Stolen India Coal Sold at Black Market in Modi’s Backyard

Every night, about 30 tractors loaded with coal arrive at the edge of a forest in eastern India. A fleet of trucks, engines and lights switched off, is waiting to ferry the cargo to the country’s biggest black market for the fuel in Varanasi.

Stolen coal from Coal India Ltd.’s mines and other quarries may reach as much as 60 million metric tons a year, about 13 percent of the annual output for the world’s biggest producer, according to Kuntala Lahiri-Dutt, a senior fellow at Australian National University’s Crawford School in Canberra. It’s worth about $1.5 billion and is a small but growing part of the widespread energy theft that reduces India’s GDP by more than 1 percent a year.

Theft is “rampant. It’s huge,” Ananda Sen, a lawyer representing state-run mining companies and a resident of the area, said in an interview in Ranchi, capital of the eastern Indian state of Jharkhand. “If someone asks you how many stars are there in the sky, what will you say? It’s not measurable.”

Newly elected Prime Minister Narendra Modi vowed during his campaign to curb coal theft, which has been part of his parliament constituency’s underground economy for decades. Now he must find a way to keep that promise as domestic shortages lead to record coal imports.

After winning the Varanasi seat, Modi addressed the residents from the banks of the Ganges river, seeking their support to clean up India’s oldest city. Varanasi, located in the eastern state of Uttar Pradesh, is on the tourist circuit for its spirituality and temples that dot the city’s landscape.

‘Hungry People’

“Stealing coal is much easier than farming,” said Dutt, who’s traveled extensively in India’s eastern coal belts. “These are hungry people. The shortage in the market brings them good prices. On a national level, theft of 50 to 60 million tons is a credible number.”

State-run Coal India’s annual output is about 463 million tons, which it sells for an average of about $25 a ton. The coal would be worth more on the international market, because the company sells it domestically at a discount. Power station coal in Australia, an Asian benchmark, costs about $70 a ton.

India’s former coal minister Sriprakash Jaiswal estimated losses from theft at as much as 15 percent of the company’s production, in an October 2011 interview with the Economic Times newspaper. A month later he told lawmakers in parliament the loss couldn’t be ascertained.

Coal India and the federal government, which owns 89.7 percent of the company, say they haven’t estimated the quantity of coal stolen from the mines. S.K. Srivastava, secretary of the country’s coal ministry, declined to be interviewed.

Scale of Theft

Company executives question the scale of the coal thefts.

“It can’t be disputed that some of the coal gets stolen from our stock, but the volume is not significant,” said Nagendra Kumar, technical director at Coal India. “We take all possible measures to stop thefts.”

The issue is becoming more pressing as rising demand leads to shortages. Years of operational inefficiency and delays in acquiring land and environmental approvals has left Coal India without new mines.

The company’s Eastern Coalfields Ltd. unit closed 3,236 sites in Jharkhand and neighboring West Bengal states in the two years ended March 2013, according to its annual report, in part because of concerns that local residents were illegally mining coal at the sites.

That’s driving up purchases from countries including Australia, Indonesia and South Africa. Imports of power-station coal may climb 7.4 percent to a record 145 million tons this year, said Andrew Cosgrove, a Princeton, New Jersey-based analyst at Bloomberg Intelligence.

Energy Imports

India paid about $158 billion for coal and crude oil imports in the year ended March 31, about 35 percent of the country’s total import bill for the year.

The pilfered coal adds to losses from stolen diesel, gasoline and electricity. India loses about a quarter of its electricity through theft, according to government data, costing utilities almost 1.1 trillion rupees ($18.3 billion) annually. That’s about 1 percent of India’s $1.88 trillion gross domestic product.

“It’s a social problem,” said Rahul Jain, a Mumbai-based analyst with CIMB Securities India Pvt., who has the equivalent of a sell recommendation for Coal India’s shares. “People who take the coal out live in those areas, don’t have other jobs and think the coal is theirs. It’ll be very tough for anyone to stop the theft. Coal India says to stop it, the entire army will have to be brought in.”

Biggest Margin

The Bharatiya Janata Party won the federal elections in May with the biggest margin in 30 years, putting Narendra Modi in the prime minister’s office. During the campaign, Modi promised to rid the coal sector of organized crime when he visited the eastern coal town of Asansol in May.

“Isn’t coal under the control of the mafia here?” Modi asked the crowd during his speech in the eastern Indian town, where coal mining first started. “Doesn’t it need to be freed from the mafia?” In Koderma town, in neighboring Jharkhand state, Modi said the region’s natural resources have been stolen for ages. “If your resources had been used for value-addition, wealth would have rained on you.”

Coal theft starts with individuals who fill sacks with the fuel and deliver it by bicycle to depots run by the local mafia. It’s then ferried to a nearby forest on tractors, a trip that often requires a payment to Maoist rebels, before finally being loaded onto the Varanasi-bound trucks, according to Rahul Sinha, a sub-divisional officer of the administration at Bermo colliery in eastern Jharkhand state.

Factories, Kilns

Much of the stolen coal goes to factories and brick kilns that don’t have purchase contracts with Coal India. Some finds its way to households, restaurants and local tea shops in the eastern states of Jharkhand, Odisha, Bihar and West Bengal.

“Coal India has been unsuccessful in controlling theft from its mines,” said Sinha, who has prepared a report on coal theft in the area. “I have seized at least 5,000 tons of stolen coal in the ten months I have been here,” he said.

Coal India questioned the logistics of stealing huge amounts of coal.

“The estimates of pilferage and theft have no authentic basis,” said Alok Perti, a Coal India director and former secretary at the coal ministry. “To move stolen coal on trucks, other smaller vehicles, motorcycles, bicycles and such other minor modes of transport will be logistically a very big operation if the quantities involved are in millions of tons. The estimates of theft, therefore, seem impractical.”

Left Behind

Poverty, unemployment, easy availability and booming demand are some of the reasons people steal coal. Millions of residents in India’s mining regions may feel left behind by the industrial advances of the nation in recent decades. Their economic conditions have remained largely unchanged, or worsened, while mines and factories pop up all around them.

“The lack of social inclusion of these groups in the policies has created space for menace like coal theft, pilferage and illegal mining,” New Delhi-based environment and energy advocacy group The Energy Research Institute said in an August 2013 report.

The anger is also showing in the growing strife over land, with villagers refusing to be dislocated, a problem Coal India cites as the biggest productivity hurdle.

“Lack of rail infrastructure, slow environment and forest clearances, land acquisition hurdles, resettlement of displaced persons and apathy of state governments have led to shortage of coal, which is making the market for stolen coal lucrative,” said Coal India’s director Perti. “If there is no shortage, there will be no takers for the coal at higher prices.”

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