Why India Still Can’t Produce Its Own Coal

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In part one of this report, Sohrab Darabshaw explained how a Supreme Court decision in India, expected September 1, could out an end to much of the mining in India today. In this follow-up he examines the economic and regulatory situation that has cut India off from its own coal resources to date and what might happen if 219 mining licenses are summarily canceled.

India is the third largest coal producer in the world, but shortfalls in supply and demand have forced steel, cement, aluminum and power companies to purchase expensive foreign coal. The power sector, especially, has been hit by the insufficient supply of this crucial fuel.

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So, if India’s Supreme Court does decide to cancel the licenses instead of imposing massive fines on the companies, what would be the implications on the sectors that rely on coal?

It is a minor relief is that many of the coal licenses awarded to private companies since 1993 have not been developed. Others have been delayed by environmental restrictions.

Almost all the analysts are unanimous that the hardest hit will be the country’s power sector. According to a report in Scroll.in even at peak generating capacity, India’s power supply falls short by 10 percent. If the sector is starved of more coal, it could result in longer electricity cutbacks, power outages, and it will affect industrial output.

Of India’s total coal production, around 90 percent is mined by Coal India Limited. Less than 10 percent of coal production comes from the captive coal mines. The remaining shortfall in demand is managed by importing about 170 million tons. About 25 percent of this is coking coal which is scarce in the country. Another 18 percent is used by projects that require imported coal. So some percentage of imported coal will be required.

Steel and cement companies are slightly better off when compared to their electrical power counterparts. A majority of the former have other access to coal, some in the form of a partnership with Coal India Ltd., others by partnerships with foreign companies. So for steel and cement companies, even if the court cancels the licenses, there may not be such a major impact as compared to the coal-fired power industry.

Just as with the Indian telecommunications industry in 2001, the only good that may come out of the court ruling is that the government of India may finally put in place a comprehensive coal mining plan, which will mean opening mining up to the private sector and taking into account the environmental and social costs of coal mining.

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