Abstract
India is the third-largest producer and consumer of coal in the world. With
proven reserves of 257.38 billion (Bn) tonnes, coal is one of the most
abundant sources of energy in the country. In 2007, coal accounted for 51
percent of the primary energy consumed in the country.
The coal industry is a highly-regulated industry which gives it a monopolistic
character. Only governmentowned/ managed/controlled companies are eligible to
mine and trade coal without the restriction of captive consumption. Coal India
Limited (CIL) and Singareni Collieries Company Limited (SCCL) account for
nearly 92 percent of the total coal produced in the country.
The industry is also characterized by inelastic demand. The technologies
prevailing in the major coal-consuming sectors like power, steel and cement
are coal-based, thus rendering the substitutability of coal as a fuel in these
industries difficult at least in the near future.
Coal mining is fraught with high risk, making safety issues critical for the
industry. In addition, as mining has tremendous impact on the environment,
therefore environmental clearances play an important role in the industry.
Though India has the fourth-largest proven coal reserves in the world, Indian
coal is of poor quality. Nearly 83 percent of the Indian coal is of non-coking
variety with high ash content. Of the 456.4 million (Mn) tonnes of coal
produced in FY08; power, steel and cement sectors accounted for 77percent, 4
percent and 3 percent, of the offtake respectively. The domestic offtake by
the power and cement sectors have grown at a CAGR of 6.79 percent and 4.03
percent, respectively during the last five years while that by the steel
sector has seen a decline of 2.03 percent.
The offtake of coal by different sectors is governed by coal distribution
policy. In October 2007, the new coal distribution policy was introduced. As
per this policy, 100 percent requirement of sectors like power (non-captive),
fertilizer, defence and railways will be met at pre-determined prices. For
other sectors, 75 percent of the requirement will be met at the pre-determined
prices. Companies having an annual requirement of more than 4,200 tonnes will
need to enter into Fuel Supply Agreements (FSAs) with CIL/subsidiary companies
while others will need to enter into FSA with agencies as notified by the
state government. E-auction of coal has been reintroduced for the benefit of
small consumers who cannot enter into long-term contract due to small
requirements.
In FY08, India imported approximately 50 Mn tonnes of coal, of which coking
coal constituted 57 percent. The major source of imported coking coal is
Australia while for non coking coal Indonesia is the dominant source. The
close proximity of Indonesia with India compared to other source countries
gives Indonesian coal a freight advantage over others. India also exports a
miniscule amount of coal to countries like Nepal, Bangladesh and Bhutan.
Demand Growth
As per the Expert Committee on Road Map for Coal Sector Reforms, a shortfall
of 100 Mn tonnes of thermal coal is expected in the country by the end of
FY12. To meet this demand-supply gap, the Government is looking at various
alternatives e.g. FDI, acquisition of overseas coal block, captive mining,
faster project approvals, better technology etc. An area which calls for major
improvement is coal logistics, in both rail and port. At present, both rail
and port infrastructure are severely stretched, with the average waiting time
at the Indian ports reaching 4.12 days and 4.89 days in FY07 for non-coking
and coking coal, respectively. Coal beneficiation is being encouraged to
release the already stretched railway capacities.
CARE Research expects the coal demand in the country to increase to 574 Mn
tonnes by FY10, growing at a CAGR of 7.58 percent in the next two years.
For in-depth analysis and CARE' s view on the future of this sector, please
refer to the exhaustive Report on Indian Coal Industry by CARE Research.
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