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Coal India Limited Business Information, Profile, and History

million tons cil production

Coal Bhawan 10 Netaji Subhase Road
Calcutta
700001
India

History of Coal India Limited

Coal India Limited (CIL), a holding company, is a state-owned mining corporation and the largest coal producer in India. In 1990, production was 179 million tons of hard coal, up from 172 million tons the previous year. This comprised almost 88% of the coal output in India. However, like many state-owned concerns, CIL's financial performance has been generally poor, and it has made profits in only two years since its creation in 1975. During the financial year 1989-1990 CIL made a loss of Rs230 million. Although this loss was less severe than those made in the period immediately after nationalization, it marked a decline from the previous financial year when it made a profit of Rs82 million. Coal provides more than 50% of India's energy requirements. However, India's per capita energy consumption is among the lowest in the world. India has vast coal reserves, and these can be mined cheaply, although the coal is generally of poor quality and has a high ash content. In 1991, India's total coal reserves were estimated at 176 billion tons, of which over 30 billion tons are proven reserves, within 200 meters of the coal pit or the workings. Of the total, coking coal--coal from which the volatile elements have been removed, making it suitable as a fuel, and for metallurgical purposes--comprises 24 billion tons (11 billion tons proven). The bulk of India's coal reserves are in the Bengal-Bihar coalfields in the west of the country. Due to the structure of the coal mining industry in India, CIL's role is a major one, and its performance and operations very much reflect the policies and priorities of the government of India.

The Indian coal industry has its origins in the early 19th century, when mining activity became commercial in conjunction with the expansion of the railway network, particularly in the west of the country. The monopoly interests of the British East India Company were revoked in 1813. Initially, the coal fields were operated by a large number of Indian private companies which possessed captive--or company-owned--coalfields to support their iron and steel works. By 1900 there were 34 companies producing 7 million tons of coal from 286 mines. Production continued to grow in the first half of the 20th century, especially during World War I. Demand continued to grow during World War II, and production reached 29 million tons by 1945. By then, the number of companies had increased to 307, and the number of mines to 673. The trend continued for almost a decade after India's independence in 1947. However, India's ambitious economic development plans led to a tremendous demand for energy, and in the absence of alternative sources, coal was targeted as the major source of power for industrialization. Under the government's Second Five Year Economic Development Plan 1957-1961, a target of 60 million tons was set for the end of the plan period. However, government economic planners were convinced that the private sector would be unable to meet this target. Hence, the National Coal Development Corporation (NCDC) was formed, which took the old railway collieries as its nucleus and opened new mines as well. Production of coal increased from 38 million tons in 1956 to 56 million tons in 1961.

During the 1960s, most of India's collieries continued to be operated by the private sector, with the exception of NCDC and the Singareni Collieries, both in the public sector. At the national level, three factors emerged to force the government to consider the nationalization of the coal industry. First, there was a fear that contemporary mining methods were leading to great wastage. Second, the government predicted that future demand for coal would be particularly heavy in view of its industrial development priorities. Finally, during the Third Five Year Plan 1962-1966, as well as the period 1966-1969, despite the increase in production, there was a shortfall in private capital investment in the industry.

During the period 1971-1973, the government carried out a series of nationalizations of the privately owned coal companies in a major effort to increase production and overcome the shortage of coal. At the time of the nationalizations, total coal production in the country was 72 million tons, and the industry had been passing through cycles of shortages and surpluses which prevented effective planning for expansion and modernization. There were over 900 mines in operation, some of which were producing only a few thousand tons of coal a month, and methods of mining were obsolete.

Coking coal mines, with the exception of the Tata Iron and Steel Company, were nationalized in May 1972, and a new public sector company, Bharat Coking Coal Limited (BCCL), was floated to manage them. In May 1973, the non-coking coal mines were also nationalized and brought under the control of the Coal Mines Authority (CMA). The Department of Coal was set up in the Ministry of Energy to oversee the public sector companies. Further reorganization of the industry led to the formation of Coal India Limited (CIL), which also absorbed NCDC, in November 1975. The reorganization involved placing the majority of the public sector coal companies under CIL. CIL has six subsidiaries. Five of these are involved in production: BCCL, located at Dhanbad; Central Coalfields Limited at Ranchi; Western Coalfields Limited (WCL) at Nagpur; Eastern Coalfields Limited (ECL) at Sanctoria; and North Eastern Coalfields Limited (NECL) at Margherita; the sixth is the Central Planning & Design Institute at Ranchi. Together with the Neyveli Lignite Corporation (NLC), CIL is operated directly by the Indian government through the Department of Coal in the Ministry of Energy. All the subsidiaries of CIL have the status of independent companies, but the authority for framing broad policies and taking administrative decisions rests with CIL.

The present structure of the Indian coal industry is a reflection of the priorities placed by the government on coal as a source of fuel and energy in economic development. Most of the production is the responsibility of the five subsidiaries of CIL, but there are four other coal producers in the public sector: the Singareni Collieries Limited, the government of Jammu and Kashmir collieries, the Damodar Valley Corporation, and the Indian Iron & Steel Co. Ltd. These last four concerns are responsible for about 10% of the output. Some 2% of the total output of coal is provided by the captive mines--company-owned mines which ensure coal supplies--of the Tata Iron and Steel Company, the only coal producer in the private sector.

Financially, the subsidiaries of CIL have an average authorized capital of Rs1.5 billion each. Each employs between 100,000 and 180,000 people, and has an annual turnover of between Rs1.1 and Rs1.7 billion. Their shares in the total production of coal vary from 25% for the Central and Western Coalfields, and about 20% for Bharat Coking Coal and Eastern Coalfields. The financial performance of the subsidiaries varies. BCCL made cumulative losses of Rs4.5 billon over the five year period 1981-1986. Similarly, Eastern Coalfields made cumulative losses of Rs3.6 billion over the same five year period. In 1988, BCCL made a loss of Rs900 million on a turnover of Rs5.3 billion. However, in the same year the Neyveli Lignite Corporation Limited made a profit of Rs570 million on a turnover of Rs1.9 billion.

As a result of the nationalizations, some rationalization took place in the sector. The mines were regrouped and reduced to 350 individual mines. New technology was introduced, and there was a shift from pick mining to blast mining, which resulted in considerable increases in production. The latter totaled 87 million tons in 1975, and 99 million tons in 1976. CIL's share of total production was about 88%. Nationalization was intended to provide the basis for modernizing the coal industry, but after the initial increase in production, output stagnated in the period 1976-1980. This was the result of shortages of power and explosives, labor unrest, and absenteeism, excessive employment, technical inefficiencies, and problems of flooding in the western coal fields, as well as fires in the vast Jharia coalfield. The latter possesses the largest known coking coal reserves in the country and it has been estimated that ongoing fires since around 1931 have accounted for the loss of some 40 billion tons of coking coal. Consequently, CIL'S financial performance was poor during this period. It suffered losses throughout the 1976-1981 period. These losses peaked at Rs2.4 billion in 1978-1979, but came down to Rs882 million the following year, and came down even further to Rs337 million the year after. Total losses for the five year period were almost Rs6 billion.

Production picked up in 1980 when it finally exceeded 100 million tons, and increased to 115 million tons by 1983. However, the problems suffered by CIL in particular and the coal industry in general had led to considerable shortages, especially for industrial users. This shortage was compounded by the poor quality of India's coking coal, which has difficult washing characteristics and requires the coal preparation plants to run extremely complex processes. The result was that the country had to import coal from abroad, a trend that still persists. The bulk of the imported coal came from the United States, Australia, and Canada, and was significantly more expensive than locally produced coal. This situation had two implications. First, it became feasible for CIL to adopt more expensive mining methods, since they were still cheaper than the imported coal. Second, a need was perceived to improve the coal handling facilities at India's major ports. This need was reflected in the Sixth Five Year Plan, when it was projected that the ports would have to handle at least 4.4 million tons of imported coal by the mid-1980s.

During the Sixth Five Year Plan, coal production grew at 6.2% per year, especially in the open-cast mines. Targeted production for the end of the plan period--1984-1985--was for 165 million tons per annum, although actual production fell short at 148 million tons. During the first two years of the plan, CIL made a profit for the only time in its history. This was largely due to the Indian government's increasing the price of coal in both February 1981 and May 1982. The issue of pricing has always been a serious problem for the Indian coal industry and for CIL. Coal prices have been administered by the government since 1941, with the exception of a period of seven years, 1967-1974. The pricing formula is based on an Indian industry-wide average with differentials for different grades, but in practice the price is usually set below the industry's average cost. This practice may explain in part CIL's poor overall financial performance.

Coal production in the year 1981-1982 was 125 million tons, above the targeted figure. Total production of coal and lignite was 146 million metric tons in 1983-1984, and 155 million tons in 1984-1985, 162 million tons in 1985-1986, 175 million tons in 1986-1987, 191 million tons in 1987-1988, and 207 million tons in 1988-1989. Despite the increase in production, problems related to operations, such as cost-overruns, poor quality, and low productivity, meant that targeted output was frequently revised downwards. Part of the problem was the high cost of new equipment necessitating new investment, since targeted budgets were overrun. Furthermore, the number of mines, which had been reduced immediately following nationalization, had again increased, to 684 by 1982, thereby negating some of the initial cost reduction benefits of reorganization.

Since coal was meeting over 70% of the energy requirements of Indian industry, CIL believed the output needed to increase by 25 million tons a year during the 1980s in order to keep up with demand. Demand for coal was projected to reach 165 million tons by 1985, 230 million tons by 1990, and over 400 million tons by the year 2000. The structure of demand for coal had changed. The railways were no longer the primary source of demand for coal. Rather, demand now lay primarily with the steel plants, other industrial units, and thermal power stations. The reliance on coal-fired thermal power plants for power generation led to a steady increase in the demand for coal throughout this period. To satisfy this demand, CIL relied primarily on the expansion of open-pit mines. Mining coal from shallow seams was financially sound, but it resulted in a steady deterioration of coal quality over time. The Seventh Five Year Plan of 1985 included some important changes introduced by CIL in the structure of its production.

The plan had set a production target of 226 million tons for coal, and by 1988-1989, output for coal alone, excluding lignite, had reached 195 million tons. As a result of the greater need for coal, new opportunities were created for international partnerships in the coal sector throughout the 1980s. CIL signed agreements with the Soviet Union, United Kingdom, Poland, and France, for the construction and development of new mines, and the introduction of new technology. The agreement with the Soviet Union called for investment in the Jayant open cast project with a production capacity of ten million tons a year, as well as a number of other projects. The output from both surface and underground mining was to be increased through additional investment. Open cast--surface--mining was to provide an increased share of total production, from about 30% in 1980, to 56% in 1990. One of the major factors in increasing underground production was the introduction of additional longwall faces. Longwall mining differs from the traditional board and pillar method of underground mining in that the seams are at a greater depth and the capital costs are higher because of the complexity and greater powered support in the mining. During the 1990s, a series of new developments occurred in an attempt to increase production of the Indian coal mining industry. In February 1990, CIL decided to invest US$250 million in longwall mining over the period 1990-1995. This development would increase the powered support longwall faces from 14 in 1990 to 28 in 1995, and 47 in the year 2000. Longwall coal production, allowing deeper seams to be worked, would increase to nine million metric tons by 1995. In April 1990, CIL also approved five additional projects worth some US$712 million, as part of its program to increase output to meet the needs of industry into the 21st century. Total investment for the Seventh Five Year Plan was about US$8 billion dollars.

Despite increases in output of almost 9% per annum during the duration of the Seventh Five Year Plan, serious coal shortages still exist due to CIL'S inability to meet specific needs such as the provision of high-quality coking and non-coking coal. CIL'S distribution system remains poor, and the Indian Railway system is already heavily overloaded. Consequently there are cost overruns and a buildup of coal reserves at the pit heads. Furthermore, many of the targeted output figures are based on projects sanctioned but not completed by CIL, thus adding to infrastructural and distribution problems. This problem was compounded by poor coal quality, the system of pricing, and it both added to and was affected by CIL's financial position. If coal is to be a major source of energy and fuel in the future, CIL must be able to generate sufficient resources internally to meet its investment requirements. In this context, the government continues to show concern about the financial performance of CIL. About 100 of the 248 corporations owned by the Indian government are heavy loss-makers, and CIL is no exception. It is thus being seriously considered as a candidate for public flotation.

Principal Subsidiaries: Bharat Coking Coal Limited; Central Coalfields Limited; Eastern Coalfields Limited; Western Coalfields Limited.

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