India's Energy Woes Go Deep
Supply-Demand Gap Widens
Staff Reporter of THE WALL STREET JOURNAL
MUMBAI -- India, an energy-hungry country endowed with vast quantities of coal lying deep underground, has a problem: a chronic and worsening shortage of this staple fuel.
Coal India Ltd., the fiercely protected state monopoly, is unable to keep up with rising demand. The failure to bridge that gap is hobbling the country's attempts to boost power output and is emerging as one of the biggest deterrents to business investment and profitability in India. It also poses hard questions about the sustainability of current growth rates.
The coal crunch shows how vestiges of India's protectionist past hamper efforts to meet the demands of the country's booming economy. India's energy needs increasingly are met through tight world energy markets. The less coal India mines, the more it must pony up for costly imports.
India relies on coal for 80% of its electricity needs, and demand for electricity is booming with the economy. From April 2004 to the end of January, the country fell short of delivering enough power to meet peak demand by 12%.
"If we are to continue to grow at 7%, then physical infrastructure in terms of availability and quality would be very critical," Reserve Bank of India governor Y. V. Reddy said in a recent interview. "Coal production, and consequently power generation, are some of the areas needing attention now."
India depends on foreign crude oil for 70% of its fuel needs, a figure expected to rise drastically -- at stiffer costs -- as crude prices nudge beyond $60 a barrel.
India produces about 400 million metric tons of coal a year, which industry analysts say is far short of fast-rising demand. Coal imports have risen over the past decade, and industry analysts expect them to increase sharply over the next 10 years. But even after imports, the gap between supply and demand stands at 30 million to 40 million tons, says Sharad Kumar Chand, a researcher at The Energy Research Institute in New Delhi.
If production isn't lifted substantially, by 2015 the gap could explode to as much as 425 million tons -- or 45% of projected demand -- as India grows increasingly desperate for coal-fueled electricity, says a recent report on India's minerals sector by consultant McKinsey & Co. and the Confederation of Indian Industry.
This situation is ironic given India's huge coal reserves, the world's fourth-largest. The Indian government puts proven coal reserves at 92 billion tons, 200 years' worth at current production levels -- if only someone would dig it up.
With huge coal imports looming, the spot-market price of low-sulfur, high-energy coal has doubled over the past 18 months to around $60 a ton. "Coal is one of the highest-priority remaining reform areas for the government," says Vipul Tuli, an energy analyst at McKinsey's office in New Delhi.
The McKinsey/CII report predicts an extra $6 billion in foreign exchange will have to be spent on foreign coal each year by 2015 if India isn't able to satisfy demand domestically. Coal imports increased an estimated 17% in the fiscal year ended March 31.
Shashi Kumar, the chairman of Coal India, said India's coal shortfall is less than believed and can be covered by bringing online new mines and making existing ones more efficient. "After two or two-and-a-half years we'll be able to meet the shortages," he said.
Sector analysts say Coal India has indeed lifted production in response to shortages. Some of its subsidiaries are considered efficient, though Mr. Kumar concedes that overall output and utilization of equipment could be better. "In these areas, I have to improve," he said.
In the meantime, ramping up imports further will bring its own challenges. Creaky port infrastructure needs upgrades, and V. Raghuraman, an energy analyst at the Confederation of Indian Industry, says that "often there's no [transport] infrastructure to carry the coal from the ports to the power plants."
The biggest problem, though, is that mining remains largely the exclusive domain of the inefficient state monopoly, established after coal mines were nationalized in the early 1970s. The McKinsey/CII report identified bloated staffing and a lack of funds for growth at Coal India, and recommended it be exposed to more private-sector competition.
But successive governments have been more interested in placating aggressive coal unions. Private miners may set up coal mines to feed specific projects, such as steel plants, but otherwise don't have a free hand to mine coal or sell it.
The government of Prime Minister Manmohan Singh has identified boosting coal production as a national priority. But legislation to open the sector to competition has been stuck in Parliament for the past five years. Although Mr. Kumar of Coal India says he supports the bill, coal unions, anxious about job losses, threaten nationwide strikes if it's revived.
"We want the bill withdrawn," says M. K. Pandhe, president of the 150,000-member All India Coal Workers Federation. "Our nation's resources should be controlled by public-sector companies." He believes Coal India can close the production gap with a classic prescription: financial assistance from New Delhi.
No comments:
Post a Comment