Problems and challenges faced by Coal India Limited

Problems faced by Coal India Limited (CIL)Coal India Ltd. was formed in the year 1975 by the Congress government headed by Indira Gandhi as a solution to the severely crippled coal industry. The Indian coal industry until 1975 was plagued with a number of issues like low productivity, lack of strategic planning, lack of funds, low-grade technology and lack of regulation [1]. It was then decided by the government that all companies in this industry would have to be brought under common governance, thus private sector independent companies were liquidated and a parent company called Coal India Limited was formed. All mining activities would henceforth be undertaken only by Coal India Ltd. or its subsidiaries.

Different types of coal and their uses

Coal comes in many forms and grades like Coking, non-coking, Lignite, and total hard coal [2]. Coking coal is a high-quality coal but is buried deep underground. It is commonly used in steel production.

Non-coking coal and total hard coal are low-grade coal with high ash content. This coal is present abundantly in eastern India and is relatively easier to mine. They are used in electricity generation, i.e. in coal-based thermal power plants.

Starting of problems

The centralization of the coal industry in 1975 resulted in usual problems faced during monopolistic situations:

  • lack of competition,
  • lack of innovation,
  • inadequate methods to foresee demand-supply situation and
  • failure to set long-term goals.

A situation of such urgency was created in 2004 India that the government decided on the allocation of coal blocks to private companies for captive mining (mining coal for personal use).  However, it is imperative to understand how and why Coal India Ltd. failed.

Under government monopoly, coal production by Coal India Ltd. increased steadily. However top-grade coal was still not mined extensively, prompting us to import it from countries like Australia, Indonesia and South Africa[3]. The graph below shows category-wise production of coal in the country since 1960.

Coal production in India since 1960.

Coal production in India since 1960. (Source: Civil Initiative Reports, 2008)

But why was Coal India unable to produce enough coal to meet nationwide demand?

With globalisation, demand for everything was increasing in India. As people grew richer more electricity was being consumed, and commodities production like that of steel and cement increased extensively. However despite abundant reserves to satisfy the demand, Coal India Ltd. was not able to produce enough coal annually. Therefore, India had to start relying on imports.

It is not that India does not have reserves of good-quality coal. It is available aplenty, but not as much as low-grade coal [4]. Although Coal India’s measures addressed the nation’s need for non-coking coal to an extent, it should have also focussed on extracting good quality coal from deep within the earth’s surface.

CIL was not able to produce sufficient coal due to the following main reasons:

  • The most important reason is the unavailability of the latest technological equipment for deep depths coal mining. The machinery available with Coal India Ltd. called open-cast mining allows drilling mostly up to 300 meters below earth’s surface, but about 40% of total coal reserves are located at a deeper depth which cannot be extracted using opencast mining. Moreover, open cast mining is more preferred because it is easier, cheaper and safer than newer technology methods. Hence the 40% reserves remain untouched while steel companies are forced to import coal[5].
  • The company does not possess an accurate assessment and evaluation system of coal reserves distribution in the country. Technology and systems available with Coal India Ltd. do not show a precise account of coal reserves, due to which they mine imperfectly.
  • The socio-economic environment in East India is unfavourable. The damage from open-cast mining is irreparable, rendering the land useless. Deforestation has become rampant, hampering ecology in these areas. People displacement has also increased due to infertile land and non-availability of water.
  • Civil unrest is another important reason for not mining efficiently. Coal reserves are most highly concentrated in areas where Maoist guerrillas operate, making the area hostile for mining [6].
  • More recently, illegal mining and exporting of coal have risen considerably. So while the nation bleeds for more coal, there are select few who engage in selfish malpractice like an illegal sale of coal for their personal gain. Litigation against them often goes on for years, so illegal mining hasn’t been controlled yet.

These are some of the many reasons which resulted in the incompetence of Coal India limited, prompting the government to alter coal laws in the nation.

References

  1. India Energy Sector (n.d.). History of Coal Mining in India. Available at http://www.indianenergysector.com/coal/history-of-coal-mining-in-india.
  2. Chikkatur, A. (2008). A Resource and Technology Assessment of Coal Utilization in India. Civil initiative report, White Paper Series, October 2008.
  3. The Economist (n.d). The future is black. Available at http://www.economist.com/node/21543138.
  4. Sachitanand, N. (2013). Myopic coal mining policy pushes India towards darkness.  Deccan Herald. Available at http://www.deccanherald.com/content/207748/myopic-coal-mining-policy-pushes.html.
  5. Chikkatur, A. (2008). A Resource and Technology Assessment of Coal Utilization in India. Civil initiative report, White Paper Series, October 2008.
  6. The Economist (n.d). The future is black. Available at http://www.economist.com/node/21543138.

Priya Chetty

Partner at Project Guru
Priya is a master in business administration with majors in marketing and finance. She is fluent with data modelling, time series analysis, various regression models, forecasting and interpretation of the data. She has assisted data scientists, corporates, scholars in the field of finance, banking, economics and marketing.

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1 Comments.

  1. Pranab Bandyopadhyay

    A very good article to share with my collegue as i am working with this organisation for last 30 years.

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