Published in March 2007 Australian Longwall Magazine

SOME 15 years after the launch of economic reforms that began dismantling the “Licence Raj” and its stifling web of red tape, the Indian tiger is now well and truly out of its cage with a huge thirst for energy to sustain economic growth rates of more than 8% a year.

Despite various government policies aimed at diversifying the mix, coal remains the fuel of choice to meet this energy demand and is widely expected to continue to play a major role in powering India’s economic miracle over coming decades.

Coal consumption is projected to rise by nearly 40% over the next five years and to almost double by 2020. Although India has a massive domestic coal industry, mostly producing low quality thermal coal, even by the government’s own estimates local production will lag behind demand by about 100 million tonnes by 2012 and by 250Mt by 2020, according to KPMG.

While domestic production has grown 5.2% a year over the past five years to 403.4Mt in 2006, making it the world’s third-largest coal producer, future expansion faces a number of bottlenecks and issues, including lack of capital investment and mining, low productivity and operational inefficiencies, weak infrastructure and opposition from strong political and business interests within the sector, KPMG said during a presentation to Australian mining supply companies in New Delhi.

It estimated $US40-50 billion ($A50.7-63.4 billion) needs to be spent on related sectors such as seaports and railroads to strengthen the distribution logistics system.

New projects also face numerous delays due to difficulties with acquisition of land, adverse geo-mining conditions, law and order problems and funding shortages. Of 113 ongoing mining projects run by state-owned giant Coal India, 32 have been delayed, while smaller rival Singareni Collieries has eight projects facing delays from 39 ongoing projects.

The Mines Department is considering a number of recommendations by a committee established to examine the regulatory regime affecting the mining industry, including a complete overhaul of the system that would see the central government granted the power to override the states if they delay the permitting approval process.

Predictably, this has been met with strong resistance from the key mining states, which are also demanding that coal be used within the state in which it is produced.

But foreign mining companies and suppliers are hopeful that the Indian mining industry is on the brink of breaking open.

“The reality is that the mining sector, particularly the coal sector, has been very willing to talk about progress but very unwilling to demonstrate that they’re interested in making a lot of headway,” Alan Broome, chairman of mining equipment, technology and services export association Austmine, said.

“That has changed in the last three to four years and we’ve noticed a great deal of willingness on the part of Indians to actually get things done a lot quicker.

“And the pace of that change has really accelerated in the last two years.”

The Indian Government is particularly keen to modernise its domestic mining industry to minimise its reliance on imported raw materials, and recognises the need to bridge the technology gap with offshore competitors.

During inter-governmental talks in New Delhi in February 2006, Indian delegates nominated the use and adoption of Australian mining industry as a key priority, particularly in the coal sector, where improving productivity of opencut mines, the operational performance and safety of underground coal mines, and introducing a more aggressive approach to coal preparation technology topped the list.

“It’s all about access to energy – without energy there is no growth, and without coal there is no energy,” Broome told Australian Longwall.

Amongst the key areas Australian and India should co-operate in, identified at the February 2006 forum jointly chaired by Broome, was mine safety.

“There was concern, for example, that the Chinese coal sector has had some pretty poor press in terms of the number of accidents, the number of fatalities, and they don’t want to have that happen in the modernisation of the [Indian] industry so they’re very keen to introduce the smartest way of doing it,” Broome said.

While India has its challenges for foreign mining companies, the soaring demand for energy is proving an irresistible lure for many suppliers of mining products and services.

A number of equipment and technology suppliers have recently made breakthrough sales, while Australian mining expertise is expected by locals and Australian contractors alike to play a significant role in the restructuring of the Indian mining industry currently underway.

With the Indian Government seeking to increase production of low quality domestic coal, Sedgman, Ludowici, Johnson Screens and Screentek Systems all participated in the Eighth International Mining & Machinery Exhibition in Kolkata last November. “At least three of those companies have got substantial orders in the last few months for products that will go into modernising coal preparation plants that are being constructed and reconstructed right now,” Broome, who delivered the keynote address at the exhibition, told AL.

DBT also recently landed its first Indian contract, a $US25 million deal to supply, operate and maintain bord and pillar gear for Singareni Collieries. DBT, now owned by Bucyrus International, will operate and maintain the equipment on a dollar per tonne basis for up to five years while it trains the local company’s staff and gradually withdraws.

Thiess and sister company Leighton Contractors are both competing for work in India. Thiess Indonesia president director Bruce Munro, whose responsibilities include India, said while there are a lot of frustrations in doing work in the subcontinent, “there’s certainly a will to change and there’s enormous amounts of opportunity in infrastructure and resources”

Thiess had hoped to win a contract to develop a 10-15 million tonne per annum openpit at Rajmahal after being short-listed earlier this year by Coal India subsidiary Eastern Coalfields. But Munro said he understood two of the three bids submitted – including Thiess’ – had been rejected due to “administrative issues”

“We’re not sure what it’s all about at this stage … that’s obviously disappointing to us as we’ve put in three submissions for Rajmahal now and it’s been a target project of ours for three years,” Munro said.

Thiess is still in the running to become the first foreign company to win a commercial mining contract in India after being short-listed by power company NTPC to submit a bid to build and operate a 10-15Mtpa mine at the Pakhri Barwadih coal block in Bihar state. Washington Group, a consortium led by government-owned Singareni Collieries, and a major Indonesian miner are also understood to have been invited to submit bids.

On a national level, India is becoming an increasingly important market for Australia, rivalling South Korea as the most important market after Japan for coking coal. The subcontinent has gone from Australia’s 12th largest export market to its sixth in just two years, with two-way trade now valued around $A10 billion compared with less than $5 billion two years ago.

While the trade growth was originally sparked by increased gold exports, Australia’s senior trade commissioner to India, Mike Moignard, said coal exports and services have also achieved strong growth.

“You just need to keep coming back to the value chain and what is needed to feed it. You can’t have 8-9% growth if you’ve got infrastructure, or lack of it, blocking development,” Moignard said.

“Infrastructure needs steel and other metals, it means roads, bridges and ports, and it means increased steel and energy production. There is a realisation in India now, perhaps more than ever, that 8-9% growth is possible but you’ve really got to have strong policies in place to facilitate and resource it.”