Opinion Searching for diamonds

Recent history has not been kind to India’s attempts to increase its coal production,with private-sector,so-called “captive” mining for a company’s own use being a notable recent failure. 17 years after the first captive blocks were auctioned,scarcely 40 megatonnes are expected to be produced by captive mining by the end of the current Five-Year Plan — a small fraction of existing domestic production (less than 10 per cent) and less than a third of what was planned even a few short years ago.

CIL provides approximately 85 per cent of India’s coal production and 78 per cent of its coal consumption. The world’s largest coal company,it is a political and economic behemoth,employing almost 400,000 workers directly and hundreds of thousands more indirectly.

CIL’s difficulty is that an IPO will not solve many of the challenges it faces. While there is ample evidence that state-owned companies exposed to market discipline can dramatically improve their performance,many of CIL’s challenges will not be overcome merely through better management and increased attention to the bottom line. Even before the IPO,many newer CIL mines,increasingly mechanised and often staffed heavily through outsourcing,were able to produce coal at very attractive prices by international standards. The bigger problem lies not in CIL’s cost of production,but its rate of production growth,which is impeded by several obstacles the IPO will not address.

First,there is the question of the acquisition of land. Land is increasingly difficult to acquire for mining,especially for the larger open-pit mine operations that provide the vast majority of CIL’s coal. It will be tough to open up new land for mining,given that the majority of India’s untapped coal reserves lie in heavily forested and/or inhabited areas. Environmental and forest permits are also difficult to obtain,reflecting both corruption (in some cases) and a genuinely more assertive Indian state on environmental matters in others.

A second problem is manpower. In the pre-reform era,mining engineering,though difficult,was considered a good job for engineers (who had few private-sector prospects in India at the time). But in the new post-reform era,that is no longer the case,and there is a dearth of skilled mining engineering talent available. Furthermore,of the best mining engineers India produces,many are poached either by private Indian mining companies who can pay higher wages,or international mining companies,working anywhere from Australia to Indonesia,who are desperate to take advantage of the global boom in coal production.

Finally,of course,there are questions of politics,infrastructure and systemic corruption. CIL’s mines are heavily concentrated in eastern and east-central India — where the conflict with Naxals plagues development efforts. Many new potential mine sites are also located far from good roads or railheads. And while efforts to combat corruption have improved and CIL has benefited from more capable and forward-thinking leadership in recent years,coal mafias and corrupt practices still trouble the sector at every level.

Ultimately,CIL’s IPO is an important milestone for the industry and a long-overdue liberalisation of a sector that,for all of its problems,is absolutely critical to India’s near-term economic development. The IPO will bring a level of accountability and transparency to the company that will help the forces of reform. But those expecting a CIL IPO to lead to a rapid increase in production and a solution to India’s domestic fuel deficit are likely to be disappointed. This is a necessary step,but not a sufficient one.

The writer is a research fellow at the programme on energy and sustainable development at Stanford University,California