The dark side looms in India over coal

India’s coal crisis led to power cuts in Mumbai this month. Although the country has huge reserves, getting coal to the power stations is proving expensive and open to corruption.

A worker loads coal onto a truck at the Kankaria Railway Yard in Ahmedabad. Sam Panthaky / AFP

MUMBAI // On a typically busy morning in Mumbai this month, power cuts plunged a number of major business and residential districts of India’s financial capital into darkness.

Such incidents are rare in Mumbai, which does not suffer the regular blackouts that afflict many parts of India. But there are fears that power cuts could become more common across the whole country, as India faces what is being referred to as “a coal crisis”.

Anand Mahindra, the chairman and managing director of Mahindra Group, one of India’s largest conglomerates, tweeted “Dark office in Mumbai” as the outage hit the city. “Lights out in the whole area. The coal crisis is beginning to show its dark side.” He added that this was “a threat to the India story”.

Tata Power blamed a technical glitch at one of its power stations for the outage, without giving details.

The incident heightened widespread concerns about low coal supplies in India, which are posing a major threat to power generation. Coal is the major source of energy, generating about 60 per cent of the country’s electricity. Supplies have been running at the lowest levels since a major blackout in the summer of 2012, which left 600 million people without electricity.

The issue presents a challenge for prime minister Narendra Modi’s government, which came to power in May, pledging to revive the economy. Although India has the world’s fifth-largest coal reserves, it imports coal because of challenges that have held back the supply of domestic resources over the years, including inefficiency and corruption.

“I believe there is lack of policy and therefore there is poor execution in development and mining of coal sector,” says Kamal Sen, the president and chief executive of Cogitaas, a consultancy.

“Dependence on coal in a big way seems somewhat historical, as more countries move towards other sources of energy. The execution problems in coal allocation, concurrent corruption, cannot be dealt with piecemeal as independent symptoms. A clear economic policy of ownership and development is necessary.”

State-controlled Coal India produces more than 80 per cent of the coal mined domestically. The company is struggling to meet the rising demand and has warned that it expects to come in at about 30 million tonnes below its target of supplying 408 million tonnes to power generators in the current financial year.

Last week, the cabinet committee on economic affairs approved plans for the government to sell off a 10 per cent stake in Coal India. But trade unions have opposed such a move, threatening a strike this month, which would only aggravate the fuel-shortage situation.

The proposed strikes also relate to concerns over a multibillion dollar mining scandal. Last month, the supreme court ruled that the allocation of 200 coal blocks since 1993 was illegal in what has been called the Coalgate scandal, which surfaced in 2012. The scandal became a headache for the previous government after an auditors’ report alleged the country lost out on more than US$33 billion.

It had been hoped that clarity on whether the supreme court would cancel and re-auction the 200 coal blocks would have emerged at a hearing on Tuesday. Such a move would hit companies that have invested in plants linked to the blocks. But the supreme court said it would issue its judgment later.

This issue has been hampering the development of the industry.

The Coal India trade unions want the blocks to be given to the company.

But Mr Sen says that giving private companies a bigger role in the sector would reduce the bottlenecks in coal production. “The final solution will have to be full privatisation, with royalties to government,” says Mr Sen. “This will lead to adequate investment in the sector as well as remove many of the problems which currently plague the sector. There is no great economic justification for government ownership.

“High dependence of the power sector on coal supply, is this sustainable? Sustainable both from the point of quantity and quality of future coal supplies? Is this the most efficient way of power generation and are other sources of energy underutilised?”

Piyush Goyal, the federal minister for power, coal, and renewable energy, last Sunday said that he had inherited a unfavourable scenario but denied that the country was facing a coal crisis. “A turnaround plan has been initiated and already, coal-based electricity generation from June to August 2014 grew by a record 21 per cent compared to the corresponding period last year,” he said.

He reiterated the government’s target of providing electricity to all homes by 2019. Currently, more than 300 million people in India have no access to electricity, according to the World Bank.

The government was targeting production of 1 billion tonnes of coal for power plants by 2019, Mr Goyal said. Work was under way to create a more efficient system by linking power plants with the nearest mines, and transferring from old and inefficient plants to modern power stations to maximise power generation, he added.

The government was also looking at replacing the existing Coal Regulatory Authority, he said.

Mr Goyal blamed the weak monsoon for the reduction in coal stocks. He explained that hydroelectric production had been lower because of the delayed arrival of the rains. This meant that the coal-based thermal sector had to increase power production to compensate for reduced hydroelectric power generation, he explained.

“When the production has been stepped up, naturally the coal stock would decrease,” he added.

There were no immediate plans to open up the coal sector to private companies, he said.

Analysts point out that India should be moving away from a dependence on coal, and increasing its use of renewables to reduce environmental damage and ensure the country’s future energy security.

“Providing access to modern energy sources is a critical component to achieving success in the nation’s aspirations for economic development,” says Tim Fox, the head of energy and environment at the Institution of Mechanical Engineers. “In the case of the nation’s large scale centralised energy system, almost 60 per cent of India’s installed electricity generation capacity is conventional coal fuelled thermal generation and the system has an overall grid carbon intensity of around 1,300g CO2/kWh - compared with 500g CO2/kWh in UK for example. Although there are plans to add substantial renewables to the grid in next three years, three times as much coal is expected to be added in the same time frame.”

Unless the scenario in India’s coal sector improves, blackouts could become more commonplace darkening not just Mumbai, but also the outlook for the country.

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