New Delhi: R.S. Sharma, chairman and managing director of India’s largest power generation utility, is a worried man. His concern stems from the fact that at least 80% of state-run NTPC Ltd’s installed capacity of 32,194MW is coal-based and there just isn’t enough fuel to run them.

“While there is a problem due to some expansion projects getting stuck, we are trying to meet the gap through imported coal," Sharma said.

The irony is that the country’s most vital primary source of energy is actually quite abundant but between extracting the coal and getting it to the power stations lies a range of hurdles, including environmental and law and order issues and lack of investment.

Power projects face the maximum crunch, as the sector is the biggest consumer of coal, absorbing 78% of domestic production.

Graphic: Ahmed Raza Khan/Mint

“Coal is likely to continue to provide 60-70% of the generating capacity. Luckily it is a resource that is largely indigenous and seems abundant," said former power secretary Anil Razdan. “However, seeing the appetite of the Indian power sector, we should immediately start acquiring coal assets abroad just as China has done, and build coastal thermal plants based on imported coal. Ports and rail links are to be developed for transporting imported coal."

While several Indian firms have been looking to acquire overseas coal assets, they have to compete with leading Chinese government-run coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd. Thus far, apart from a few private sector successes, a majority of the firms have largely been unsuccessful in securing coal concessions overseas.

According to the government, the power sector is facing a coal shortage of around 105 million tonnes per annum (mtpa), which is expected to rise to 225 mtpa by 2012. As of 4 July, eight power plants had reserves of fewer than four days and 31 had fewer than seven days.

“A lot of coal is at the pit head. We want it to reach the projects," power secretary P. Uma Shankar had said earlier. “We have asked a number of agencies to import coal."

Demand is around 600 mtpa and set to touch 2,340 mtpa by 2030. India has a known resource base of 264,000 mt, the fourth largest in the world, of which proven reserves are around 101,000 mt.

Analysts believe that the government’s attempt to control demand and supply has skewed the pricing mechanism and created distortions. That’s resulted in inadequate investment in new projects, acute shortage of capital and physical resources for exploration and a burgeoning gap in demand and supply.

“The sector is one of the most regulated ones, but the effectiveness of these regulations can well be gauged from the extent of illegal mining and transportation of coal," said Dipesh Dipu, an expert on the mining sector. “The captive mining rules for coal, coupled with acute shortages, create unmet demand for coal."

State-run Coal India Ltd (CIL), which has an 82% share of the country’s coal production, has been unable to keep pace with rising demand. It produced 431.27 mt in 2009-10 against a target of 435 mt.

CIL chairman Partha S. Bhattacharyya did not respond to repeated phone calls or to a message left on his cellphone.

Acknowledging ecological concerns, the ministry of environment has suggested a ban on mining in almost half the area under nine key coalfields.

The issue of no-go areas for mining has even threatened to derail the Congress-led United Progressive Alliance government’s ambitious programme to build big power plants with an installed capacity of at least 4,000MW each.

“There is urgent need for fast-track forest clearance. Coal is available almost entirely in forest areas," Razdan said.

To remove the opaqueness and irregularities surrounding the award of so-called captive coal blocks, the government introduced the Minerals (Development and Regulation) Amendment Bill for allotting captive blocks to iron, steel, power and cement firms that use the coal for their own plants. Introduced in the Rajya Sabha in 2008, it is yet to be passed.

“Reforms in the coal sector have not progressed much due to the government playing the roles of both regulator and active monopolistic participant," said Dipu.

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