State-run Coal India Ltd’s plan to diversify into power generation looks uncertain with the government averse to the idea pursued by the world’s largest coal miner.

The government wants the firm to stick to its core activity of coal mining as it is expected to invest as much as $25 billion over the next five years to reach the target of 1 billion tonnes of coal by 2019-20. With India’s demand for electricity expected to double to 2 trillion units in the next five years, Coal India will have to play a crucial role in helping India reach fuel security.

“The core activity of Coal India is not power generation, that’s NTPC. The core activity of Coal India is mining," a government official said, requesting anonymity. “They should be the providers of coal to companies in India. That’s their job. They can do other things but that’s their primary job."

Coal India had formed Mahanadi Basin Power Ltd in December 2011 as a special purpose vehicle (SPV) to set up a 1,600 megawatt (MW) project in Odisha, with a planned investment of around 6,400 crore.

While queries emailed to a coal ministry spokesperson remained unanswered till press time, a top Coal India executive, who also didn’t want to be identified, confirmed the government’s thinking and said, “We should stick to our core area of excellence."

With an installed capacity of 44,598MW and a 17% share in India’s power generation capacity of 267,637MW, NTPC Ltd is the largest power generation utility. For its part, Coal India accounts for over 80% of India’s coal demand, and produced 494 million tonnes in 2014-15, compared with its target of 507 million tonnes. It aims to produce 550 million tonnes in the year to next March.

While India’s power generation capacity grew by 60% over the last five years, coal production only grew by around 6%. This changed in the last financial year, with Coal India’s production increasing by 8.3%.

As part of the National Democratic Alliance government’s plan of achieving energy security by getting 1.5 billion tonnes (bt) of coal mined in the country by 2020, Coal India has to mine 1 bt of coal. India’s per capita power consumption, about 940 kilowatt-hour (kWh), is among the lowest in the world. Around 280 million people in the country do not have access to electricity. In comparison, China has a per capita consumption of 4,000kWh, with developed nations averaging around 15,000kWh per capita.

Experts say future large power projects should be located near the coal pitheads because of constraints in the transportation of fuel and cost of carrying ash-bearing Indian coal.

“One should focus on transmission lines for evacuation. It is understandable if they stick to their core competence instead of going to the downstream industry. However, if they can meet their commitment on the upstream side, which is the supply of the targeted quantity of coal, there is no harm in allowing diversification," said former power secretary Anil Razdan.

India’s power sector is the biggest consumer of coal, absorbing 78% of local production, with Coal India accounting for around 81.1% of the country’s overall coal production.

“If NTPC can operate mines, why can’t Coal India set up power projects as long as they meet their core commitments?" added Razdan.

The miner also has plans to form two joint ventures with state-owned GAIL India Ltd and Rashtriya Chemicals and Fertilizers Ltd (RCFL) to help Fertilizer Corp. of India Ltd revive its mothballed urea plant at Talcher in Odisha. Coal India had earlier dropped its plan to enter the shipping business because of the lack of demand for the fuel imported by the miner. The firm had planned to form a partnership with Shipping Corp. of India Ltd to import coal.

The Bharatiya Janata Party (BJP) had made energy security a part of its election campaign for the April-May 2014 general election. After assuming office in May, the BJP-led government launched a scheme aimed at ensuring around eight hours of quality power supply to agricultural consumers and 24-hour electricity to households.

Coal India’s net profit in the quarter ended 31 December declined 16.2% to 3,262.49 crore from a year earlier as it sold less coal through electronic auctions in order to meet domestic power sector demand, as directed by the coal ministry.

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