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Coal India Ltd. Business Information, Profile, and History

cil million production tons

Coal Bhavan
10 Netaji Subhase Road
Calcutta 700 001
India

Company Perspectives:

The mission of Coal India Ltd. is to produce the planned quantity of coal efficiently and economically with due regard to safety, conservation, and quality.

History of Coal India Ltd.

Coal India Ltd. (CIL), a holding company, is wholly owned by the Government of India through the Department of Coal and the Ministry of Mines and Minerals. CIL is responsible for 88 percent of coal output in India. In 1999, production was 256.5 million tons of raw coal, up from 250.6 million tons the previous year. However, like many state-owned concerns, CIL's financial performance has been generally poor. During the financial year 2000-2001, CIL reported a loss of Rs 1,400-crore--a crore is equal to 10 million. At the start of the new millennium, the company was under scrutiny by the Indian government for its performance and business practices. Coal provides more than 67 percent 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 1998, India's total coal reserves were estimated at 200 billion tons, of which over 69 billion tons were proven reserves. The bulk of India's coal reserves are in the states of Bengal, Bihar, Orissa, and Madhya Pradesh. 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.

Early History

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.

Formation of Coal India Ltd.: 1975

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 Ltd. (CIL), which also absorbed NCDC, in November 1975. The reorganization involved placing the majority of the public sector coal companies under CIL. CIL originally had six subsidiaries. Five of which were 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 was the Central Planning & Design Institute at Ranchi. Together with the Neyveli Lignite Corporation (NLC), CIL was operated directly by the Indian government through the Department of Coal in the Ministry of Energy. All the subsidiaries of CIL had the status of independent companies, but the authority for framing broad policies and taking administrative decisions rested with CIL.

The structure of the Indian coal industry during the 1970s and 1980s was 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 was the responsibility of the five subsidiaries of CIL, but there were 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 were responsible for about ten percent of the output. Some two percent of the total output of coal was 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 had an average authorized capital of Rs 1.5 billion each during the late 1980s. Each employed between 100,000 and 180,000 people, and had an annual turnover of between Rs 1.1 and Rs 1.7 billion. Their shares in the total production of coal varied from 25 percent for the Central and Western Coalfields, and about 20 percent for Bharat Coking Coal and Eastern Coalfields. The financial performance of the subsidiaries also varied. BCCL made cumulative losses of Rs 4.5 billion over the five year period 1981-1986. Similarly, Eastern Coalfields made cumulative losses of Rs 3.6 billion over the same five year period. In 1988, BCCL made a loss of Rs 900 million on a turnover of Rs 5.3 billion. However, in the same year the Neyveli Lignite Corporation Limited made a profit of Rs 570 million on a turnover of Rs 1.9 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 percent. 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. During the 1980s, the latter possessed the largest known coking coal reserves in the country and it had been estimated that ongoing fires since around 1931 had 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 Rs 2.4 billion in 1978-1979, but came down to Rs 882 million the following year, and came down even further to Rs 337 million the year after. Total losses for the five year period were almost Rs 6 billion.

Production Problems: Early 1980s

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--coal from which the volatile elements have been removed making it suitable as a fuel and for metallurgical purposes--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 percent 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 first 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 had always been a serious problem for the Indian coal industry and for CIL. Coal prices were administered by the government since 1941, with the exception of a period of seven years, 1967-1974. The pricing formula was based on an Indian industry-wide average with differentials for different grades, but in practice the price was 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.

Shifting Demand: Mid- to Late 1980s

Since coal was meeting over 70 percent 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, 215 million tons by 1997, and over 350 million tons by the year 2001. 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 percent in 1980, to 56 percent 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 $250 million in longwall mining over the period 1990-1995. This development was projected to 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, was also estimated to increase to nine million metric tons by 1995. In April 1990, CIL also approved five additional projects worth some $712 million, as part of its program to increase output to meet the needs of industry into the 21st century. During the 1990-1991 fiscal year, CIL lost Rs 2.5 billion; however by 1992, production began to increase and the company was able to boast a small profit. During the year, CIL began exporting coal to Bangladesh for the first time in its history and secured contracts worth $5 million.

Despite increases in output of almost 9 percent per annum during the duration of the Seventh Five Year Plan, serious coal shortages existed 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 remained poor, and the Indian Railway system was already heavily overloaded. Consequently there were cost overruns and a buildup of coal reserves at the pit heads. Furthermore, many of the targeted output figures were 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. The Indian government knew that if coal was to be a major source of energy and fuel in the future, CIL had be able to generate sufficient resources internally to meet its investment requirements. In this context, the government continued to show concern about the financial performance of CIL well into the 1990s. About 100 of the 248 corporations owned by the Indian government were heavy loss-makers, and CIL was no exception. As such, CIL was being seriously considered as a candidate for major restructuring during the early 1990s.

Rising Demand Leads to Restructuring: 1990s and Beyond

In 1994, India amended its Coal Mines Nationalization Act allowing foreign companies to hold a 51 percent stake in Indian coal mines. The amendment also enabled foreign and private power companies to operate their own coal mines--since 1973, the government only allowed steel plants to run captive mines in the private sector. Indian officials hoped that the relaxed laws would encourage investment in Indian coal mining, an industry whose demand was growing a rapid clip.

At the same time, the import duty on non-coking coal fell from 85 to 35 percent. The reduction enticed coal-consuming industries to seek out imports, whose coal had a higher calorific value and lower ash content than Indian mined coal. With the threat of increased imports cutting into CIL's production, the company began to petition the government to allow it to fix its coal prices as well as its production targets.

By the late 1990s, the Indian government was fearful that CIL and the entire mining industry would not be able to keep up with the rising demand for coal. India was known for its large amount of coal reserves, but in the past had been unable to keep pace with the demand. In 1997, the country began reforming the industry to further encourage investment and exploration and set plans in motion to deregulate pricing and distribution in the industry. It also requested $1 billion from the World Bank to restructure CIL's operations. The loan was used to purchase new machinery and to build new coal handling plants.

During that time period CIL was also feeling increased pressure from international competition. Major coal producing countries including Australia, South Africa, Indonesia, and Columbia began eyeing the lucrative Indian market as a potential gold mine for their low cost coal. As such, CIL management pleaded with its subsidiaries to cut costs and increase production. Profits, gross sales turnover, and production fell in 1999.

In fact, by 2000 CIL had a poor image throughout the coal industry. Three major subsidiaries including Eastern Coalfields Ltd., Central Coalfields Ltd., and Bharat Coking Coal Ltd., were in financial trouble. The company was also not meeting safety standards when compared with other international coal mining companies. During 2001 the Indian government scrutinized CIL, its subsidiaries, and its management. Allegations ranged from misuse of company finances to illegal mining for profit. CIL's record of project completion also came under fire. Since nationalization, only 298 out of 401 government sanctioned projects were completed and more than 70 had been delayed.

As CIL neared the end of 2001, its future remained uncertain. The Ministry of Coal was considering merging the seven coal producing subsidiaries of CIL into one unit in order to save nearly Rs 1,000-crore per year in tax related costs. Not knowing what its future would hold, CIL pledged to focus on meeting demand, raising productivity of its coal mining operations, and restoring its subsidiaries to profitability.

Principal Subsidiaries: Bharat Coking Coal Ltd.; Central Coalfields Ltd.; Mahanadi Coalfields Ltd.; Eastern Coalfields Ltd.; Western Coalfields Ltd.; Southeastern Coalfields Ltd.; Northern Coalfields Ltd.; Central Mine Planning & Design Institute Ltd.

Principal Competitors: RAG Coal International AG; UK Coal PLC; BHP Billiton.

Chronology

  • Key Dates:
  • 1972: Coking coal mines are nationalized; Bharat Coking Coal Ltd. (BCCL) is created to manage them.
  • 1973: Non-coking coal mines are nationalized and brought under the control of the Coal Mines Authority (CMA).
  • 1975: Coal India Ltd. (CIL) is formed as a holding company for five production subsidiaries.
  • 1980: Coal mining production exceeds 100 million tons.
  • 1990: CIL invests $250 million in longwall mining; the company approves five projects worth $712 million to increase production.
  • 1992: The firm exports coal to Bangladesh for the first time.
  • 1997: India begins to deregulate coal pricing and distribution.
  • 2001: The Indian government starts a restructuring plan for CIL in hopes of returning its subsidiaries to profitability.
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over 5 years ago

respected sir,

plz information about coal related small scale industries.


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