Revive underground mining of coal

Almost every government since 1991 has considered opening up the country’s coal sector to competition. Having proposed denationalisation of commercial mining in the Coal Mines (Special Provisions) Ordinance, 2014, the Narendra Modi government has now stepped into this zone.

There is an option which can meet both the reforms and privatisation agendas without disturbing the status quo for the nationalised miner: the select opening up of the underground (UG) mining sector, coupled with free market pricing of coal produced by such mines..

Once the mainstay of coal production in India; the contribution of UG mines in total production has declined to a mere 7 per cent in the four decades of nationalisation. The need to step up production, the administered pricing of fuel, coupled with the failure to bring in new underground technologies, led Coal India Limited (CIL) to focus on the low hanging fruit of open-cast mining.

Between 1975 and 2014, CIL’s UG production came down from 70 million tonnes to 36 million tonnes, lower than the spot sales of 54 million tonnes in 2013-14. Including Singareni Collieries (SCCL) and a couple of captive producers, the total production is 40 million tonnes (including metallurgical coal used in the steel sector).

The share of UG mines in India is far below the global average. UG mines contribute 20 per cent of production (over 400 mt) in Australia, nearly 40 per cent in the US (over 1,000 mt) and 86 per cent in China (over 3,500 mt). Considering Indian conditions, underground mines should contribute 25 per cent of coal production here.

The prospects are good in Chhattisgarh, Jharkhand and Madhya Pradesh where the reserves are mostly under forest cover. These resources can be extracted without disturbing the flora and fauna too much. Instead, what we are doing is uprooting our forests, adding to the social conflict by acquiring huge tracts of land every year for stripping resources located up to 300 metres from the surface.

For a country that has 10 times higher population-density than the US and 2.5 times of China, we have already stretched ourselves a bit too far, for 500 million tonnes open cast production. Going further is difficult, with or without privatisation.

It would be tough for the private sector to get land for open-cast mining, as they lack a humane reputation. Rural India has greater faith in government companies. Let CIL enjoy that advantage to feed the country with cheap electricity.

A look at large growth economies — such as China and South Korea — demonstrates that State control over energy pricing is necessary. In both countries, State monopolies in the power sector absorb huge losses or sacrifice potential profits for the national good. Since electricity generation in India runs on the profit motive, the State-owned CIL has to bear this burden.

Opening up the underground sector along with market-determined pricing can replace imports in the long term. Since imported coal is primarily used by the steel and cement sectors, they should welcome the step. The government may consider stopping the current open-cast offerings (through both firm pacts and open market sales) to such sectors and divert the same to the regulated power sector.

CIL should be happy as well, as the initiative should offer a fresh lease of life to its nearly 300 underground mines, almost all of which are loss-making. According to rough estimates, the company absorbs a loss of nearly ₹10,000 crore a year on UG operations, employing 75 per cent of its four lakh workforce.

While the revenue-earning opportunity should encourage CIL to take UG mining more seriously, coal unions may not oppose the move. Free market pricing of UG coal will help the country tap huge reserves of 800 mt of high calorific value (6000-7000 GCV) coal in Assam and Meghalaya.

In the absence of organised players, mining is left to illegal or unorganised miners. The problem is more acute in Meghalaya which has reserves of nearly 600 mt. This is out of bounds for CIL because, unlike the rest of the country, land owners here enjoy legal sanction to extract the mineral.

Unofficial estimates suggest that Meghalaya currently produces nearly 10-12 mt of coal through the highly unsafe rat-hole mining, mostly to feed brick kilns in neighbouring Bangladesh.

The entry of private sector UG miners can alter the scene dramatically.