OREANDA-NEWS. May 28, 2015. With Chinese demand for seaborne coal stalling, India has become the great hope of the seaborne coal market.

However, improvements in inland transport infrastructure are critical both to cope with rising imports and the delivery of competing plans for a huge rise in domestic production.

Investment in India's transport infrastructure could prove a double-edged sword for trade in seaborne coal.

India's domestic coal transport

Growing domestic production and rapidly increasing import volumes are stretching the capacities of India's railways and ports.

A shortage of railcars and line congestion mean that over 50 million tons of coal piles up at the end of each year at the pit-heads of Coal India Ltd, the country's state-owned coal miner.

Yet hardly a day passes without power plants suffering a critical shortage of coal.

CIL, which accounts for over 82% of annual Indian coal production, has been directed by the National Democratic Alliance government to double its production to a billion tons in the next five years.

Coal demand over this period is expected to rise to 1.2 billion mt.

The power sector alone is expected to account for 65%, equivalent to over 750 million tons of annual coal consumption.

Coal plan to revitalize India's economy

The task set by the government is hugely ambitious.

CIL managed 7% growth in the financial year to March 2015, following five years that saw average annual production growth of just 1.5%.

Growth this year is targeted at 11%, which would take CIL production to 550 million tons.

CIL has approved a plan to raise production to 908 million mt by March 2020 and is currently working on a strategy to add a further 98 million mt/year production capacity in the same time frame.

The mining giant will undertake 126 new mine and old mine expansion schemes in addition to the 149 such projects already under way.

The plan requires 12% average annual growth.

Central to the strategy will be better coordination between the eight producing subsidiaries of CIL, the railways and coal-producing states.

A sharp rise in coal production is seen as vital for revitalizing India's economy.

Indian GDP growth dipped to a ten-year low before the historic election win in April/May last year by the Bharatiya Janata Party-led NDA coalition on a promise of accelerated economic development.

The government also expects other producers to increase output five-fold to over half a billion tons by 2020.

These producers comprise the state-owned Singareni Collieries Company Ltd., the only other commercial coal producer, and captive miners that mainly produce coal for their own power and steel plants.

In addition, commercial mining by other public enterprises and private investors may not be far off.

The government now has the authority, following a vote in parliament in March, to issue such licenses.

This vote overcame a 15-year legislative logjam, in which coal mine workers' unions had blocked any change to the law that nationalized private coal mines over 40 years ago.

If this massive expansion can be achieved, it would mean a drastic cut in currently forecast levels of coal imports, sending another shockwave through already struggling seaborne coal markets.

However, the degree to which India's coal demand can be met, either by domestic demand or imports, depends critically on rail links between ports, new mines and their customers.