The Indian coal industry is plagued by a number of operational problems. Will the efforts of Australian mining queen Georgina Rinehart help the Indian coal industry?

After China and USA, India is the third largest producer of coal, producing some 440 million tonnes (MT) against an annual demand of 650 MT. 55% of the Indian power generating plants depend upon coal as their fuel requirement. The need for power is growing by the minute.
 
Coal is imported under the Open General Licence (OGL) which has progressively increased from 90 MT in 2010 to a projected need of 143 MT during 2012. The benchmark price for Australian thermal coal this year has fallen below $85 a tonne but currently there is glut of supplies due to ports being full and they do not have additional storage facilities. India's import of thermal coal amounted to some 70 MT in the price range of $70 to $80.
 
Indigenous production, though cheaper than imported coal, is not sufficient to meet the demand. Therefore, in order to ensure continuity of definite supplies, many power producers have long-term overseas purchase arrangements, mining interests overseas or leases to supplement the shortages.
 
The Indian coal industry, as such, is plagued by a number of operational problems relating to law and order, manpower deployment, wage disparities, health services and other related issues. Labour supply has been in the hands of mine developers and contractors. Besides these, there are no dedicated rail roads, shortage of rakes, and of course the uncontrollable pilferage in transit. Even power plants at pitheads have coal supply problems. There is the urgent need to get balancing equipments and modern mining machinery, besides trained manpower to handle these.
 
It may be recalled that Coal India (CIL) was subject to severe criticism on the issue of Fuel Supply Agreements (FSAs); after the intervention of the Prime Minister's Office (PMO), a revised FSA covers a guaranteed supply of 65% of the requirement for the first three years, 72% for the fourth year and 80% in the fifth year. This means that the buyer will still have to make suitable alternative arrangement to bridge the gap of the actual requirement.
 
During the current year, CIL proposes to import 30 MT though they envisage a shortfall of 45 MT. And in order to coordinate and bring about a major change in the industry working, the coal ministry is in the process of setting up a nodal agency for this purpose. In the interim period, STC/MMTC may take over this responsibility. However, it is better to take the needed extra time rather than choosing one of these two organisations and then again making the changes.
 
Other issues in the FSA, like the biased penalty clause, moratorium on payment, etc are yet to be revised and finalized.
 
Although the appointment of the regulator for the industry has been on the anvil for sometime now, it is distressing to note that no final choice has so far been made.  However, there is a tall order awaiting the regulator which covers both granting and suspending of mining
licenses; determining the price structure for all types of coal and its products; imposing and recovering penalties and setting up standards of performance and operational norms, besides advising the government on the industry.
 
Australia, Indonesia and Mozambique have been important sources of coal, where many Indian companies have entered into long-term lease arrangements, joint ventures and other types of investments. The major thrust, in this regard, has actually come from well-known
Australian mining giant, Thiess, which has entered into long-term relations with NTPC in the joint venture that has resulted in the setting up of Pakri Barwadih coal mine operations in Jharkhand, valued at $ 6.5 billion. This is scheduled to last till 2034 as on date. Thiess will be mining, though a local sub-contractor, and production is expected to start in October 2012.
 
This is the first of the six mines NTPC intends to develop to provide low-cost coal and when it is fully operative, it is envisaged that the production will be 15 MT (by the third year), and efforts made to reach a target of 18 MT.
 
According to Peter Varghese, the Australian High Commissioner, "they are just beginning to see activity on the ground" though he has stated that "Indian environment regulatory and other issues are seen as very tough to negotiate. Australia is currently negotiating an economic co-operation agreement to cover goods, services and investments. Our authorities would do well to ensure that small hiccups do not impede the growth of interest in this area which may raise the red flag to other likely investors".
 
In the meantime, it is gratifying to note the presence of Australian mining queen Georgina Hope Rinehart, chairperson of Hancock Prospecting in the country, which has collaboration with the GVK Group, associated with the Alpha coal mine in Australia.
 
In the long run, it is hoped Ms Rinehart would consider serious interests in developing mines in India too.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)