is that India should look at the very least to not continue to build the most inefficient coal towers. We have different types of coal-fired technology. We have what's called subcritical technology, which is very old. That's cheap to build but very inefficient. So far India still has a strong a component of that.

"There are new five-year plans to move out of that, which are very positive," he adds. "We believe that India should accelerate those efforts to at least build the most efficient technologies that there are out there, while continuing to work on the deployment of cleaner technologies like wind, like solar, like biofuels."