--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, March 19 India's coal
deficit is going from bad to worse and unless the country makes
major policy changes, its hopes of lifting millions of people
out of poverty through economic growth will be dashed.
The economy can't grow without increasing electrification,
which requires more power plants, and given coal is the cheapest
form of fuel and is abundant, it makes sense that India is
looking to boost the use of the fuel.
India's problem is simple. Domestic output and transport
systems can't keep up with demand, creating an ever greater
reliance on imports, which are expensive and also require
infrastructure such as ports.
Coal output is also concentrated in the north and east of
India, while power demand growth is more toward the south and
Domestic production is likely to be about 587 million tonnes
for the fiscal year ending March, while imports are likely to be
around a record 168 million tonnes, making India the
second-biggest importer after China.
Coal imports surged 20 percent in February from a year
earlier to 11.6 million tonnes, according to data from research
firm OreTeam, bring the total for the 11 months to February to
143.5 million tonnes.
The government's 12th five-year plan anticipates that about
76 gigawatts (GW) of new power will be added by 2016-17, with
about 63 GW being coal-fired.
Assuming this capacity is actually added, it would take
total coal-fired generation to around 175 GW, which would need
about 842 million tonnes of coal a year, Vernon Morais,
vice-president of fuels at Lanco Power, told the Coaltrans India
conference in Goa on March 6.
In addition to coal for power generation, India has
optimistic plans to expand steel output, which could potentially
require as much as 300 million tonnes of coking coal by 2016-17,
taking the total requirement to around 1.1 billion tonnes.
There is virtually no way that this scenario is even
remotely feasible, but the projections do highlight just how
serious India's coal situation has become.
Coal India, the state-controlled behemoth that produces
about 80 percent of domestic output, believes it can increase
output by 300 million tonnes a year, if Indian Railways moved
faster in building tracks.
Instead, Coal India expects to raise output by about 30
million tonnes a year for the next few years, Chairman S Narsing
Rao told Reuters in an interview on Feb. 26.
The company expects to produce about 475 million tonnes in
2013-14, meaning its likely expansion will still leave India
well short of the coal it needs.
Coal Minister Sriprakash Jaiswal told lawmakers last month
the coal shortfall could range between 185 million and 265
million tonnes by 2016-17.
However, this could be optimistic, with Lanco's Morais
estimating a shortfall of 356 million tonnes.
Given India's focus on lowering its current account deficit,
the country can ill afford to increase its coal import bill,
already around $14 billion a year at present import levels.
SOLUTIONS AVAILABLE, WILL LACKING
The question then becomes how best to tackle India's coal
problems, and how likely are solutions to be implemented?
The broad consensus among industry players at Coaltrans
India was that more must be done to privatise the coal sector
and eliminate bureaucratic red and green tape.
Niladri Bhattacharjee, a director at KPMG Advisory Services,
showed figures that of 44 rail projects underway by December
2012, 32 percent were delayed for more than 60 months and 23
percent by between 25 and 60 months.
Coal India is also awaiting 179 forest clearances, which are
environmental approvals needed to start new mines, Amitabh
Sharma, a partner at Khaitan & Co, a law firm, said in a
presentation he delivered at the conference.
India's rail network is already at capacity and plans to
increase the amount of track appear to be much delayed.
Coal industry players also complained of a lack of
coordination at central and regional government levels, too many
different departments involved in project approvals, and too
many bureaucrats with too little incentive to push processes
Breaking up Coal India was also mooted as a solution, but
this would have to be accompanied by private access to railways,
and most likely private-public partnerships in building new
tracks and ports.
Changing emphasis to developing mine-mouth power plants and
then transporting the electricity through high-voltage cables
was another potential solution, but once again this will require
a shift in emphasis and mindset on the part of the government.
There are certainly no shortage of ideas on how to improve
the production, transport and consumption of coal in India.
The problem is that most require government approval and
involvement, something that appears to be lacking.
While there is hope that this will improve after the
country's general election, to be completed in May, there is no
guarantee that a new government will be willing, or able, to
push through reforms.
It's human nature to wait until the point of crisis before
taking decisive action.
India's coal supply is at the point of crisis now, and the
situation will get worse in the next few years.
The lack of domestic coal availability, despite the world's
fifth-largest reserves, is already hitting power generation, and
thus economic growth, given the strong correlation between power
demand and gross domestic product.
In the absence of concerted reform efforts, India's coal
imports will rise and its economic will continue to fall short
(Reporting by Ed Davies)