Coal is increasingly becoming a bigger issue than oil. While it was a given fact that India does not have adequate oil reserves to meet the country’s requirement, coal remains a completely different story.
India has one of the largest reserves of coal, but is still not able to meet the domestic demand due to various issues led by poor logistics infrastructure.
Realising that it will be difficult for domestic coal to be made available, Coal India, along with four other public sector companies, under the aegis of the coal ministry formed International Coal Ventures (ICVL). The primary aim of the company was to acquire coal assets globally, in line with ONGC Videsh.
Apart from Coal India, the other four promoters of ICVL included NTPC, SAIL, NMDC and RINL. ICVL has little to show for its effort since its formation, though it claims to target 500 million tonne of reserves by 2019-20.
One of the reasons that little progress was made by ICVL was that while Coal India and NTPC wanted coal for power generation, the others wanted metallurgical coke for steel production. A stalemate resulted in little progress and in the end, the country has lost an opportunity to capitalise on acquiring mines, especially when world markets were down in 2009.
Earlier NTPC and now Coal India have decided to walk out from the company. The remaining players are all steel producers and one hopes that ICVL will finally make an acquisition to take care of its fuel requirement.
However, the issue of coal for power producers is still unresolved. Coal India is still in the process of satisfying the Presidential diktat to supply coal to power producers that are commissioning their plants by 2015.
With no access to international coal mines, Coal India will be restricted to be a trader of coal. The only way the company can benefit and hope to keep prices low is by arranging for large quantities of coal for a long period of time. This option, however, will still be a costlier one as compared to having its own mines.
But Coal India is not being blamed for lack of global assets. It is the coal ministry and the associated red tape. In the last two years ICVL has lost out on acquiring at least seven buyout opportunities. In fact in one deal ICVL had to interact with seven different ministries and a committee to buy a mine in Australia. It is yet to get a clearance as the committee has not met for the last four months.
Compare this to Chinese firms, which have acquired $21 billion worth of assets in the last two years. During the same period, India has managed only a $20 million deal in Australia.
The country lost a huge deal of acquiring 363 million tonne of reserves in Russia because the government took a year to grant an approval. For Coal India, its exit from ICVL is unlikely to change anything. For a large section of the population, continuous power supply will remain a luxury.