Coal India (CIL) - the state-run coal giant and monopoliser - is taking a different route to strengthen its position in the market after having faced quite a few challenges in the previous years.
According to the recent data, the consumption of coal in India declined this year by 5.83 percent. A primary reason for this was the torrential rains and an unexpected rainfall during November. The production targets which had been decided were not achieved due to heavy and unprecedented rainfall which flooded coal-bearing areas.
Despite being India's major coal-producer, CIL faces many challenges that need to be paid heed to. It has been unable to produce top-quality coal due to unavailability of the latest technology - machinery available with the company is not advanced enough to extract good quality coal.
Another challenge is the rampant deforestation caused due to mining which is hampering the ecology in areas near the coal reserves. There are also many people involved in illegal mining of coal. On one side the nation is bleeding for coal and on the other people are engaged in malpractices such as the illegal sale of coal for personal gains.
The government is making new plans to diversify the coal mining segment. For this, they are trying to create a balance between the private and public sectors. This strategy is being applied to reduce CIL's burden as India's top coal producer.
It is estimated that India will require millions of tonnes of coal in the coming years, so instead of piling all the responsibility of meeting the demand on one company, it will be better to share the responsibility of supply. India also imports coal in large quantities from other countries which increase the cost. Diversifying the sector will reduce this to reasonable levels.
Diversification will also bring changes to the economy. It will create more competition in the market which should benefit the end consumer. India is still away from touching the main mining sector of coal. Once it does that, the new entrants will have to compete with CIL to enter into long-term sale contracts.
It is expected that this new development of diversification of the sector will help wipe off these challenges and give a fresh face to the sector. For this, CIL's technology department has been strengthened. The coal ministry has assisted CIL in receiving forest and environmental clearances for a number of coal mines. Thus, the challenge of unavailability of coal reserves can also be ratified.
As the share value of CIL will rise, consequently the competitive advantage is also expected to increase. Thus, CIL is taking a new turn by adopting new strategies.
The author is Head of Research at CapitalVia Global Research Limited- Investment AdvisorDisclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.