* Spinoffs of operating units considered
* International partnerships, open tenders also eyed
* India No.3 importer despite having 5th-largest reserves
By Krishna N Das
NEW DELHI, May 21 Newly elected Indian premier
Narendra Modi is exploring breaking up state behemoth Coal India
Ltd and opening up the sector to foreign investment to
boost output and cut imports, said two sources with knowledge of
Red tape, strikes, protests against land acquisition and
delays in obtaining environmental approvals have kept coal
output far below demand, making India the world's No.3 importer
even though it sits on the fifth-largest reserves.
Modi wants to fix the coal sector quickly to ensure unbroken
electricity supply across the country, as in his home state of
Gujarat where manufacturing has flourished. Coal generates more
than half of India's power and is the cheapest form of energy.
Any reform will begin with Coal India, as it accounts for 80
percent of India's total coal output, said a source at Modi's
Bharatiya Janata Party (BJP). The world's largest coal mining
company has failed to meet its output targets for years.
"The story is about Coal India, whose productivity as we all
know has been poor," said the source, a member of the BJP's
economic policy team.
"What we have in mind is bringing changes inside-out in the
company within a stipulated time period."
There is a possibility of converting various units of Coal
India into independent companies, and making respective state
governments equity holders to help speed up land acquisition and
other such processes, a top Coal India official said.
Credit Suisse analysts Neelkanth Mishra and Ravi Shankar
wrote in a May 19 note that disappointing domestic coal output
is one of the main reasons for the slowdown in India's
investment cycle. Raising coal volumes is likely to be a top
priority for the new government, they added.
"The only meaningful solution, though much harder to
implement, is to either break Coal India up, and divide
ownership of its subsidiaries among the states where they
operate, or in some way introduce an incentive structure so that
the respective state governments participate in the growth of
coal mining in their states," they wrote.
Sources say that no big-bang steps should be expected
immediately as lot of consultation is still going on. But the
thumping victory for Modi will make decision making easier.
Apart from using modern mining technologies to boost
efficiencies and convert "challenging mines into modern mines",
the government will also explore international private-sector
partnership in a significant way, said the BJP source.
Another idea under consideration would be to auction coal
blocks through open tenders, as India already does for oil and
The officials from BJP and Coal India said that many global
miners are keen to invest in India's coal sector.
"India is a coal superpower, both in terms of production and
consumption - foreign interest is natural," the BJP official
India's coal production in the 11 months through February
was 497.2 million tonnes, according to data from the Ministry of
Mines. Output was 557.8 million in the whole of 2012/13.
Research firm OreTeam says that according to its data, India
imported 158.8 million tonnes of coal in 2013/14.
The Ministry of Coal said in February that imports hit 145.8
million in 2012/13, with more than half of that coming from
Indonesia. Australia, South Africa and the United States are
India's other main suppliers.
(Editing by Douglas Busvine and Richard Pullin)