by Sunil Shah

Indian coal industry review: Looking beyond 2016

Jan 27, 2016
Energy IndustryGovernmentIT Leadership

There’s one conversation that dominates the Indian coal industry: Getting to the 1.5 billion tons by 2020. In 2016, the industry will focus on building on the success of 2015 and keeping on track to the 2020 goal. 

The coal industry is India will be dominated by one important metric: Get production to reach 1.5 billion tons by 2020.

That’s primarily because the Indian government wants to ensure that it is able to meet the country’s power generation needs. India’s coal industry is tied very closely with its power generation sector. The power generation companies account for over 70 percent of the country’s use of coal. Cement is the next biggest at 5 percent. The steel sector is also another important consumer of coal.

India has large reserves of coal, the fifth-largest in the world, according to one estimate. It’s also the world’s third-biggest producer of thermal coal.

In 2014-2015, Coal India increased output by 32 million tons, the sharpest acceleration it’s seen in 40 years. In 2016, it will build on that success.

Another aim of boosting coal production quickly, is to lower the country’s reliance on expensive coal imports. India imports about 15 percent of its coal demand, much of which comes from Indonesia. The government claims that by 2017, it won’t have to import coal, except to feed power plants located on the coast. Coal imports have shrunk by 4.5 percent this year, according to the Coal Ministry.

Almost 80 percent of India’s coal is produced by Coal India, the biggest coal producing company in the world. The company has eight subsidiaries including Bharat Coking Coal, Central Coalfields, Eastern Coalfields, Western Coalfields, South Eastern Coalfields, Northern Coalfields, Mahanadi Coalfields, and the Central Mine Planning and Design Institute.

To ensure the government’s 2020 target is met, it Coal India has set a target for itself: To produce 900 million tons by 2020. To do that, it plans to invest Rs 57,000 crore over the next five years.

It’s conversations about getting to this target, and disinvestment in the PSU, that will dominate the industry in 2016.

To get to the target set by the government Coal India will have to boost productions to new levels. The company’s track record of hitting its targets has been less-than-stellar, missing its production goals repeatedly over the last few years. That said, in the last fiscal it’s done well. In 2014-2015, the company increased output by 32 million tons, the sharpest acceleration it’s seen in 40 years. Between April and November 2015, Coal India’s production jumped 8.8 percent to 321.38 MT, according to the Ministry of Coal’s year-end review.Its goal for 2015-16 is to produce 550 million tons of coal. According to a report in The Hindu, dated mid-November 2015, Coal Secretary Anil Swarup, said Coal India was “well on way of achieving 550 million ton coal production target.” He also said that the company has crossed the 300-million ton mark.

Public memory is short but there were headlines of coal crisis in the country just an year back with 4-5 parliamentary questions every week

— Piyush Goyal (@PiyushGoyal) December 14, 2015

Now I have not received any question on coal shortage in Parliament in past few sessions and no power plant in the country is short of coal

— Piyush Goyal (@PiyushGoyal) December 14, 2015

But there are many challenges in front of India’s ambition to produce 1.5 billion tons by 2020. According to an in-depth report by the Australian Government, these include “accessing land, lengthy approval processes, inadequate transportation systems, and poor productivity largely stemming from the use of outdated production techniques.”

To help ease some of these challenges and eradicate corruption, the government has made a number of changes. After the Supreme Court cancelled licenses for 214 coal blocks, out of a total of 218, in September 2014, the government moved fast to ensure that these blocks were auctioned in a transparent manner under the Coal Mines (Special Provisions) Bill 2015. As of November, 2015, three rounds of auctions have taken place. According to the Ministry of Coal’s year-end review, 31 coal mines have been auctioned and 42 have been allotted to state entities.

The fourth round of coal block auctions will take place between January 18 to January 22, 2016, during which the government will auction eight blocks.

Lack of #coal deployment pushes 74% of #cement industry to operate on costlier #energy sources ~ @kapur_ajay #CementCon2015

— CII (@FollowCII) December 16, 2015

The government is also trying to encourage more privatization in the sector, with a bill it passed in March called the Coal Mines Special Provision Bill passed in March. Under this law, private companies and foreign companies can undertake commercial coal mining (foreign companies must have an Indian subsidiary.)

All of these moves will go a long way in ensuring the Indian coal sector does well in 2016.