Tiny in comparison with the world-class coal deposits along Australia’s eastern seaboard, the WA coal industry is effectively confined to one region around the town of Collie in the state’s southwest corner.

For several reasons, including WA’s small population, an abundant supply of natural gas and the poor quality of Collie coal, the field has never really succeeded as more than a source of feedstock for nearby power stations.

Attempts to export Collie coal have repeatedly failed with different owners of mines around the town finding that it cannot compete with rival coal from elsewhere, plus the problem of Collie coal having the nuisance quality of self-combustion unless stored carefully.

It was with around 100 years of accumulated knowledge about Collie coal that the Indian company, Lanco Infratech, breezed into WA in 2010 with grand plans to become a major player in Australian coal, paying $800 million for long-established Griffin Coal Mining – a price which now looks to have been around $800 million too much.

Regular readers of International Coal News will have seen several stories over the past few months about the troubles Lanco is facing at Griffin, with the Indian power and construction company under pressure to keep its Australian coal-industry foothold, struggling to even make local deliveries and with little hope of exporting coal back to its Indian power stations.

So, what went wrong, what can Lanco do to salvage its Australia coal adventure and what lessons can Queensland learn from WA?

The first question is easiest because the answer is not much. Lanco overpaid for Griffin and then got hit by the worldwide downturn in the price of coal.

Like so many deals done during the resources boom, or immediately after the 2008 global financial crisis when a flood of government money made acquisitions seem cheap, Lanco misjudged Griffin and the attractions of Collie coal.

Rather than buying a business with a bright future, Lanco bought a business with a troubled past – in a country which is totally foreign in every way to its homeland of India.

After acquiring Griffin from the ashes of the business empire of Ric Stowe, a failed Australian businessman, the Indian company struggled to compete in the WA energy market and quickly found that the plan to export coal to India wouldn’t work either.

Lanco did not get the bargain it thought it was getting and then found it was in need of a lot more capital if it was going to work as hoped.

Amusingly, for Australian observers anyway, Lanco also discovered that Griffin incurred operating costs many times higher than those it was used to in its Indian operations, especially for skilled labour – though why that came as a surprise begs the questions of how much homework Lanco did before acquiring Griffin.

The Australian wages issue was rolled out as recently as two weeks ago by Lanco when its management team complained to Indian financial news media that it was unable to operate in Collie because of high labour costs, suggesting that the Griffin mine needed to be totally automated.

Who pays for automating Griffin is an interesting question because that would require Lanco to invest more money in a business which is already performing poorly, and with no guarantee that automation would lower the cost of Collie coal to a point where it could compete.

With work at Griffin sputtering along, combined with contractors complaining about not being paid and clients such as Cockburn Cement looking at importing coal for its WA cement works, there is mounting speculation that Lanco is preparing to sell Griffin.

Potential buyers of the asset are said to be circling, only this time the price is reported to have dropped into the range of $100 million to $150 million, a price which would be an embarrassment for Lanco – though at least it would get some money back.

As for the second question – what can Queensland’s coal industry learn from Indian involvement in WA coal – the answer seems to be not to expect too much despite all the promises.

It is possible that Indian companies will proceed to develop two giant coal export operations in the Galilee Basin, but it is also possible that companies from the nation are slowly discovering that Australia is not a cheap country in which to operate and that the world energy market is a very different place to what it was a few years ago.

In an ideal world Australia and India are potentially perfect business partners. Unfortunately the world is not ideal and potential is an over-used word that always makes The Hog anxious.