Indian Prime Minister Narendra Modi Has Coal Mining Work Ahead of Him

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Outside of steel and iron ore, analysts here in India are unanimous that the new government needs to take a hard look at another crucial sector: coal, particularly coking coal, a vital raw material used in steel making.

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The present scenario is not good. A recent report by India’s Coal Ministry said coal imports were up by 17.9 percent to 171 million tons (MT) in the financial year 2013-14, as compared to 145 million tons in 2012-13. Obviously, the gap between demand and supply is widening. Corruption and bureaucratic delays have led to the shrinking of the country’s mining output in the past.

Problems at CIL

Of last fiscal year’s total production, the state-owned Coal India Ltd. (CIL), which has a near-monopoly on domestic coal, produced 462 mt against a target of 482 mt. In 2012-13, CIL had produced 452.5 mt, short of its goal of 464 mt. Clearly, something’s wrong with CIL since this company has not met its targets and has failed to firm up any acquisitions in the last five years after the purchase of two coal blocks in the Tete Province of Mozambique in 2009.

CIL’s recently-released March quarter results showed an 18 percent decline in net profit, another indication  that things are not going according to plan over there. To fill the demand-supply gap, India has been importing about 24 percent of its coking coal from Australia while the non-coking coal comes from Indonesia, South Africa and the USA.

Analysts feel the situation, both for India’s coal sector as well as CIL, are not beyond redemption. There are very strong indications that the new Prime Minister, Narendra Modi and his Bharatiya Janata Party (BJP)-led government will introduce changes in the country’s coal sector to give it some impetus.

Modi’s Options

The new government might opt for splitting the state behemoth, CIL, and opening up the coal sector to foreign investment to boost output and cut imports.

A report in DNA India said that with the Coal Ministry under a new minister, efforts will be renewed to boost output. CIL, the report said, wanted to go all-out on an acquisition spree. Output of coking coal and high grade thermal coal has been declining from domestic mines. CIL currently has about 17 investment proposals from overseas mining companies.

Perhaps sensing the mood of the new government, Canada has offered to work with it on the coking coal situation. Rosaline Kwan, senior trade commissioner at the Canadian High Commission, New Delhi, was quoted in LiveMint as saying Canada would work with the Modi government with an eye on boosting supplies of coking coal to India and invite Indian investments in the country’s rich coal resources.

“Canada definitely sees an opportunity in supplying coking coal to India. We do not supply large amounts of coal to India as of today,” Kwan told Livemint. “Half our coal base is in the thermal area (used in power generation) and the other half is in the metallurgical or coking coal area. Where our relationship has potential is in the area of coking coal that is used in steel making,” Kwan told the newspaper.

Sohrab Darabshaw contributes an Indian perspective on industrial metals markets to MetalMiner.

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