My expert comments on coal sector appeared in Dow Jones terminal

12 May 2010 09:29 GMT =DJ FOCUS: India's Coal Imports To Rise As Home Supply Growth Lags
By Eric Yep

Of DOW JONES NEWSWIRES
MUMBAI (Dow Jones)--India's efforts to become self-reliant in coal are failing and imports of the fuel it relies on for over 70% of its electricity will have to rise massively in the next two decades.

It has the world's third-largest coal reserves after the U.S. and China, most of it thermal coal used for power generation. And while dominant miner Coal India Ltd. has been boosting output by 5%-6% a year, this has lagged economic growth--in March, Standard & Poor's forecast India's economy would grow 8% in the current financial year.

Efforts to use more alternatives, like domestic natural gas or imported liquefied natural gas, renewables or nuclear power, and to boost coal output through regulatory reforms have been too hesitant to prevent a surge in coal imports.

Coal imports mushroomed to 81 million tons in the financial year ended March 2010, from 59 million tons a year earlier.

The International Energy Agency's world energy outlook 2007 estimated India's hard coal imports at 28% of demand by 2030. With estimates of coal demand exceeding 2 billion tons by 2030, this implies imports of at least 560 MT. Late in 2009, Coal India said it expected a tenfold jump in its imports in the next two to three years.

These import needs pit India against rivals like China, and has underpinned the ambitions of India's coal companies in snapping up stakes in foreign coal assets in Africa, Indonesia and Australia. A string of large power projects on India's west coast have been designed to run solely on imported coal.

Traditionally, India has long had seasonal and temporary supply shortages but "in the last decade coal shortages have become a round-the-year phenomena," said S.K. Chand, senior fellow at The Energy and Resources Institute.

State-run Coal India produces over 80% of India's coal and sits on over 60% of its estimated 106 billion tons of reserves. India used 612.6 million tons of coal last year.

Indian governments' failure to ensure supply keeps up with demand is rooted in an inability to resolve land ownership, community displacement, technical and environmental issues, and to deal with black market and other illegal practices.

"Coal India has improved operating efficiency and performance a great deal, but they still lag international standards in many ways. Their technology is antiquated and their workforce has thousands of redundant employees, even after cutting more than 180,000 employees in the last decade," said Jeremy Carl, research fellow at Leland Stanford Junior University.

India's richest coal reserves are concentrated in its most underdeveloped areas, like the eastern states of Jharkhand and Chattisgarh, where extremist political movements and illegal mining activities making mining difficult.

Coal India says to meet government output targets, it needs 185 goods trains a day to transport the fuel, but average availability is only 155.

"The coal is there but you can't move it efficiently and that's a big problem. The rail infrastructure has problems...and there doesn't seem to be a clear solution to that in the short term," Tom Price, commodity analyst at UBS Securities said.

The government has long recognized the limitations of having a single company to meet India's colossal coal needs.

Over the years it has allocated 210 coal blocks that couldn't immediately be developed by Coal India to companies for their captive use, but only 10% of these are being exploited so far due to administrative and political inefficiencies.

There are instances where companies with no knowledge or interest in coal wound up with valuable blocks, while others simply waited for changes in rules to allow them to sell coal in the open market.

Talking about reaching peak production for captive coal blocks is a distant dream, R.K. Tripathy at energy research firm Infraline Energy said.

These problems have been exacerbated by environmental and forestry clearance rules, which have tightened following claims coal companies have been ignoring such regulations.

The environment ministry recently decided to make nature reserves, including areas where India's dwindling tiger population lives, as "off-limits" for mining, and in so doing blocked off 35% of the country's coal reserves.