India's Cabinet Backs Plan to End State Monopoly on Coal Trade

  • Move aimed at narrowing gap between supply and demand
  • Country plans to more than double production by end of decade

India’s cabinet approved a plan to end the state’s monopoly on the production and sale of coal after more than four decades in control of the industry.

Wednesday’s decision allows companies run by the federal and regional governments to compete with state-held Coal India Ltd.., which dominates output and sales of the fuel. The move is aimed at narrowing the gap between supply and demand, in particular getting supplies to small and medium-sized coal users, according to a statement from the Press Information Bureau.

The step may foreshadow a broader opening of the industry which would see private investors gain access. In March, Parliament approved changes to the mining law that would enable such a reform when needed.

Once mines have been allocated, companies will need to pay 10 percent of the value of the coal held, according to the statement. They’ll make payments in three tranches to the host province within a year of allocation.

India plans to more than double coal production to 1.5 billion metric tons by 2020 to feed power plants and supply industries. To achieve that goal, it needs to access deep deposits that remain untapped because of high costs and insufficient technology at Coal India, which controls more than 80 percent of the nation’s output and is the biggest seller.

Insufficient Output

India produced about 612 million tons of coal in the year through March compared with demand of about 826 million tons, the statement shows. The shortfall is met with imports. Wednesday’s decision will help reduce such purchases, which have been declining in recent months, according to the filing.  

“The government should consider bringing in large miners who can use better mining technology to tap underground reserves and become alternative suppliers of the fuel,” said Debasish Mishra, a partner with Deloitte Touche Tohmatsu India LLP in Mumbai.

Lifting government control altogether on coal mining and sales may allow global companies such as Rio Tinto Group and BHP Billiton Ltd. to enter the country’s coal business.

While many nations are scaling back coal-power output, the fuel fires more than 60 percent of India’s generation capacity and is likely to dominate its energy mix for years to come as expanding industries drive economic growth. Even though the country’s power plants hold record stockpiles, supplies fall short during peak demand and the bulk of the volumes are routed to large electricity producers.

The reform is also aimed at tackling output-quality problems at Coal India, after consumers including power producer NTPC Ltd. complained of receiving stones among the coal they purchased.

At present, the only other company allowed to sell coal in India is Singareni Collieries Co., a joint venture of the federal government and the southern state of Telangana. Others can mine coal for their own use.

Before it's here, it's on the Bloomberg Terminal.