India’s coal riddle: Surging imports despite huge reserves

energy imports, coal energy
India needs to balance its growth and emission goals as storage and grid issues weigh on its transition from coal energy.

India, despite being the second largest coal producer in the world, relies heavily on imports to meet its fuel demand. Amid the ongoing war between Russia and Ukraine, it has become increasingly costlier to import coal making it imperative for the country to ramp up coal production and become self-reliant.

A new risk has arisen for the coal supply as a key trade union at Coal India Ltd has signalled a workers strike over delays in finalising salary increases. The move will deal a heavy blow to domestic coal production. This comes at a time when the coal industry is already under severe pressure to meet soaring demand and the imports prices have gone through the roof, threatening to trigger inflationary pressures.

India’s coal imports and exports

India’s coal imports have more than tripled in the last decade, reaching 248.54 million tonnes (both coking coal and non-coking coal combined) in 2020-21. Ministry of Coal data shows that the comparable figure for 2010-11 was just 68.92 million tonnes. In the country, coal can be freely imported under open general licence. India is the second largest coal importer in the world and it imports mainly from Indonesia, Australia, South Africa and the United States.

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On the other hand, exports have only fallen during the period. In 2010-11, India exported over 2 million tonnes of coal while in 2020-21 the figure fell below 1 million tonne. In comparison to imports, the export of coal from India is paltry. Indian coal is mainly exported to Nepal, Bangladesh and Bhutan.

India raised its overall production to 716.08 million tonnes in 2020-21 owing to sustained programme of investment and greater thrust on application of modern technologies. Meanwhile, Coal India Limited (CIL) and its subsidiaries accounted for 622.640 million tonnes of the output during 2021-22 compared with a production of 596.219 million tonnes in 2010-11 recording a robust growth.

Who imports coal in India?

India’s coal resources are found in older Gondwana Formations of peninsular India and younger tertiary formations of north-eastern region. However, to meet demand, India imports two types of coal, coking and non-coking coal.

Coking coal is being imported by Steel Authority of India Ltd (SAIL) and other steel manufacturers. This is done to bridge the gap between the requirement and domestic availability and to improve the quality. Non-coking coal is imported by coal-based power plants, cement plants, captive power plants, sponge iron plants, industrial consumers and coal traders. Coke is imported mainly by pig-iron manufacturers and iron & steel sector consumers using mini-blast furnaces. While electricity sector is the largest consumer of coal, cement industry, steel and washery industry and fertiliser and chemical industry also require coal supplies.

What ails Indian coal industry?

Due to extreme weather conditions this year (India witnessed an unprecedented heatwave this year), the demand for electricity also surged, leading to a coal shortage. This, coupled with a workers’ strike, could have a dampening effect on the coal industry that is unlikely to meet the domestic demand. Industries may be forced to import more this year. Workers are currently seeking a 47% increase in wages, a slight comedown from their earlier demand of a 50%. Coal India has offered a 3% raise.

A group of unions is now currently hoping for an intervention by coal minister Pralhad Joshi who has been urged by both the sides to help conclude negotiations. For Coal India, the strike has struck at a time when it is already under pressure to boost output as India faces rising demand due to the post-pandemic economic recovery and scorching summer heat. Coal India is responsible for 80% of the domestic output.

The high costs of coal imports are no help either as the world continues to face the heat of the ongoing war between Russia and Ukraine which has led to skyrocketing fuel prices and seaborne prices are also trading at record levels. Rising cost of fuel prices is stoking inflation and pushing down rupee, depleting the government finances.

India’s international commitments to reduce coal usage

During the Paris talks in 2015, India had given three commitments towards reducing climate change.  This included reducing the carbon intensity of its GDP (emissions per unit of GDP) by 33-35% by 2030, over what it was in 2005; two, 40% of its electricity generation capacity would be of non-fossil fuels by 2030 and three, it would create carbon sinks that will aid in absorbing 2-3 billion tonnes of carbon dioxide by 2030.

Prime Minister Narendra Modi then announced enhancements in these pledges and two of these has a major consequence towards coal usage. The first is that India’s non-fossil fuel capacity would reach 500 GW by 2030. This means that India’s non-coal, non-natural-gas-based power capacity should increase at least three-fold in nine years. Secondly, the announcement that India will get 50% of energy from renewable sources by 2030 cannot be achieved until a major pushback is done on coal. But in a country which generates more than half of its electricity by coal, fulfilling these announcements looks like a dream for now.

Resolving coal crisis

While India looks to cut down on imports in the wake of geopolitical tensions resulting in higher prices, it is to be seen if it will remain only a pipedream. In the current financial year (2022-23), the government expects to cut imports of coal (coking and non-coking) by around 35-40 million tonnes to around 180-190 million tonnes in FY-22.

The government admits that there is a need for raising coal production as the country’s coal demand is expected to double by 2040 with the rise in electric vehicles and higher power demand for domestic consumption. Union Coal Minister Pralhad Joshi has announced plans to make the country self-reliant in the sector. Towards that end, the ministry points at extractable reserve in the closed/discontinued coal mines which is pegged around 380 million tonnes.

India has the third-largest coal reserves in the world which is enough to last for the next 400 years at current consumption levels. However, there are several issues that need to be resolved before the country can reach its full potential in the sector. For one, Coal India enjoyed a long monopoly over the market and had little incentive to become efficient or market savvy to meet the demand. While the government had opened the gates for foreign players, lack of rail links to mines causes enormous disruption in supply of coal. The government needs to address this bottleneck on a war footing.

Further, Indian coal is inferior in quality as it has high ash content rendering it almost unusable for sectors such as cement which has over the years preferred to import, and more recently shifted to pet coke. The government must also look at deploying the latest technology in mining to maximise the extraction process.