(EnergyAsia, November 21 2014, Friday) — The spirit may be willing but weak market conditions and strong opposition from environmental, business and labour groups will likely 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 untangling India’s corrupt and inefficient coal supply system that lies at the heart of the country’s worsening energy crisis. India derives more than 70% of its electricity from coal-fired power plants that are operating well below capacity due to a long-running endemic shortage of feedstock.
Riding on the government’s continuing popularity, the coal ministry has raised public expectations by setting overly ambitious targets to double domestic coal production and cease imports by 2019 at the same time disregarding environmental opposition at home and abroad.
The government has agreed to lend up to US$1 billion to privately-owned Adani Group to help develop its troubled A$7 billion coal project in Australia, and is ready to spend another US$1 billion to develop rail infrastructure in India to improve coal distribution across the country.
The government has also announced plans to open up its heavily protected coal mining and distribution sector to private and foreign participation and ownership. In a rare show of unity, domestic business groups have joined hands with 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 could force India’s coal industry to become more efficient, the government has not laid out 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 stay down, 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 inhouse 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 week, he said the combined production increases from CIL and private mines will enable India, the world’s third largest coal importer, to cease buying from foreign suppliers by 2018.
Citing the government’s plan to expand electricity access to some 300 million poor Indians currently not served, he challenged environmentalists and scientists to find a mass solution that would bypass the use of cheap coal as a feedstock.
While his ministry was 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.
As part of his election platform, Prime Minister Modi said his government would lay the foundation for round-the-clock electricity supply to all Indians — 1.2 billion — by 2022.