An Up-Close Example of India's Coal Woes

I've talked a lot recently about India's rising coal imports.

Shipments of thermal coal into the country have been surging the last few years. Providing one of the most unexpected drivers in the global market for this commodity.

Of course, there's no reason this should be happening. India holds some of the largest coal reserves on the planet. In theory, it should be able to produce all the supply it needs--and probably more.

But news this week shows clearly why this isn't happening. Because politics--both national and local--are too big a barrier.

The announcement in question came from Australian engineering contractor Leighton Holdings. Who said that they have been taken off the job in building a major new coal mine for India's state power producer NTPC.

The contract was allegedly awarded by NTPC to a Leighton subsidiary in 2010. With the goal being to build infrastructure and coal processing equipment--and carry out stripping of the coal mine--in the eastern state of Jharkhand.

But little progress has reportedly been made since that time. According to NTPC, the firm gave Leighton several extensions on the job. And then finally canceled the contract last week.

This is an interesting case study. Neither side has said exactly why the long-running project has failed to come together. But what we do know is that Jharkhand has been the site of violent local opposition to large coal mining projects. As well as illegal mining carried out by villagers.

If this is indeed why the Leighton project has has been delayed to the point of cancellation, it's a graphic example of India's woes in growing coal output. This is simply a very difficult place to build new projects--even where the right geology exists.

This of course suggests India's domestic coal supply will stay tight. And imports will remain strong. Especially given continued buildouts of new coal-fired generating capacity here.

Here's to one tough job,

Dave Forest