Powering the tiger

GRABBING hot coals is usually a stupid thing to do. But investors who scrambled to buy shares in Coal India, a big state-run firm, thought their fingers safe enough. India’s biggest-ever initial public offering (IPO) was oversubscribed on its second day, October 19th. By selling 10% of its shares, the government raised about 150 billion rupees ($3.5 billion). The world’s largest coal producer, which extracted more than 430m tonnes last year, is one of India’s ten biggest firms by market value. Local newspapers crowed that India was now in the “IPO big league”.

Nearly everyone seems happy. The government has a trainload of cash. Neither unions nor demagogues made much fuss. Reform-minded officials may take this as a green light to carry on quietly privatising other state-run enterprises, albeit slowly. And a few more Indians are now retail investors, encouraged by a small discount on the share price.

Coal India’s prospects should also be bright. India’s accelerating economy is ravenously short of energy. With renewable fuels barely a flicker, the country will rely for decades on burning mountains of carbon. Coal India accounts for more than 80% of domestic production and controls 18 billion tonnes of reserves, most of India’s total. To expand, it plans to buy foreign mines and import more coal: it has set aside $1.2 billion for an overseas shopping trip, which may include pits in America, Australia and Indonesia.

However, the partially privatised Coal India could be much more productive. The firm used to be a sponge to soak up surplus east Indian labour. Its workforce has been cut by roughly a quarter in the past decade, but still numbers 400,000.

The firm relies heavily on vast open-cast mines but is running short of appropriate places to dig (at least without antagonising gun-toting Naxalite rebels, who plague much of rural India). It is also failing to extract coal from deeper seams. The coal it produces is mostly poor in quality and rich in ash; it should be washed before shipping to make it more efficient, but is not. India’s overloaded railways struggle to deliver enough coal to power stations. Government planners, rather than a market, allocate supplies and set prices and wages. As a result, coal that is nearly the world’s cheapest when dug up is nearly the priciest when it reaches a furnace.

This creaky system struggles to deliver the half-a-billion tonnes of coal that Indians demand each year. If that demand eventually triples, as some predict, Coal India may not cope. Reformers hope that private investment will bring sharper scrutiny and better management. A better idea would have been to break Coal India’s quasi-monopoly and let rival firms vie to deliver coal cheaply. That was politically impossible, however. Greens may cheer, but many of the 400m Indians who lack electricity today will be left in the dark for longer than necessary.