India’s Coal Sector Facing Deep-Rooted Problems

Even though King Coal is spouted by the Indian government as offering a “unique eco-friendly fuel source to domestic energy market for the next century and beyond”, there is no doubt that the sector faces severe problems on its own turf. The worlds largest coal producer, state-owned Coal India Lmt (CIL), which provides roughly 80 per cent of the country’s coal, announced earlier this year that it would miss its production target, while imports to the country keep increasing in an attempt to satisfy present installed capacity and its 455 planned coal plants.

As such, India’s thermal coal imports will likely rise to 120 million tonnes this year and reach 171 million by 2017 accompanied by associated price volatility and energy security risks. If the country could simply ramp up production from its coal reserves (6th largest in the world with 58 billion tonnes) the problem would not appear so pressing. The stagnated production has deeper and more structural problems, however, that the government, through the Ministry of Coal, seems set on addressing no matter the viability of cleaner alternatives.

According to a report from PwC, the increasing reliance on imports relate to problems throughout the supply chain: insufficient infrastructure for transport, administrative bottlenecks and surprisingly stringent environmental rules and regulations that slow down the opening up of new fields.

A first step in opening up a new mine is acquiring the land, which coal extraction requires significant amounts of. Often, these potential mines are owned by local farmers that resist selling due to fears of pollution and insufficient compensation schemes. One 55 billion rupee project stagnated in Chhattisgarh when 150 farmers decided not to hand over their land to GMR Energy for its proposed 1,200 MW thermal power project. The farmers opposed the project because they feared health problems and inadequate compensation.

Once the land is acquired from the farmers it must be cleared. There are roughly 179 forest clearance applications that are currently awaiting approval from environmental regulatory bodies. The Ministry of Environment and Forests firmly believes, rightly enough, that mining will lead to loss of bio-diversity and increased levels of pollution, which has slowed down the approval process as developers must go  through a series of environmental impact assessments. Though there does exist a provisional timeframe within which clearance approval should take place delays are nevertheless frequent and ubiquitous. If these pending applications are approved CIL could possibly double its output assuming production starts in 2016-2017 and associated transportation issues are dealt with.

That is – coal is a commodity that must be hauled over vast distances from mining areas to fuel hungry power plants spread across the Indian sub-continent. The most utilized railway is the connector between the four city centers of Delhi, Mumbai, Chennai and Howrah that constitutes a mere 16 per cent of railway capacity but carries a staggering 65 per cent of the freight. These railways are thus increasingly congested, fragile and incapable of accommodating any increased output from the mining areas. In response to this, Indian Railways and CIL are planning a future investment of 3 billion dollars to upgrade the rail infrastructure. If these investments are successful it could potentially add an additional 300 million tonnes to CIL’s current production of 470 million tonnes per year. On top of current transportation bottlenecks, mining areas such as West-Bengal have experienced long-lasting problems with Maoist rebels looting carriages in order to re-sell stolen coal on the black market. The Maoists have been allowed to carry on this way due to insufficient security forces around the rails.

The problems currently faced by India’s coal sector are thus of a varying socio-political, regulatory and environmental nature and by far prone to any easy fix. Coal in India currently provides 57 per cent of electricity consumption and if nothing is done to change course the sector’s demand for the fuel will only increase alongside growth in the country’s economy. Even though the suggested upgrades and reforms have the potential to free up significant amounts of reserves, the many risks and contingencies involved seem overwhelming when there exists cleaner and less risky alternatives.

Some states are taking matters into their own hands by incentivizing the deployment of renewable energy through generation based incentives, feed-in-tariffs and renewable purchase obligations (RPO). When the southern state of Tamil Nadu, which already is a global leader in wind energy production, thus announced its goal to install 3000 MW of solar capacity late last year it became the seventh state in the country to implement solar policies.

What coal has going for itself is that it’s cheap – that is, if, as the current market does, one excludes its severe environmental and social costs. However, the authorities of Tamil Nadu plan on implementing 1000 MW of solar a year till 2015 when solar is expected to reach grid parity. In a mere three years time then, rooftop solar should be as cheap as electricity from coal per kWh. According to a recent article in The Hindu Business Line, companies in Tamil Nadu are excited about the opportunity to decrease reliance on grid based coal power citing long gestation periods and price uncertainty as main reasons to opt for solar vis-a-vis coal.

Meanwhile, the federal government through its Ministry of Coal is fixating on untangling the many complicated knots of the coal sector currently forcing India into dependence on imported fuel to keep the lights on and industry going. Coal plants and railroad infrastructure are long-term investments with significant design lives. The relevant question now is if it is desirable, or even necessary, to lock this country further into a dependence on coal along with the socio-political, environmental and economic problems inherent in its production for many decades to come.

– Paul Robson, MSc Energy Policy 

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