A coal scam: the next pitfall for an already fractured coalition?

Angul: Ten years after announcing the project, Jindal Steel and Power is still waiting to start digging for coal to fuel its $3.1 billion steel and power complex in Orissa.

The project is one of several industrial ventures mired in a bureaucratic morass that contributes to the massive power shortages plaguing India, dulling its investment appeal and slowing the growth of Asia’s third largest economy.

The obstacles include tardy environmental clearances and complex land acquisitions, as well as populist policies that often mean hefty losses for power utilities.

The Jindal project also now risks being held up by what may become another corruption scandal for Prime Minister Manmohan Singh, after a report by the Comptroller and Auditor General of India (CAG) accused the coalition government of giving up $211 billion in potential revenues by selling coal assets too cheaply.

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India sits on the world’s fifth-largest coal reserves, and produces the most after China and the United States.

[caption id=“attachment_263029” align=“alignleft” width=“380” caption=“The country has a power shortfall which at its peak can hit 11 percent with frequent power cuts, especially outside cities. Reuters”]  [/caption]

But it also imported about 80 million tonnes of coal for power last year and that figure could rise to 400 million tonnes in 2030, research consultants Wood Mackenzie said.

“The problem is the entire process takes time, every approval - be it forest clearance, be it land acquisition, be it rehabilitation,” Rajesh Jha, executive director of Jindal Steel and Power’s Orissa plant, told Reuters.

The government, however, can ill-afford to take its time if it wants to maintain economic growth.

NO POWER FOR THE PEOPLE

Coal accounts for more than half of India’s power generation and will be required for 85 percent of the 76,000 megawatts additional capacity targeted in the next five years.

But domestic supply has fallen short of targets largely due to regulatory hurdles, and poor infrastructure hinders the transport of imported coal.

The country has a power shortfall which at its peak can hit 11 percent with frequent power cuts, especially outside cities.

Power shortages are one of the greatest obstacles to developing the Indian economy, the World Bank says, dimming the nation’s hopes of competing with China, the world’s largest consumer goods manufacturer and its biggest producer of coal.

Industrialists say the answer lies in attracting more private investment into the coal sector, which is dominated by state-owned supplier Coal India.

Singh’s government tried to jumpstart that process during its first term in office, when, between 2004 and 2009, it sold 155 coal blocks at a nominal price to industrial projects as captive supplies. These are now being questioned by the CAG.

“When companies are struggling for coal and not able to explore coal blocks allotted to them, a report like this will further worsen the situation,” said a Jindal executive who declined to be named because he was not authorised to speak on behalf of his company.

Allegations of misspent funds are particularly emotive in a country where about half a billion are poor and rely on state subsidies for food and power.

Singh’s office has denied any wrongdoing in the coal row, but the charges of corruption have further weakened a government which in February was ordered by a court to cancel more than 100 telecoms licences after the auditor said they were sold too cheaply.

The government has awarded a net total of 195 blocks with reserves of 44.23 billion tonnes to industrial projects, but only 28 of these are operating, with current output just 38 million tonnes a year, a coal ministry source said.

Jindal’s Utkal B-1 coal block highlights much of what is wrong with India’s coal sector.

Assigned in 2003 and due to start production two years ago, the site has 140 million tonnes of coal reserves. But not even a boundary fence marks the area because the company is locked in a dispute with farmers who once owned the land but who now refuse to leave it, saying the price initially agreed was too low.

As a result the project’s 810 megawatt power plant operates at about a third of its capacity using coal bought from Coal India at an average price of 3,000 rupees per tonne currently – costing $142 million a year, according to Jindal’s Jha. The costs of the captive coal should be a third of that, Jha said.

He says Jindal now believes it can get the mine producing by September.

The same problems plaguing private miners have also led Coal India - which produces 80 percent of the country’s coal - to cut output targets to 440 million tonnes in 2011/12 from initial hopes of 520 million tonnes.

Coal mining in India is such hard work, said a senior executive at a private power firm, that the CAG’s estimate of $211 billion in lost mining revenue was simply unrealistic.

“Tell me, if there is so much money to be made from mining coal in India, if it is so easy, why then is Coal India struggling to produce enough to supply the country,” said the executive, who declined to be named as he did not want to be seen criticising the government.

Reuters