INDIA MAY DELAY COAL REFORMS

INDIA MAY DELAY COAL REFORMS

With general elections less than a year away, reforms in the coal sector appear to have been put on the back burner.

Proposals include lifting price controls and allowing private companies to mine coal and sell it directly to customers.Officials said last year the government was considering giving up control over coal prices and permitting private companies to hold 51 percent equity in joint ventures with state-owned Coal India Ltd.

Recent statements by Coal Minister Ajit Panja suggest both decisions have been postponed, perhaps until after the elections.

The Congress government, faced with the prospect of losing power, apparently does not want to give opposition parties any additional stick with which to beat it.

Some analysts say deregulation is likely to push up prices of coal used by power utilities and railways, and in turn boost the prices of manufactured goods.

Reforms in the coal sector have been much slower than in others, mainly

because it is nationalized and labor-sensitive.

State-owned mines produced 253 million metric tons in fiscal 1995 through last March 31. Demand is increasing at 6.2 percent a year, while production growth lags at 3 percent.

Experts estimate India will need 400 million tons of coal a year by the end of the decade to generate 125,000 megawatts of power. Raising production to that level will need investment of 150 billion rupees (US$4.8 billion).

The government does not have that kind of money, and it must therefore come

from private funding.

In 1993, the government amended legislation to allow private domestic and foreign power companies to run coal mines for captive use, and permitted private companies to set up washing plants.

Indian coal has high ash content of 20 percent, and beneficiation (washing) increases its energy value.

There is some slow progress on giving washeries to private companies. However, handing over mines to utilities has made little headway because approvals for power projects are held up.

Mr. Panja said in August that 22 private power companies and state electricity boards have applied for captive mines. He said coal mining blocks for 13 power companies and electricity boards had been identified for captive use, but gave no information about whether they have been handed over.

Industry associations are pressing the government to loosen up.

"Despite the best of intentions, private sector involvement in the Indian coal industry is yet to pick up pace," says D.V. Pichamuthu, president of the Federation of Indian Mineral Industries.

Ministry officials say they are reviewing the import policy as well as the status of mining and washery projects, but make no promises of early action.

Because of slow reforms and accelerated demand, at least one country is making a killing selling coal to India.

Australian exports of non-coking coal to India are set to cross the million-ton mark from virtually no sales in 1989. Coal has become India's single largest import from Australia.

State-owned Steel Authority of India Ltd. imports about 6 million tons of coking coal for its plants, mainly from Australia.

The government permits coal imports without license and at 35 percent duty, down from 85 percent previously. On visits to India, Australian ministers have been urging the government to reduce the duty further and make private

investments easier.

If the government is inactive, Coal India Ltd., which controls most state- owned mines and accounts for 87 percent of the country's production, is not.

Coal India is planning massive investment to boost production. It has set a target of 241 million tons of coal in fiscal 1996, which would be 8 percent higher than the previous year.

The government has approved investments of 22.6 billion rupees in fiscal 1996 for Coal India to achieve its goal.

Coal India also has sought a loan of $1 billion from the World Bank to increase production in 31 mines to 106 million tons from 73 million now. Nine will be new, six expanded, and the others re-equipped.

Simultaneously, Coal India is considering setting up a joint venture with the steel authority to produce coking coal. The plan is to first increase domestic production of coking coal and reduce imports, then look at mining opportunities overseas.