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Smaller, nimbler rival shows the way for monolith Coal India

For a coal producer trying to navigate India's complex federal structure, size matters. And the smaller the better.

That harsh lesson was learnt by S. Narsing Rao, the outgoing chairman and managing director of Coal India Ltd, the world's biggest coal miner. While Rao has been at the helm in the past two years, Coal India has missed its annual output targets.


But in the six years before that, Rao led Singareni Collieries and the company beat output targets every year. Even though it is India's second-biggest coal producer, it is small compared with Coal India. In the fiscal year ended March 31, it produced a tenth of Coal India's 462 million tonnes.

Some experts say India needs more small and nimbler companies like Singareni, rather than monoliths like Coal India, to narrow its crippling supply shortfall - forecast to more than double to 350 million tonnes by 2016-17.

The inability of Coal India - accounting for 80 percent of the country's coal output - to raise production fast enough has made India the world's third-largest coal importer despite sitting on the fifth-largest reserves.

That is forcing new Prime Minister Narendra Modi to explore drastic remedies like a break-up of the company, sources say.

The key reason Singareni can meet its targets lies in the ownership of the two companies, Rao says.

While Coal India is majority owned by the central government, Singareni is controlled by the southern Telangana state. Since the federal government can do little without the consent of the states, it is easier for the likes of Singareni to acquire land for mining, access infrastructure such as railways and get environment approvals.

Land acquisition and access to railways are the two most important factors for boosting coal production.

"Coal India, being a federal company, is somehow not proving to be very successful in influencing state governments and district administrations to positively respond to our requests. That is the challenge," Rao told Reuters.

"Singareni being a state government company, it is much easier to do that."

State resistance has, for instance, hampered Coal India's plans to build railway lines connecting remote mines. Rao has said previously that better transport connections could raise the company's output by 300 million tonnes per year.

Rao has quit Coal India to join the government of Telangana, a new state formed this month through the division of Andhra Pradesh state.

Coal India's 370,000 highly unionised workforce has resisted attempts to introduce new technologies, fearing job losses.

In contrast, Singareni, with a workforce of around 62,800, is using state-of-the-art technologies, having pioneered mechanisation of coal mines in India way back in 1937 using coal-drilling machines.

Coal India's productivity, measured in output-per-man-shift, was 4.92 tonnes in 2011/12, below a target of 5.54, according to the last available Planning Commission figures. For Singareni, which digs out a higher percentage from underground mines that are harder to operate than open-cast mines, productivity was 3.80 tonnes, above a target of 2.67.

Singareni Chairman Sutirtha Bhattacharya said Telangana state has promised the company full co-operation, which would spur it to a record production of 54.5 million tonnes this fiscal year from about 50 million in the previous year to end-March. A tenth of India's coal reserves of about 293.5 billion tonnes is estimated to be in Telangana.

Source: The Economic Times