Coal in the Energy Supply of India. Industry Study for the IEA Recommends Coal Reforms in India to underwrite Sustained Economic Growth

(Paris) — 1 July 2002

With the world's third-largest hard coal reserves after the United States and China, India wants to underwrite energy security by expanding coal production. India is the third-largest coal producer in the world and the eighth-largest importer. The country produces 310 million tonnes annually and imports close to 25 million tonnes. Coal provides 56% of India's commercial energy supply.

The Director of the International Energy Agency, Mr Robert Priddle, released today the report of the IEA's Coal Industry Advisory Board on Coal in the Energy Supply of India. This study describes the Indian coal sector, and comments on government policies and the performance of the largely state-owned coal companies in India. Reforms are needed in the coal sector in India to improve efficiency and competitiveness of the industry if the domestic coal industry is to contribute to projected growth in demand.

"This book has important messages for investors, the Indian coal industry and the Government of India", Mr Priddle said. "The International Energy Agency will support those who seek to put the recommendations into practice. Prospects for the Indian coal industry are positive. The scale of the industry is huge. Improving its performance could bring great benefits for the Indian economy and the world environment."

Power generation is the main consumer and demand growth is outstripping coal supply capacity. Electricity supply failures are common in peak periods. Because of widespread use of run-of-mine coal of variable quality, many of India's power plants achieve only a low efficiency. The Indian government forecasts huge increases in electricity capacity based on coal. Massive increases in coal supply would be required to realise these projections.

State-owned Coal India Ltd - the world's second largest coal supplier -- produces about 90% of total Indian coal production and Singareni Coal Company Ltd produces 8%. Domestic coking coal is only marginally acceptable because of its ash and inert material content, so India must import much of its coking coal needs. Domestic steam coal is generally more suitable, but also high in ash which can reduce boiler efficiency and hamper efforts to reduce emissions.

Resettlement of communities, rehabilitation of mined sites, dust, noise and underground fires are important environmental issues. No limits are generally imposed on sulphur dioxide or nitrogen oxide emissions from power generation, nor are there targets for reducing greenhouse gases.

The coal industry has been liberalised steadily, but duties and tax continue on imports and distribution to major consumers is controlled by the government. Limited private investment is now permitted in mines supplying particular consumers. Foreign investment is also permitted on a case-by-case basis. Reforms need to be accelerated in tandem with reform of the electricity sector. Large-scale investment is necessary to expand mine capacity and to improve the quality of local coal. Investment in transport is also needed. Imported coal will be essential to close the gap between demand and supply of domestic coal, and to meet quality standards for both iron and steel, and power generation.

The principal objective of policy should be to improve the financial performance of the industry to international standards by creating a freely competitive coal industry, supplying a financially viable electricity industry. The report makes specific recommendations on price reform for coal and electricity, freeing-up commercial relations between buyers and sellers, rationalising quality standards, raising productivity and profitability, improving environmental performance, enhancing competition and attracting investment to the industry.

The Coal Industry Advisory Board brings together senior executives from coal mining, transport and power generation companies from throughout the world to advise the IEA Member countries on coal issues. The CIAB is chaired by Mr Jim Gardiner, Fording Coal, Canada. In 1999, the IEA published the CIAB's report on Coal in the Energy Supply of China. The IEA has published many other reports by the CIAB, including recent studies on improving the environmental performance of coal-fired power. The Board is currently focusing its attention on coal and sustainable development, and near-zero emissions technologies for coal-fired power generation.

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