The Indian Economy Blog

August 5, 2008

Coals To Newcastle… And Bengal?!

Why is Bengal, one of the largest sources of coal in the world, importing coal from abroad?

Long-time reader and IEB friend, Joydeep Mukherji sent us this article with a comment:

The West Bengal government has decided to import one lakh tonne of coal at higher rates to fuel the thermal power plants which have not been able to meet the power demand recently for wet and substandard coal.

The resulting rise in the cost of power would have to be borne by the consumers, State Power Minister Mrinal Banerjee said when replying to a motion moved by the Leader of the Opposition Partha Chatterjee in the Assembly today. (ET link)

This article highlights the lunacy behind the intersection of economics and politics in India. India has the third largest deposits of coal in the world, and much of that is in Bengal. However, India imports coal since it is easier to procure and cheaper to buy abroad. Even Bengal is now importing coal since its own coal industry is hopeless.

The problem lies with the monopolies granted to Coal India and other public sector companies, leading to government restrictions and pricing policies that breed black markets and shortages. The coal sector has barely been liberalized despite nearly two decades of reform.

Politically, any ambitious politician from Bengal, Jharkhand or Bihar imemdiately seeks the Coal Ministry (or the Railways as a back up). The goal is not to develop the coal sector to make Bengal and Eastern India a prosperous region based on ample energy. On the contrary, the goal is squeeze as much bribery out of that industry and employ as many party workers in it as possible.

With such an outlook, is it a surprise that Bengal is importing coal? The fact that few people in India even see the irony of this situation shows how deeply the rot has set in.

Strategic fools occasionally write about Indian energy companies buying or investing abroad, often in competition with Chinese firms, describing such actions as if they were epsiodes of combat in a ‘Great Game’. Note that no one points to the reasons at home that lead firms to look for supplies abroad.

13 Comments »

  1. [...] IEB points West Bengal is importing coal despite having such huge coal [...]

    Pingback by Assorted Links « Mostly Economics — August 5, 2008 @ 9:02 am

  2. Do you have any data on the “coal richness” of Bengal? For example, maps on the locations of deposits and their grades?

    Most of the anthracite and high quality bituminous coal in the Raniganj belt has been exhausted. Most of what remains is low quality sulphurous coal that takes a lot of money to clean before it can be used in power plants.

    I think the coal sector has not been as affected by CPI-M politics as have state-owned sectors. CIL is a centrally owned public sector company and until recently the price it could charge was dictated by the central government, for instance, freight equalization etc..

    You need to provide some real data before you can make strong claims. And also to try to understand what you’re talking about.

    Comment by banerjee — August 5, 2008 @ 10:02 am

  3. The aurthor has not considered the quality of coal available. Most of the coal available in India is of rather poor quality, and the cost of converting them to coking or butiminous coal is very high.

    Comment by VJ — August 6, 2008 @ 2:26 am

  4. ‘However, India imports coal since it is easier to procure and cheaper to buy abroad’

    That could be just one reason. As the previous comments suggest, the quality of coal is an issue.

    But the bigger question you missed here is to investigate whether or not it any efforts were made to develop/acquire technologies that can work with lower quality (so-called ‘wet’) coal that we seem to have in abundance.

    Comment by photonman — August 7, 2008 @ 9:03 pm

  5. The author is Incorrect.
    1.The Coal resources in WB is not one of the largest in the world.
    2. The coal resourses in India (Includeing WB,Jarkand and Bihar) is of poor quality and not good enough for steel processing and many Power plant needs.
    3.Australia has excellect quality of cokeing coal.
    4.India need for energy is huge and no mining fields in India can meet the demand and requirements of India.

    For hevens sake we are a country of 1 billion people and it is a known fact India’s mining and natural resourses are poor.

    We dont have enough raw materials or hard commodities to meet our demand.

    Comment by galicula — August 10, 2008 @ 12:42 pm

  6. Competition with China for energy assets abroad is almost always for petroleum reserves, not coal. There is no international coterie of sellers of coal so it remains a fairly cost effective import option, unlike petroleum.

    Comment by Kiran — August 10, 2008 @ 5:39 pm

  7. I have been thru’ the dark decades of the state. My Childhood memories of the “load shedding” are as bright as ever. I clearly remember the issues being highlighted those days – wet coal and high ash content of the coal. Both these were connected to frequent breakdown of power plants. I visited my native this summer, experienced the hours long Load shedding and read the same news in the newspaper.
    Few things never change with time!

    Comment by Debnath — August 11, 2008 @ 10:03 am

  8. most of our massive coal reserves are notional i.e beneath protected forest land and of very poor quality.I think it is better to import coal from australia if the economics work out better.Besides US has excellent coal available too.

    Comment by Shantanu Chatterjee — August 12, 2008 @ 3:05 pm

  9. everybody seems to point out the accuracy of the data and not concentrating on the problem. Problem is “Though India has enough coal resources, it is still importing coal from other countries”. Then the argument comes that ” the quality of coal is not good in India and importing coal is not that expensive”. If the quality is not good, can’t we concentrate on improving the quality and making it suitable for use, rather that just giving a excuse that quality is not good and we are importing it. fingers can be pointed our to the government and not to the author.

    Comment by apeksha — August 12, 2008 @ 9:46 pm

  10. Apeksha:

    >>’If the quality is not good, can’t we concentrate on improving the quality and making it suitable for use’

    You should probably read up on some science related to coal first:

    http://www.ems.psu.edu/~elsworth/courses/cause2003/engineofindustry/teamcoal.ppt

    Comment by photonman — August 13, 2008 @ 9:19 am

  11. Looks to me from the above discussion that a lot of “central planning” is going on even amongst the commentators. The point usually missed in these discussions is – why not let the market decide?

    Are we saying here that the govt is taking a paternalistic attitude towards private companies (by not allowing them to enter this sector) because it knows that these companies wont be able to make a profit because of the poor quality of coal?

    Comment by Kiran P — August 13, 2008 @ 1:28 pm

  12. I think the point of discussion is ensuring energy security and it could be through cheap imports/inhouse technology etc. But the fact remains that the coal sector is mired in inefficiencies, political interference and mismanagement. have a look at the electricty regulators comments in states like Haryana, West bengal etc where coal heat rates and losess are below even NTPC standards – (though the blocks are allocated and quality might vary, the losess are higher than permitted benchmarks). And a reading of Coal India reports and news items would indicate that the equipment in mining is old, technology archaich, safety measures poor , political interference high, freight capacities low so that coal wagons are held up and coal stolen or wet etc. And the govt cannot claim that its all because the quality of coal is poor- There has been no attempt at technology upgradation, the scoping studies must have done 30-40 years back and the organizations would have worked with technologies of those days. Now we have coal bed methane, blended coal, coal to liquid and coal to gas technologies that may make it viable to enrich indian coal and use it. The unfortunate part is that the solutions are not being explored fully and some people here are qucik to point out that , whatesoever be the problem , it is not due to the bengal communists and government …..fate had it that way for india. …could we be a little more creative in exploring what best can be done within limitations and not be preoccupied with communism or capitalism.

    Comment by Shah — August 15, 2008 @ 7:55 am

  13. I don’t understand what the complaints are about.

    “However, India imports coal since it is easier to procure and cheaper to buy abroad.”

    And will continue to do so as long it is cheaper and easier abroad.

    How much would it cost to enrich the coal if the quality of Indian coal is really poor as some commenters have pointed out? If the companies that need coal are happy procuring it from abroad, I don’t see what the fuss is about.

    Comment by Sanjiv — August 18, 2008 @ 12:34 am

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