India's need for coal is growing
MUMBAI, INDIA -- Amulya Charan is sitting in the lobby of the stately Taj Bengal Hotel in Kolkata when his phone rings. It's a small contractor trying to sell him a 10-megawatt power plant. There is some haggling before Charan, managing director of Tata Power Trading Co., a unit of India's biggest private-sector electricity generator, winds up the call. "I'm buying six of the 10-megawatt plants," Charan says. "Soon I want to have 100." The tiny power plants, which run on agricultural wastes such as those from sugar mills, are a small part of Tata Power's strategy of trying to use every energy source possible to deal with an impending shortage of coal in India. The country has the world's fourth-largest reserves. But bureaucratic red tape and poor infrastructure are part of what's preventing the domestic coal-mining industry from keeping pace with the demands of India's rapidly expanding economy. To overcome this, India's biggest energy producers, from Tata to state-run companies such as National Thermal Power Corp., are on the hunt for imported coal. The move, combined with a government initiative to secure overseas supplies of coking coal for the steel industry, signals the first efforts to extend China and India's competition for resources to a frontier beyond oil and gas. If India is to sustain economic growth of 8% a year, it will need to nearly double its electric capacity from 135,000 megawatts today to 250,000 megawatts by 2015, according to Tata Power. But India already is running a coal deficit, with coal demand last year for the steel and energy industries reaching 468.5 million tons, 67.2 million tons of which had to be imported. By 2015, the country will be consuming about 880 million tons of coal but will have to import more than a quarter of it, consulting firm KPMG says. India's state coal mining behemoth, Coal India, aims to increase domestic production but few believe it can achieve its aims. One of the biggest barriers facing India's coal industry is the accident of its geographic location in three of the country's most ungovernable states, Chattisgarh, Orissa and Jharkhand. The coal beds are often in remote areas terrorized by ultra-left-wing guerrilla groups or criminals known as the "coal mafia," who extract rent from mining operators. Then there is the problem of shifting the local population, many of whom are poor tribal people who have few skills other than subsistence farming. "It's not like Queensland [Australia] where there is just the odd dingo. Where coal is here, you've got very large populations on top of them," says McCloskey. Official corruption and disputes over mine allocation between the state and central governments that can delay development of a mine site by a decade further complicate the situation. Mindful of this, the government has ordered that four new 4,000-megawatt power plants be built near ports so that they can use imported coal. The government has sanctioned the establishment of a state investment vehicle to buy offshore coal blocks, mostly for coking coal for steel but also for thermal coal for the power industry. The state-owned operators are looking in 12 countries, which aside from Indonesia and Australia, the two best markets for India, could include countries as far afield as Mozambique. One of the first companies to look offshore was Tata Power, which earlier this year paid $1.1 billion for stakes in two Indonesian coal blocks. Gujarat NRE Resources, another private sector operator, also has bought small mines in Australia. source: Financial Times 03 december 2007
