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Indian Companies Buying Overseas Coal Assets to Meet Demand

A laborer carries a basket filled with coal at a railway yard in the northern Indian city of Chandigarh, India, January 2011. (file photo)
A laborer carries a basket filled with coal at a railway yard in the northern Indian city of Chandigarh, India, January 2011. (file photo)

An Indian infrastructure company has clinched a deal to buy coal assets in Australia. It is just the latest case of an Indian firm scouting overseas for coal needed to run thermal power plants being built to fuel the country's growing economy. The rush to secure coal assets comes as efforts to step up domestic production have become mired in environmental issues.

Infrastructure company GVK has announced it will pay about $1.25 billion to buy a majority stake in three coal mines, and a port-and-rail project from Australia’s Hancock Group. GVK is building airports, power plants and other infrastructure in India.

Production in the Australian mines will begin in 2014 and bring in about 30 million tons of coal per year. The company says this will ensure an adequate supply of raw material for its power plants.

Intense demand, falling production

GVK’s bid to secure coal comes on the heels of similar efforts by other big Indian companies. From Indonesia and Australia to Mozambique and South Africa, conglomerates such as Reliance and Tatas have spent an estimated $8 billion in the last four years to buy coal mines.

The “coal rush,” as it is being called, comes as India’s appetite for energy rises, but production of coal at home fails to keep pace with growing demand.

India has the world’s fourth-largest coal reserves. But energy expert V. Raghuraman said plans to develop mines at home have become mired in growing concerns about damaging the environment. He points out that many coal-rich areas this year have been declared off limits for mining.

“Coal is actually in the most heavily forested areas. So it is very difficult to develop mines in those areas," said Raghuraman. "When earlier [the] environment minister was there he had made 'no-go areas' where you find you cannot mine. In fact, some of those had been earmarked for developers. This came as a real problem, because people had already invested, and you find that coal mines were not there for environmental issues.”

This has raised fears of a looming coal shortage in Asia’s third largest economy, where nearly two-thirds of the power generated is coal-based.

India's coal debate

Some government ministers have pushed for allowing coal mining if companies promise to restore the green cover once the mines have been exhausted.

As the debate continues to rage, however, Raghuraman said Indian companies are turning to other countries to secure coal supplies.

“Environmental groups say even if you mine and after that reforest, it will not be the same way as natural regeneration of forest. It is easier for us to develop mines in Australia and Indonesia where issues are quite clear,” said Raghuraman.

Indian companies have invested billions of dollars in recent years to build thermal power plants to bridge the country’s huge energy shortfall. Some 500 million people in the country do not have access to electricity. While India is making a push to expand solar and nuclear energy projects, coal based power plants will be the country’s mainstay for several decades.