COAL INDUSTRY ADVISORY BOARD INTERNATIONAL ENERGY AGENCY Coal in the Energy Supply of India COAL INDUSTRY ADVISORY BOARD INTERNATIONAL ENERGY AGENCY Coal in the Energy Supply of India INTERNATIONAL ENERGY AGENCY ORGANISATION FOR 9, rue de la Fédération, ECONOMIC CO-OPERATION 75739 Paris, Cedex 15, France AND DEVELOPMENT The International Energy Agency (IEA) is an Pursuant to Article 1 of the Convention signed autonomous body which was established in in Paris on 14th December 1960, and which November 1974 within the framework of the came into force on 30th September 1961, the Organisation for Economic Co-operation and Organisation for Economic Co-operation and Development (OECD) to implement an Development (OECD) shall promote policies international energy programme. designed: • To achieve the highest sustainable economic It carries out a comprehensive programme of growth and employment and a rising standard energy co-operation among twenty-six* of the of living in Member countries, while OECD’s thirty Member countries. The basic maintaining financial stability, and thus to aims of the IEA are: contribute to the development of the world • To maintain and improve systems for coping economy. with oil supply disruptions. • To contribute to sound economic expansion in • To promote rational energy policies in a global Member as well as non-member countries in the context through co-operative relations with non- process of economic development. member countries, industry and international • To contribute to the expansion of world trade organisations. on a multilateral, non-discriminatory basis in • To operate a permanent information system on accordance with international obligations. the international oil market. • To improve the world’s energy supply and The original Member countries of the OECD are demand structure by developing alternative Austria, Belgium, Canada, Denmark, France, energy sources and increasing the efficiency of Germany, Greece, Iceland, Ireland, Italy, energy use. Luxembourg, the Netherlands, Norway, Portugal, • To assist in the integration of environmental Spain, Sweden, Switzerland, Turkey, the United and energy policies. Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan * IEA Member countries: Australia, Austria, (28th April 1964), Finland (28th January 1969), Belgium, Canada, the Czech Republic, Denmark, Australia (7th June 1971), New Zealand (29th May Finland, France, Germany, Greece, Hungary, 1973), Mexico (18th May 1994), the Czech Ireland, Italy, Japan, the Republic of Korea, Republic (21st December 1995), Hungary (7th May Luxembourg, the Netherlands, New Zealand, 1996), Poland (22nd November 1996), the Republic Norway, Portugal, Spain, Sweden, Switzerland, of Korea (12th December 1996) and Slovakia Turkey, the United Kingdom, the United States. The (28th September 2000). The Commission of the European Commission also takes part in the work of European Communities takes part in the work of the the IEA. OECD (Article 13 of the OECD Convention). © OECD/IEA, 2002 Applications for permission to reproduce or translate all or part of this publication should be made to: Head of Publications Service, OECD/IEA 2, rue André-Pascal, 75775 Paris cedex 16, France. or 9, rue de la Fédération, 75739 Paris Cedex 15, France FOREWORD FOREWORD India urgently needs modern energy to support its large, expanding population and growing economy. The country has vast coal resources which for many years have supplied a major share of its primary energy supply. The ever-increasing use of domestic coal has brought great benefits, but also poses serious challenges. By supplanting traditional biomass energy to a very large degree, coal has improved both the quantity and quality of the energy available to the Indian people. Coal also contributes decisively to India’s energy security, since the country has limited oil and natural gas production. Strong economies are indispensable in reaching the widely recognised goal of sustainable development. For India, a strong economy will depend on a strong and efficient coal industry. This report, undertaken by a study group of my colleagues in the CIAB, outlines the current situation of coal in India. It also identifies some of the major issues that must now be addressed. Key areas of concern include low coal quality, transportation gaps, low mining productivity, and possible environmental requirements. None of these challenges is new, and these same issues have been resolved in other countries. Deregulation, privatisation, market-based pricing and competition are important, if not essential elements in the modernisation of India’s coal industry. The Indian government and coal companies have already begun a far-reaching process of change. This report provides suggestions and encouragement for accelerating the pace of change. It is our sincere hope that these ideas, based on long and varied experiences in the global coal industry, will prove helpful to India. I would like to thank my colleagues from RWE Rheinbraun, especially Dr Hans-Wilhelm Schiffer, who did most of the research and writing of the report. I would also like to thank our colleagues in the IEA Secretariat, who encouraged us to undertake the study and bring it to publication. Jim Gardiner Chairman of the Coal Industry Advisory Board 3 FOREWORD The International Energy Agency is grateful to the Coal Industry Advisory Board for preparing this study and to the Government of India for its co-operation and support. Robert Priddle Executive Director International Energy Agency The Government of India welcomes the interest of the IEA Coal Industry Advisory Board in the coal industry of India. Considerable progress has been made in improving the commercial performance of the industry, while ensuring that it continues to play a role in the broader social fabric of Indian society. Investment in the coal industry is recognised as being of critical importance for its future. Effort has been directed to attracting capital and know-how into the industry from abroad. By lifting production from domestic coalfields, Indian enterprises can help match growing coal demand and offset rising imports. At the same time, imported coal will play an important role, particularly to supply coal qualities that cannot be supplied from our own mines and to meet gaps in supply and demand. Investment in ports and inland transport will therefore also be important. I hope that this report will encourage investors to look closely at the potential of the coal industry in India, and contribute to its continuing progress. We are conscious of the related need to bring about change in the way our electricity industry functions, and to ensure environmentally responsible use of coal in power generation and other uses. The IEA’s work in these areas is of considerable interest to us. N.K. Sinha Secretary Ministry of Coal and Mines Department of Coal New Delhi 5 TABLE OF CONTENTS TABLE OF CONTENTS FOREWORD ............................................................................ 3 1 SUMMARY AND RECOMMENDATIONS . 11 2 POLITICAL AND ECONOMIC OVERVIEW . 15 3 THE ENERGY SECTOR . 19 4 COAL SUPPLY . 25 5 COAL DEMAND . 33 6 REGULATION, STRUCTURE AND REFORM . 43 7 TECHNOLOGY, PERFORMANCE AND INFRASTRUCTURE . 55 8 ENVIRONMENTAL REGULATION . 61 9 OUTLOOK . 65 ANNEXES A Performance of the Indian Coal Companies . 71 B Statistics . 99 C International Energy Agency “Shared Goals” . 111 D Glossary . 113 E References . 115 7 TABLE OF CONTENTS FIGURES 1 Map of India ............................................................................................................... 10 2 Energy Indicators, 1999............................................................................................... 17 3 Growth in Energy Supply, Population and GDP ......................................................... 20 4 Supply of Coal, Oil, Gas, Nuclear Energy and Hydro ................................................. 20 5 Energy Imports, 1999.................................................................................................. 21 6 Production of Hard Coal and Lignite.......................................................................... 25 7 Major Coalfields and Mining Centres.......................................................................... 27 8 Coal Production and Consumption Centres by State and Sector, 1998....................... 29 9 Coal Import Trends ..................................................................................................... 30 10 Electricity Generation.................................................................................................. 35 11 Demand for Coke – Principal Purchasing Sectors........................................................ 37 12 Coal Production of Various Companies, 1999-2000 ................................................... 45 13 Productivity – Output per Manshift............................................................................ 57 TABLES 1 Coal India Ltd – Summary Performance ..................................................................... 47 2 Coal India Ltd – Summary of Influences on Performance ........................................... 48 BHARAT COKING COAL LTD A.1 Underground and Opencast Production by Method........................................... 71 A.2 Coal Washery Capacity....................................................................................... 72 A.3 Coal Preparation Summary................................................................................