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Coal Industry Stung as Terror Cuts Explosives: Corporate India

May 09, 2013

Coal Industry Stung as Terror Cuts Explosives

A pedestrian walks past the Coal India Ltd. headquarters in Kolkata. Coal India, which is 90 percent owned by the state and fires more than half of the nation’s electricity generation capacity, is under pressure to ensure uninterrupted shipments of the fuel. Photographer: Brent Lewin/Bloomberg

Coal India Ltd. (COAL), the nation’s biggest producer of the commodity, cut output across its operations after a federal order to keep explosives from terrorists halted shipments of the material that’s also central to mining.

No explosives have been dispatched to Coal India’s mines for the past three days because suppliers are grappling with the new rules imposed to ensure safety of the consignments, Chairman S. Narsing Rao said in an interview. The state-owned company uses about 400,000 metric tons of explosives in a year and produces about 1.2 million tons daily from its 466 mines.

“Explosives are bread and butter for us,” Rao said. “Operations at all mines have been affected and we are assessing the impact.”

Faced with a Maoist rebellion in resource-rich states of India, Prime Minister Manmohan Singh’s government is increasing security measures to prevent the chemicals from falling into the hands of extremists fighting a war against the state. The disruption may hurt the Kolkata-based company, which supplies 80 percent of the fuel the nation needs, and starve power producers struggling to eliminate blackouts in a country where peak demand for electricity exceeds generation by 9 percent.

‘Not Practical’

Vehicles transporting derivatives of ammonium nitrate, the main raw material in mining explosives, need to be escorted by armed guards of the local police of every district they pass through, according to an order by the Petroleum and Explosives Safety Organization that came into force on April 30. Suppliers risk losing their permits should they flout the new rules, according to the notification.

“This is just not practical,” said Subhas Pramanik, Managing Director at Gulf Oil Corp. Ltd., which makes and supplies explosives to mines. “This will increase our cost because the number of shipments will get reduced substantially.”

Ammonium nitrate, also used to make fertilizers, was found to have been used in a number of blasts in the country, including in the southern city of Hyderabad in February that killed 16 people. To check such misuse, the government last year introduced rules for storage, shipment and stockpiling.

The stoppage is set to squeeze Coal India, which missed its output target in the year ended March 31 as it battled law and order problems, worker unrest and delays in acquiring land and mining approvals.

Power Outages

Coal India, which is 90 percent owned by the state and fires more than half of the nation’s electricity generation capacity, is under pressure to ensure uninterrupted shipments of the fuel. Power outages shave off about 1.2 percentage points off the growth of the $1.8 trillion economy that expanded at the slowest pace in a decade, according to government estimates.

India’s coal demand is expected to rise 41 percent by 2017 to 981 million tons, while supplies from local mines may gain 28 percent to 715 million tons, the Planning Commission said last year. The nation, which generates 57 percent of its electricity from coal, plans to add 118 gigawatts of capacity in the five years ending March 2017, said I.A. Khan, energy adviser at the commission.

Coal India shares fell 1.1 percent to 308.85 rupees in Mumbai. The stock has declined 13 percent this year, compared with a 2.6 percent gain in the benchmark S&P BSE Sensex. (SENSEX)

Solar Industries Ltd. (SOIL), India’s biggest supplier of industrial explosives, declined 2.9 percent to 989.15 rupees, the most in more than two months. Rival Gulf Oil, the second-biggest, declined 2.6 percent to 62.85 rupees.

Maoist Rebels

“The situation poses serious implications and can potentially bring the mining industry to a standstill,” said Abhisar Jain, an analyst with Centrum Broking Pvt. in Mumbai, who has a neutral rating on Coal India stock. “If not resolved soon, it can aggravate power shortages and lead to a crunch in supplies of end materials such as steel and aluminum on account of shortage of minerals due to a halt in mining.”

Maoist guerillas, who regularly clash with police mostly in India’s mining regions in the states of Odisha, Jharkhand, Chhattisgarh and Bihar, say they are fighting on behalf of poor villagers and tribal communities whose resources are exploited for development with little benefit for the local people.

In 2009, Maoists attacked National Aluminium Co.’s Odisha bauxite mine in a bid to seize the explosives stored at a warehouse. The gun battle between guards and the guerillas, which killed at least 14 people, slowed output at the mine for several weeks as workers refused to work at night.

The rebels, who have killed almost 9,500 civilians and security personnel since 1998, have threatened to “chop off a head for every tree” should jungle cover be removed to start new mines in their hideouts. Prime Minister Singh has called them the nation’s biggest internal threat.

Piling Stocks

While explosives suppliers have appealed to the regulator, their stocks have been piling up, causing plant shutdowns as they can’t keep inventories beyond their licensed capacities. The halt in production has also started to inflate spot prices of the material, said A.N. Gupta, chairman at Premier Explosives Ltd. (PRE), from the southern Indian city of Hyderabad.

“Almost half of our production capacity for explosives is shut,” Gupta said in a telephone interview. “There are no dispatches happening.”

Gulf Oil may soon have to cut production as stocks swell, Pramanik said.

Premier Explosives supplies to Coal India, Singareni Collieries Co., iron ore miner NMDC Ltd. (NMDC) and manganese miner MOIL Ltd. (MOIL) Transport of explosives requires specialized vehicles that have fire extinguishers and other safeguards to avert explosions.

“With the new law, which needs handshakes between security officials at every district border, the number of vehicles has to increase,” Gulf Oil’s Pramanik said. “And this can’t happen overnight.”

To contact the reporter on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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