The Perils of Indian Coal


Stop us if this sounds like a familiar story: a valuable fossil fuel provides the financial backing for terrorist organization once it falls into the wrong hands, leaving innocents to pay the price. Despite the Middle East's abundant supply of oil and radical Islam, however, this story doesn't involve oil sheiks and suicide bombers. Instead, it's the harsh reality faced by the Indian government over its supply of domestic coal under the control of communist rebels known as Naxalites. If you're under the impression that communist rebels represent an anachronism, a phenomenon of the Cold War that died before Windows 95 and Starbucks came into being, you're not entirely wrong: India's Naxalite insurgents desire money and social control much more than they desire political reform or economic equality. Their willingness to do violence in order to achieve that goal has put Indian coal in a particularly rough spot at a time when the nation badly needs an answer to their energy woes. Worse still, they're not the only roadblocks to an Indian coal boom and the potential to open a huge market for the commodity.

A Nation Running on Empty

The industrialization of India has not come easily, quickly, or cheaply. Three-quarters of a century after the colonization era ended and the modern state came into being, half of all Indians today remain working in agriculture rather than transitioning into a manufacturing or service economy. India's exports have, to a degree, managed to keep pace with the industrializing world, as they now sell more engineered parts than any other nation other than the United States. When it comes to imports, however, the pace remains so far ahead that there's no finish line in sight. India's first, third, and fifth largest imports are all fossil fuels (petroleum, coal, and natural gas, respectively) thanks to the nation's complete inability to provide power for its citizenry. The government has attempted to inject about $130 billion in cash into the nation's energy infrastructure to speed up capacity, with mostly mixed results. Indian coal production doubled in the past fifteen years to the point where only China, Australia, and the US dig more coal out of the ground. That's helped to provide much more energy from the nation's relatively fertile deposits even if there's nowhere near enough oil and gas in Indian geology to provide adequate fuel for 1.2 billion residents of the subcontinent. As such, the coal gets the attention, but not all the coal lies under state-sponsored control.

Rebellion and Energy

Officially, the Naxalite rebels have been at war with the Indian government for half a century. In that time, they've killed far more Indian citizens than the unofficial border war taking place with Pakistan in Kashmir territory. The Naxalite rebels officially follow a Maoist doctrine despite the fact that the Chairman despised India and fought a month-long war with the neighboring nation. They advocate a complete overthrow of the Indian government, which is why former Prime Minister Manmohan Singh refered to the group as the greatest internal threat in the nation. The Naxalites don't have the territory or manpower to directly challenge the Indian government and so restrict themselves to attacking civilian populations and police patrols. Their sole trump card lies in the coal deposits of their home turf, the Jharkhand forest. Here, they control the mining and distribution of vital coal, selling it at a premium to whomever chooses to pay up: corrupt cops, government officials turning a blind eye, or business interests who aren't too concerned about who they trade with. Supply trucks become hijacked or bombed. The population around Jharkhand considers themselves lucky to make two dollars a day and many willingly join the militia. That's where the problems begin.

Clean Air...Anywhere?

If the Powder River Basin coal belts of Wyoming and Montana may be called the very best coal on Earth, the Jharkhand coal belts may earn the prize of the very worst. Indian coal contains far too much ash to be reliable for burning, resulting in deposits that clog up power plants and leave tremendous amounts of pollution falling from the sky in the cooling towers' radius. Major cities like Mumbai and New Delhi have become some of the most polluted in the entire world since the start of the Indian coal boom, with a recent three-day visit in the nation's capital by President Obama estimated to have cut his lifespan by approximately six hours. The fingers of blame point towards India's own coal, meaning that some politicians have began to launch an assualt on domestic coal, with the nation's Supreme Court restricting the legal limits for sulphur quality. That's made some Indian energy interests look outside their borders: Indian power plants burn through about one billion dollars per year of foreign coal. While India will not hamstring their industrialization and 5% GDP growth per year by restricting domestic coal, the growth of the economy and coal aren't quite going hand in hand. It's estimated that air pollution costs China about 10% of its economy's gains, while no Chinese city has air quality as poor as India's eight worst cities.

The Coal, Hard Truth

How can an investor profit from India's coal boom? While the problems facing the nation may seem like an overwhelming incentive to stay far away, the perils of Indian coal represent continued good news for the future of the commodity. Coal weathered the 2014 energy crisis far better than oil or natural gas, having re-gained nearly all of its value lost since October. The Indian demand for coal represents opportunity much like the Indian demand for gold (no nation imported more of the metal in 2014). The continued industrialization of India's population will require huge quantities of energy that they struggle to obtain domestically thanks to quality, insurrection, and environmental hazards. That'll keep value high, as evidenced by the number of Indian consumers who prefer to buy on the international market rather than in their own backyards.

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