Coal reserves offer no relief for India fuel crunch

Mumbai: India sits on one of the world's biggest coal reserves, yet its power stations are starved of the fuel with some idle and others running dangerously low on supplies. Coal accounts for nearly 60 per cent of India's electricity, and the country's biggest utility company warned the government this month that supplies at many plants were severely depleted.

While the government has rushed to avert an immediate crisis, analysts say much longer-term solutions are needed to spur recovery of the sluggish economy, which is hugely dependent on coal imports despite large domestic reserves. "India needs more power -- a lot more, and fast," said HSBC economist Frederic Neumann. "Otherwise its recovery and hopes of a Modi-boom will be scuppered," said Neumann, referring to Prime Minister Narendra Modi, who came to power in May on a platform of reviving Asia's third-largest economy.

The crippled state of India's power supply was on full display in the capital New Delhi during its hottest months in May and June when long power outages led to street protests and uproar in parliament. Last week, the government admitted 46 of 100 major coal-fired plants had stocks for less than a week after the National Thermal Power Corporation (NTPC) warned it could face emergencies at many plants.

As India enters its rainy season, "it will become more difficult to replenish the coal stock", mentioned NTPC chief Arup Roy Choudhury wrote to the power ministry in a letter obtained. "In the case of even small disruption, the total power generation at these stations will be adversely affected," Choudhury said.

The situation seems unnecessary given India's 302 billion tonnes of coal resources, which represent the world's fifth-largest reserves. But coal imports hit a massive 165 million tonnes in the financial year to March 2014, climbing from 146 million tonnes in the previous year, draining foreign exchange reserves.

The reason for the imports is the snail-pace development of India's own coal sector -- underscored by the fact the first new major coal mine in more than five years began production just last week. India's lack of power is a drag on economic growth with the peak hour deficit -- the gap between supply and demand -- about 12 per cent.

Holding up new mines is a maze of environmental clearances and complex land acquisition approval, often primitive mining methods and lack of transportation facilities. Recently built ones stand idle for lack of fuel.

On top of that have been corruption scandals which have crippled the industry. "The coal shortage in India is a case where you have everything you need, yet you seem to have nothing," said Manish Aggarwal, head of energy and natural resources for consultancy KPMG in India.

Modi's government has already sought private funding to help repair the country's crumbling infrastructure, especially the railways, essential for transporting domestic coal to plants and solving the shortage. Estimates peg the amount of money needed by India to repair its key infrastructure to be around $1 trillion for the next few years after decades of neglect, which has contributed to the embarrassing power crisis.

A blackout over half the country two years ago left hundreds of millions of people without electricity, and was blamed on energy-hungry Indian states drawing power from the grids beyond their allocated limits. And this demand for power is only set to grow, with nearly 400 million out of India's 1.2 billion citizens still without access to electricity according to the World Bank. But the trouble in spreading the electricity net wider is that the supply shortfall will only increase, resulting in more power outages in bigger swathes of the country.

"If the regulator starts putting pressure on the utility company to provide power to all, then the latter will be forced to keep buying from the already scarce market," said a senior power sector analyst who requested anonymity. "Then, we could see the blackouts we currently call load-shedding to increase dramatically," he said.

Although the government has promised steps to overhaul the sector, it will take Modi's right-wing government time to get coal wagons rolling. "You can't wave a wand and boost coal supply overnight," said Ashok Sreenivas, senior research fellow at Prayas Energy Group, a Pune-based non-profit group.

Meanwhile, the government's inability to forge ahead in nuclear power due to local opposition means India will be dependent on coal for years to come, analysts say