(EnergyAsia, February 19 2015, Thursday) — The spirit may be willing but weak market conditions and strong growing opposition from environmental, business and labour groups are combining to block India’s pent-up desire to heal its sickly coal industry.
Since its election to office last May, the government of Prime Minister Narendra Modi has made a top priority of reforming India’s corrupt and inefficient coal supply system that lies at the heart of the country’s economy-killing energy crisis. India derives more than 65% of its electricity from coal-fired power plants that are operating well below capacity due to a long-running, nationwide shortage of feedstock. Without the security of stable power supply, the Indian economy has suffered as businesses cannot expand and people face constant disruption to their daily activities.
Riding on Modi’s initial popularity, the government has set bold targets to double domestic coal production and cease imports by 2019 combined with a huge promise to provide round-the-clock electricity supply to all of the country’s estimated 1.3 billion citizens by 2022. As part of its efforts to expand India’s coal reach at home and abroad, the government said it wants to open up the sector to foreign participation for the first time.
Unrealistic to begin with, many of these goals have been dropped hard and fast on an unsuspecting public with little consultation. The inevitable and immediate all-out backlash from a variety of disparate groups representing environmental, business and labour interests virtually dooms the Modi government’s efforts to reform and expand the coal industry.
Having discredited the energy policy of the previous government under Manmohan Singh, Greenpeace is attacking the Modi government on the same points: that it is lying to investors by exaggerating the size of India’s coal reserves and will not solve the country’s energy crisis by trying to boost coal production.
Instead, in an updated report, Greenpeace said the government’s efforts will only increase India’s greenhouse gas emissions and further degrade vast swathes of rainforests which sit on top of some of the country’s largest untapped coal reserves.
Ironically, Modi’s BJP Party, which swept to power partly on its campaign to clean up corruption and cronyism, now stands accused of trying to reward political supporters with some of its recent initiatives to boost coal supply. The opposition Congress Party is demanding explanations for the State Bank of India’s proposed US$1 billion loan to privately-owned Adani Group for its troubled A$7 billion coal project in Australia and the government’s plan to invest US$1 billion to expand rail infrastructure for coal distribution across the country.
Critics are also accusing the government of selling out the country with its plan to open up India’s heavily protected coal mining and distribution sector to foreign participation and ownership.
In a rare show of unity, domestic business groups have joined hands with their eternal enemies, the labour unions, to oppose the move on nationalistic grounds playing on fears of widespread jobs losses and foreign control over a strategic asset.
While the move might force India’s coal industry to become more efficient, the government has failed to present a viable plan to deal with the short-term pain of mass jobs losses, and coal and electricity price hikes. Inevitably, private and foreign companies will slash jobs and demand higher prices for making expensive investment bets on an industry that has become bloated and unprofitable from four decades of state protection.
Furthermore, with coal prices hovering at a five-year low and likely to go lower, foreign companies are unlikely to be tempted to rush in. The government, to no one’s surprise, is unable to set a deadline or schedule on how it plans to open up the sector to private participation.
But that has not stopped the coal ministry from making ambitious projections that foreign investors will help India’s privately owned mines boost domestic coal production from less than 50 million tonnes last years to 400 million tonnes by 2019.
For now, state-owned Coal India Limited (CIL) accounts for around 80% of domestic output, with power, steel and cement companies producing the rest for their own consumption.
Power and Coal Minister Piyush Goyal has also forecast that CIL, notorious for missing production targets, will more than double output from 462 million tonnes for the year ending March 31 2014 to one billion tonnes five years later.
Speaking at an industry conference in New Delhi last November, he confidently predicted the combined production increases from CIL and private mines would enable India, the world’s third largest coal buyer, to cease all imports by 2018.
India’s coal imports reached a record 204.1 million tonnes in 2013 year with domestic demand exceeding 772.8 million tonnes to further dwarf domestic production at just 568.7 million tonnes. The country spent more than US$16 billion on coal imports, contributing to its rising fiscal deficit.
Citing the government’s plan to expand electricity access to some 300 million poor Indians currently not served, Goyal challenged environmentalists and scientists to find a mass solution that would bypass the use of cheap coal as a feedstock.
While his ministry is also pushing for the expansion of renewable energy production and consumption, he said coal-generated electricity will remain the main energy source for years to come.
He said India’s development imperatives will take precedence ahead of the environment and the world’s climate concerns.