Poor rail links dash Coal India's hopes of output rise

By Krishna N Das

NEW DELHI (Reuters) - Coal India, the world's No. 1 coal miner, will have to settle for an annual output growth of just 30 million tonnes for the next few years instead of a possible 300 million until railway tracks are ready to carry the fuel from new mines.

The subdued growth target from the company that controls 80 percent of India's total output means imports will continue to rise as demand surges, benefiting top suppliers Indonesia, Australia, South Africa and the United States.

Domestic shortage of coal has not only made India the world's third largest importer of coal despite sitting on what BP Plc ranks as the fifth-largest reserve, it has also led to less-than-required power production and frequent outages that have crippled industrial activity.

India's coal imports rose 21 percent to 152 million tonnes last year, according to research firm OreTeam. It is the fourth largest energy consumer in the world, heavily importing oil and coal.

"The massive output growth that India needs will come from only those coal fields where we've been able to do little because of lack of railway connectivity," Coal India Chairman S Narsing Rao told Reuters. "Until then we're aiming for production growth of 30 million tonnes per year."

The company expects to produce about 475 million tonnes in 2013/14, raising it by about 30 million tonnes next year as some mines are expanded.

As coal-based power generation rises, India's coal shortage could range between 185 million tonnes to 265 million by 2016/17, Coal Minister Sriprakash Jaiswal told lawmakers this month, suggesting large-scale imports were inevitable.

India was estimated to have spent $14 billion on coal imports last fiscal year and that figure is likely to rise to $25 billion by 2016/17, according to the Boston Consulting Group.

'LAST RESORT'

State-owned Coal India itself could import 10 million tonnes per year on behalf of customers if needed, Rao said. It floated a tender in November to import 5 million tonnes but not many companies are interested in buying through Coal India, instead trusting their regular private traders.

India's domestic coal shortage can be narrowed only if the Indian Railways moved faster in building tracks it started work on a decade ago, Rao said. Coal India plans to spend about 75 billion rupees to get 334 km railway lines built to evacuate coal from its remote mines.

"Indian Railways is promising to complete some of the stretches by 2016," Rao said by phone from the company's headquarters in the eastern city of Kolkata. "I keep my fingers crossed (given the delays in securing permission to clear forest land)."

Indian Railways spokesman Anil Kumar Saxena could not immediately be reached for comment.

Bhavesh Chauhan, a senior analyst at Angel Broking in Mumbai, agrees that Coal India's output could rise much higher if more railway lines were there.

"There's an inventory build up of about 50 million tonnes but Coal India has not been able to raise offtake because of shortage of railways," Chauhan said.

As an alternative to building railway lines, Rao last year sought permission from the government to set up power plants near its coal mines so that there is no need to transport the fuel. The government has yet to respond to that, he said.

"If we can't give coal to the people because of railway and other problems, at least we should generate power for them," Rao said. "That's the last resort."

(Editing by Muralikumar Anantharaman)