India running short of coal—fast

The world’s biggest coal miner faces the ironic situation of having to import coal because consumption is running out of control.

Coal India, Ltd, the world’s biggest coal producer, is almost certain to resume coal imports, both to power India’s ravenous thermal power plants and to avoid paying stiff penalties to the Indian government. Coal powers over half of India’s electricity generating plants.

Analysts said Coal India, which supplies 85% of India’s coal, will have to import as much as 30 million metric tons of coal beginning this April 1 because its output will certainly fall short of demand. India imported 114.4 million tons of coal in 2011.

The penalties to be imposed on Coal India stem from a government directive ordering the state-owned company last Feb. 15 to sign agreements to supply power plants due for completion by March 2015 and import coal to prevent local production bottlenecks.

The government hoped that fines Coal India will pay should it miss these schedules would goad the company to increase output. That has not happened.

Coal India reported a 2.8% drop in production to 291 million tons in the nine months ended Dec. 31. Operations were slowed by heavy rains and the development of new mines was hampered by delays in land acquisition and environmental approvals.

“Coal India will have to supply the coal even if they don’t have domestic production, and this is going to force them to import,” said Kamlesh Kotak, vice president of research at Asian Markets Securities in Mumbai. “The company is being driven into a corner to boost the power sector.”

Government support, however, might allow Coal India to increase production to 431 million tons by fiscal 2012 and to 615 million tons by fiscal 2017.

Based in Kolkata, West Bengal, Coal India posted revenues of US$13.3 billion in 2011 from which it derived a profit of US$2.4 billion. It posted India’s highest ever IPO in 2010. The company employs over 380,000 persons.