NATIONS:

India's future energy business plan -- shop the world for more coal

Correction appended.

Part two of a two-part series on coal in India. Click here to read part one.

BOKARO, India -- The men who work at Bokaro Steel City (there are few women) behave as though they are in the Wild West. Some are slick and charming with their words. They stand in air filled with fine coal dust that gets into every crevice of the skin and upper respiratory system, while saying that the dust filters are 99.9 percent efficient.

Others, such as the gun-toting security guards, are silent and watchful. They need to be, in order to cope with the pressures that are unique to Jharkhand, India's richest coal state. The state is among the most corrupt in the country. It is the richest in mineral wealth, and faces a home-grown communist threat called Naxalism. It has a thriving coal mafia, and millions of dollars get traded between politicians leveraging the future of the residents to gain control over the fuel.

Bokaro is an insignificant player in these politics, for all it does is use the coal to make steel. The steel city rises in majestic order above the chaos of Jharkhand. It is immense, occupying 70 square miles including an airstrip, 186 miles of locomotive tracks and a 320-megawatt coal-burning thermal power plant. All this was built in the 1960s, when India was leaning toward socialism and Jharkhand was still mostly forest. It was India's first steel plant, built with the help of the Soviets.

"This is where hell can be seen on earth," said David Mony, general manager of operations for Bokaro, referring to the steel-making process.

Navin Srivastava, one of Mony's subordinates (or "boys," as he called them), placed his eye against a tiny peephole that serves as a window into the 2,500-degree-Fahrenheit steel kiln filled with blue-hot gas. Black chunks of hard coke imported from Australia are added from the top. Orange-hot liquid steel accompanied by sparks pours out into molds at the bottom.

The 'boys' from 'hell' take over the globe's steel business

Despite significant technological advances since the Iron Age, there are few materials on Earth that can replace coal in the steel-making process. There are two varieties of the fuel: metallurgical or coking coal, used in manufacturing, and thermal or steam coal, used in thermal power plants. India is a major importer of coke, and in recent times, supply shortages of thermal coal have been seen, as well. If the gaps get any larger, experts say India could become the largest importer of coal in the world by 2020.

Together with power generation, manufacturing helps make India the fourth-largest emitter of greenhouse gases. Steel and cement, in turn, are driving the construction of buildings, highways and other new infrastructure in developing nations. Even as steel demand from the West fell with the economic recession, developing countries picked up their own production, according to the World Steel Association.

In India, the metal is linked to development in the energy, transport and housing sectors. State-owned Steel Authority of India Ltd., which runs Bokaro, is planning to double its hot metal production in two years, and more steelmakers are moving to the mineral-rich belt of India that includes coal-rich Jharkhand and Orissa.

India's only source of coke comes from the fields of Jharia, 30 miles away from Bokaro, but the coal extracted here accounts for only a fraction of the needs of steelmakers. The steel plants have adapted by importing coal. The fuel travels a long distance to make it to this remote corner of India. While state-owned Coal India Ltd. supplies 95 percent of cooler-burning steam coal used to generate electricity in thermal power plants, India is a net importer of coke, according to the company's chairman, Partha Bhattacharyya.

"We can only meet 25 percent of India's metallurgical coal needs," he said.

Bokaro brings in 80 percent of its coke from Australia and New Zealand, explained Mony. For the rest, the operators have shopped the world in recent years, according to the World Steel Association. India imports from South Africa and Indonesia, among others. Indonesia, which is the top exporter, also sells to China, Japan, Korea and Taiwan.

Since Bokaro is landlocked, the coke -- called "Bokaro Chips" by the villagers -- travels on rail cars from the Haldia port in West Bengal, running inland on the same tracks used by the passenger rail system. The railroads that move most of the coal are badly run and unreliable because they have been financially insolvent, said David Victor, a professor at the School of International Relations and Pacific Studies at the University of California, San Diego. They rely on high tariffs for moving freight to subsidize politically popular low fares for moving people, he said.

Coal looting, a black art

The domestic thermal and coking coal suppliers, which pay most of the tariffs, agree. Rakesh Sinha of Bharat Coking Coal, the company that owns the mines of Jharia, said the fines for overloading wagons and for exceeding the time allowed for loading are excessive. Trains are sometimes stopped along the way in the poverty-ridden state as some residents loot the wagons to sell coal on the black market to a thriving coal mafia.

"It is a race between rising demand for coal and reform efforts to make the rail system more efficient," Victor said.

Railways are a state-owned monopoly in India, and the suppliers and recipients have no alternatives. In 2009, Bokaro had to change its supply route due to excessive coal looting, according to The Telegraph, a local newspaper. Last May, it reported an incident, quoting railways and plant officials as sources: "No security personnel dared to stop them as thieves reportedly enjoyed the patronage of local crime lords and political leaders."

It is common knowledge in Jharkhand that an organized crime ring that some call the "coal mafia" exists with the support of high-level political contacts. Bokaro officials declined to comment on the incident.

A dedicated freight corridor program proposed by the Ministry of Railways in 2006 should help ease such bottlenecks if it gets built, said Bhattacharyya, the chairman of Coal India.

The external railways connect to Bokaro's private tracks that move the "Bokaro chips" to two immense steel-making kilns. Every step of the steel-making process is dirty. Steam from the Bokaro coal-powered thermal plant travels through pipes to heat up the kiln. Inside the massive structures, iron ore is reduced using coke under immense heat, to form elemental iron. The process is entirely mechanized.

The byproduct of the chemical process of most concern to environmental groups is carbon dioxide, which is released into the air above Bokaro Steel City. On average, the steel industry produces 1.9 tons of carbon dioxide per ton of steel. In Bokaro, the number is close to 2.5 to 2.8 tons, said R.G. Segaran, environmental engineer at the plant. The operators are taking steps to make the plant greener, he said.

Other steelmakers push into a gritty business

India is currently the fifth-largest producer of crude steel, making 55.2 million metric tons in 2008, according to the World Steel Association; the largest is China, which produces 500 million metric tons. But India's steel demands are increasing, and between 165 and 198 million tons of steel will be needed by 2020, according to the U.S. Energy Information Administration. Powering that growth will be increased imports of coking coal.

The steel expansion is already under way. In close proximity to Bokaro in eastern India, where the land yields iron ore, multinationals, including the largest, ArcelorMittal, and Korean company Posco are setting up shop. ArcelorMittal plans to build a 25-million-ton plant in Jharkhand and the neighboring state of Orissa; Posco will operate another in Orissa for a capacity of 12 million tons of steel. They will extract iron ore, and using primarily imported coking coal, they will supply India, China and the rest of the world with steel.

Despite their dependence on coal, steel plants are only secondary consumers of the fuel. The most voracious users and carbon dioxide emitters are electric power plants that burn steam coal in their boilers, such as the 320-megawatt plant inside Bokaro Steel City. Suresh Mitra, the deputy general manager of the Bokaro thermal plant, strode through his plant in crisply pressed slacks and tan dress shirt.

He seemed quite comfortable in the soot-blackened, coal dust-filled environment. The dust used to be much worse before the company installed electrostatic precipitators, he explained, pointing with pride to a 577-foot stack of steel cylinders outside the plant.

"They are 99 percent efficient at filtering dust particles," Mitra said. He pointed at seven chimneys lined up and observed that the exhaust smoke was not blackened.

The coal plant in Bokaro doesn't supply energy outside the plant. It recycles some of the gases produced during the steel-making process, called coke oven gas, to produce electricity. These and other retrofits help make the 45-year-old plant more environmentally sustainable, say the operators.

"But the equipment are thousands of crores of rupees, so it will take time," said Mony. (One crore is 10 million.)

Inefficiency, rural electrification and blackouts

Making electricity here is a dirty, inefficient business. India's thermal power plants can convert, on average, 29 percent of their coal into energy, as opposed to 45 percent for more modern Western facilities. Although international environmental groups vehemently oppose new coal-fired power plants, replacing aging boilers would be the easiest way to solve many of the supply and infrastructure issues surrounding coal supply, according to UC San Diego's Victor. A more efficient boiler uses less coal.

"If you raise efficiency, all the other problems become easier to resolve," he explained.

Coal will be the primary fuel of choice at least till 2030, according to Ananth Chikkatur, who is the co-author of a study on the Indian coal sector by the Pew Center on Global Climate Change. Demand for it will rise with India's soaring electricity needs. It is a political necessity for the government to electrify rural India. About 84 million households were without power in 2000, according to the country's 2005 Integrated Energy Policy.

One of the goals of the government is to install an additional 100,000 megawatts of power by 2012, equal to 100 large coal-fired generating plants. Some experts, such as Jeremy Carl, a research fellow at the Program on Energy and Sustainable Development at Stanford University, are skeptical that this can be accomplished. They say that only half the ambition of the government ever gets satisfied.

Regardless, India is solidly positioned on the road toward using much more coal. With the help of the World Bank, new "ultra-mega" supercritical power plants are being installed in Mundra, Gujarat, to deliver 4,000 megawatts of electricity to five neighboring states. The plants will not be supplied by Coal India.

For the first time, an Indian power plant will mostly import its requirement of coal. Mundra will burn 13 million tons of imported coal per year and exhale 25.7 million tons of carbon dioxide. And since it is near the coast, the infrastructure burden of transporting the fuel is less.

India shops the world for coal, driving up prices

"The whole idea behind the ultra-megas is to be independent of Coal India Ltd.," said Victor. This signals a shift in which the mostly state-owned industry is being privatized, he said. Companies such as Tata, which owns Mundra, are going beyond government-owned coal suppliers to get their thermal coal from abroad.

India is also starting to privatize coal mining by awarding coal blocks to companies, mostly in collaboration with Coal India. An Australian mining firm was the first foreign company to get the contract in January to mine coal in the Rani Ganj in West Bengal, a state adjacent to Jharkhand. Coal India is also attempting to outsource mining abroad in countries such as Indonesia.

"We'll receive better terms than imports and increase availability of coal this way," said Coal India's Bhattacharyya.

If the trend continues, India will likely become the world's largest importer of coal, according to Victor. Currently, Japan is the largest importer.

As India grapples with its development goals, energy reliability is becoming a more serious issue. According to a variety of government reports, during peak hours India's power shortage can sink as low as 14 percent below demands. The government plans to fill this gap in the medium term using coal. It expects to import between 200 million and 400 million metric tons of the fuel by 2030 and has recognized the need to strengthen its port and transport capacities in the Integrated Energy Policy report.

Meanwhile, the coal supply gaps in the country are steadily widening. In 2003, India imported 23 million tons. By 2008, the number had doubled. By 2013, the number is expected to exceed 100 million tons, creating a strong international market and rising prices.

When international demand for such fossil fuels increases, some forms of energy may become unaffordable for the poor, said Chandra Bhushan of the New Delhi-based Centre for Science and Environment. Kerosene is already subsidized in rural areas by taxing gasoline and diesel fuel in urban centers, he noted.

Solar and wind power remain a distant dream

But even if coal becomes more expensive due to imports, it will remain the cheapest fuel around. Wind, solar and other forms of renewable energy are at an early stage of development and are still not able to be quickly scaled up, according to Pew Center on Global Climate Change study co-author Chikkatur.

"It is unlikely that by 2030, renewables will capture the overall market," he said. "If the fraction goes up by 5 percent, it'd be amazing. It is now 0.1 percent."

There needs to be an equal investment in developing more efficient coal burners and renewables, according to Chikkatur. And renewable energy may someday become more cost-efficient if developing nations are subsidized by a global clean technology fund, he said.

Given India's recent commitment to reduce its emissions intensity by 25 percent by 2030, the government has stepped up its efforts to search for alternative fuels. Experts recognize the need for greater investment in that sector so that coal can eventually get phased out. But they realize that the fuel will be indispensable for India's energy needs, at least in the foreseeable future.

"There is a lot of noise happening about solar and [more efficient use of] coal in the government, but they are not thinking about replacing coal," explained Bhushan. "They want to mine 2 billion tons of coal. The global climate can't afford 2 billion tons being mined."

Anil Das, a freelance journalist based in New Delhi, contributed.

Correction: One hundred thousand megawatts of power is equivalent to the output of about 100 large coal-fired power plants; an earlier version stated an incorrect number in the comparison.