Coal imports by Indian utilities are surging after the government failed to open the industry to competition, despite passing a liberalization policy 16 months ago, because of bureaucratic indecision and resistance from unions, industry and government officials said.
Utilities in India, which holds the world's fifth-largest reserves of the fuel, imported over 40% more coal during January to April compared with a year ago, data from the Central Electricity Authority showed.
The country's cabinet has approved policies opening coal mining to private miners and partially removing restrictions on the sale of coal produced at so-called captive mines but the reforms have not been implemented.
The government delays stem from bureaucratic disputes on how to implement the liberalization policies, such as the formulas for bidding on the blocks, said two sources, one with the government and the second at an industry group, who are familiar with the matter.
There was also a reluctance to introduce the changes before elections this past May, especially with the strong opposition from unions representing workers at state-run Coal India, the sources said.
"The delays could be due to reservations from trade unions and the government being in election mode till May. They could have also been spending time in planning, which might not be a bad thing given international experiences," said Satyadeep Jain, a global metals and mining equity consultant.
"This makes a well crafted policy by engaging all stakeholders very important."
India's surging imports offer an opportunity to miners like Indonesia's Adaro Energy, Adani Enterprises and Glencore that face a structural decline in coal demand. They also undercut efforts by Prime Minister Narendra Modi's government to cut imports and place additional burdens on India's debt-ridden thermal power sector.
Within India, a fast rising population, strong economic growth, a government programme to electrify households as well as a lack of alternatives like natural gas have all contributed to a surge in thermal coal demand.
CARE Ratings in a note in May said it expects India's rural electrification to contribute to a 5%-6% rise in power demand in 2019-20, increasing demand for thermal coal imports.
Imports are also supported by a slump in thermal coal prices caused by ample supply and a global economic slowdown, as well as a push to use cleaner fuels in place of coal.
"India is lapping up that coal because of high demand for imported coal currently," said Puneet Gupta, founder of online coal marketplace CoalShastra.
India's cabinet approved a policy in February 2018 to auction coal blocks to private companies, giving them the freedom to sell and fix prices, ending Coal India's near monopoly along with state-run Singreni Collieries.
This past February, India approved the sale of up to 25% output of captive coal mines owned by consumers, mainly utilities and steel plants. However, bureaucratic disputes over implementation and the fear of a backlash from trade unions linked to political parties including Prime Minister Modi's Bharatiya Janata Party (BJP) have thwarted plans to lure foreign firms, said industry executives.
"One of the main reasons they didn't initiate commercial coal mining before the elections despite cabinet approval was protests from Coal India's unions," a senior executive from a Indian industry group familiar with the matter said.
Virjesh Upadhyay, secretary of the BJP-affiliated trade union Bharatiya Mazdoor Sangh (BMS), said it is against opening the coal sector. BMS claims to have the support of half of Coal India's 300,000 workers.
"We have made our view very clear - we are against privatisation of the country's coal resources," he said.
Coal India has missed its annual production target for the past seven years, despite raising output by 7% to 607 million tonnes in the 2018/19 fiscal year ending in March.
A Coal India spokesman declined to comment on the government's liberalization programme saying only that the company plans to produce 660 million tonnes of coal during the 2019/20 fiscal year.
"As long as the policy response of the government to scarcity of coal remains confined to asking Coal India to produce more, scarcity position is bound to stay," said Ashok Khurana, head of the Association Of Power Producers (APP), which represents Indian private utilities.
India's Ministry of Coal did not respond to a request seeking comment.
The Tamil Nadu Generation and Distribution Corp (Tangedco), the utility for the southern Indian state, illustrates India's increasing reliance on coal imports. The company's imports more than doubled during the first four months of 2019, the Central Electricity Authority reported.
"Coal India and Indian Railways weren't able to keep up their commitments. Stock positions in our thermal plants fell to dangerous levels, and since then, we have been importing," said Tangedco's Chairman Vikram Kapur.
He expects imports to rise as the state will add 6,200 megawatts of new capacity through 2024."Imports will go up, going forward. From 2020-21, we have to go for more imports," he said.