Though Coal India is sitting on the largest coal reserves in the world, the dark reality is that much of its mines are located in mafia-infested land, where smuggling is the norm, not an exception

As foreign investors poured billions of dollars into the initial public offering (IPO) of Coal India Ltd (CIL), they have chosen to ignore one important fact which can blow up in the future - coal, which generates more than 70% of electricity in the country, is not only being used for India's growth but also for generating illicit income for mafias, local politicians and the Maoists - the single greatest threat to the country's internal security.

"Naxal activities are mostly concentrated in the coal belts of Jharkhand and West Bengal and it is affecting production of coal in India," former MP and trade union leader Jibon Roy told Moneylife. In effect, India's most productive mines are situated in the Maoist and mafia-dominated central and eastern parts of India - Jharkhand, Chhattisgarh, Orissa, Andhra Pradesh and West Bengal.

The Dhanbad, Jharia and Raniganj areas, where mines are operated by Bharat Coking Coal Limited (BCCL) and Eastern Coalfields (ECL), both CIL subsidiaries - are heavily affected by illegal mining. BCCL and ECL have been perpetually loss-making subsidiaries and have been referred to the Board for Industrial and Financial Reconstruction as sick companies in need of restructuring.

Mr Roy has earlier been quoted as saying that at least 10,000 mafia groups are active in coal-producing belts, mostly in CIL collieries, and plunder around five-six million tonnes of coal (worth more than Rs420 crore) every year. According to another report, about 7,20,000 tonnes of coal is smuggled every year in Jharkhand by organised syndicates of the coal mafia.

Facts like these have been ignored by institutional investors and analysts in their assumption that CIL is just another large coal company with valuations that should match and even exceed that of other large coal companies such as Peabody Energy.

The reality in the coal pit is different, according to Mr Roy. "Mafia gangs have been active in the coal industry for many years and these gangs can not work without (the) help of Maoists. If you go to the interior parts of Jharkhand, you can see thousands of cycles employed by the mafia to move coal from one place to another, and these areas are controlled by the Naxalites," said Mr Roy. "In India, about 60% of coal production is done by contractors and these contractors are easily targeted by the Naxalites," added Mr Roy.

"There are thousands of mafia groups that are active in pilferage of coal in these states. They (Naxalites and the mafia) have acquired land and abandoned mines," said Mr Roy. "These groups (the mafia) collect coal from productive mines and excavate coal from abandoned mines and bureaucrats, police and criminals are involved in the act."

The gangs, equipped with the latest weapons, are effectively active at various stages such as excavation, washing, loading and transportation of coal. Often, due to inadequate security measures and by threatening local authorities, coal trucks are diverted to other destinations by the mafia. Transporting coal over railway tracks is also not safe as fencings or walls are easily breached by these militants.

"I have seen coal-loading trucks being diverted from one place to another place under the protection of the police," added Mr Roy.

It is also reported that large amounts of coal are pilfered at Benaras-Mughalsarai and Andal yards. Local trains along the Korea-Rewa, Anadal-Sainthia, Dhanbad-Ranchi, Dhanbad-Hazaribagh, Asansol-Gaya and Asansol-Patna routes have been regularly used for pilferage of coal.

Despite the government claims that adequate action is being taken to stop illegal mining, the situation is becoming grave. As many mines are located in interior and isolated areas, routine inspections are not conducted by law-enforcement agencies. "The government is also not capable of protecting these mines," added Mr Roy.

Illegal coal mining has now become a major threat facing the nation. Along with stealing coal, some groups are also active in stealing explosives, which sources say is supplied to Naxalites. In May, the CID arrested a man with 150 gelatine sticks, used to make improvised explosive devices (IEDs) by Maoists, and an equal number of detonators. The CID claimed that the man was part of a racket that smuggled explosives from Eastern Coalfields' magazine depots and was used to supply gelatine sticks and detonators to the Maoists.

"Explosives of coal companies are targeted by the Naxalites and the mafia," confirmed Mr Roy. There is no record of stolen gelatine sticks and detonators over the years, alleges Mr Roy. Casual workers transport the gelatine sticks to collieries on cycles and vans, and pilferage often takes place at that time.

Not only organised gangs but women and children also take part in stealing of coal. Many poor people can be seen digging old mines and carrying bags of coal on their cycles.

Citing unnamed police officials, Tata Energy Research Institute's Journal of Resource, Environment and Development said that illegal mining can never be stopped entirely and some policemen receive regular payments from illegal mine operators. Mine managers also appear to be fully aware of the exact locations of large illegal operations, but overlook the practice, added the report. The illegal coal is sold at lower rates in the local market.

To restrain illegal mining, the government is trying to fill up holes of mines with stones and debris and seal off access to abandoned mines.
But tunnels are dug and the coal faces are exposed for illegal operations. Frequent accidents resulting in deaths also do not prevent people from continuing these operations.

Even though coal-producing and consuming companies are gaining mammoth profits every year, the socio-economic condition of the people living in these areas is still very poor - this incites them to pilfer coal.

However, politicians are keen to take benefit from rich coal deposits. In October 2009, Madhu Koda, former chief minister of Jharkhand, was charged with laundering money estimated at over Rs4,000 crore - a whopping 20% of the state's revenues - during his short two-year tenure at the helm.