Explained: Why Underground Coal Mining In India Needs A Thorough But Pragmatic Overhaul


The Narendra Modi government has shown significant achievements in the coal sector, excelling in both production growth and the implementation of crucial reforms. Allowing private commercial miners was a major move, and its positive effects extend beyond the coal industry.

It is good that they have turned their attention to the neglected and loss-making underground mining, whose share in total coal production in the country had dropped from close to eight per cent in 2014-15 to less than four per cent in 2022-23 (FY23).

However, the government may do better to desist from making unrealistic projections like increasing underground (UG) production three times from the prevailing 35 million tonne (mt) to 100 mt by 2030. Such promises are bound to fall flat.

A less ambitious promise to nearly double India’s total coal production from 566 mt as of March 2014, to one billion tonne, proved hollow. Though India did well to end FY23 with a production of nearly 900 mt – reporting a robust 57 percent growth in nine years.

Remember, the production growth came despite the dual impact of coal block deallocation and the pandemic. Deallocation forced the entire captive segment to start from scratch.

India reported one of the fastest growths in coal production among global peers during the pandemic years. Availability of domestic coal helped the country mitigate the disruption in imports brought about by skyrocketing freight.

Underground coal mining under Modi

In a nutshell, coal (and the entire energy vertical) was in a precarious condition when Modi came to power. Over the last decade, the government steadied the ship and gave it a new direction (by ending the nationalization).

To be sure, it is strongly advised to focus on underground mining due to environmental concerns at this point, but the approach should be practical.

UG production is not only dropping in percentage terms but also in volume. In FY05, such mines – mostly under the state-owned Coal India (CIL) and Singareni Collieries (SCCL) – produced 62 mt of fuel. Production dropped to 50 mt in FY14 and 35 mt in FY23.

Several plans were made in these two decades, both at the government and at the company level, to arrest the decline in UG production. However, nothing worked. There are a couple of structural reasons behind this failure.

-One, the majority of coal available in India – except parts of West Bengal and Jharkhand – is of poor quality.

-Two, coal seams are generally available closer to the ground.

Together, these two factors make opencast a more economically viable option in India.

In contrast, coal is available deeper under the ground in China. Naturally, Beijing has a greater share of underground production. To their credit, China developed the requisite UG technology as well.

Lower stress on underground, local geological conditions (like faults in seams) and price considerations made technological adoption low in India. Technologies like ‘longwall’ experienced limited success in Indian conditions.

On top of that, most of the underground mines in India were of the era when opencast was not in vogue. These mines are barely 150-200 metres deep and barely 25 percent of the reserves are extracted through the board and pillar method.

Today opencast mines can recover 90 percent of reserves located up to 350 metres below the ground.

The net result is catastrophic for India. A total of 158 UG mines of CIL produce 25mt fuel at an average of 1.6 lakh tonne a mine a year. In FY23, output per manshift (OMS) in CIL was 16 tonne in opencast and only 1.05 tonne in underground.

The ratios were even lopsided at 22 tonne in opencast and 1.38 tonne in UG in SCCL. CIL contributes 73 percent of underground production and SCCL 21 percent. According to India’s Coal Controller, the OMS in underground mines has been unchanged for decades.

What do all these mean? As against 25mt UG production of CIL, the company’s Gevra opencast (OC) mine in Chhattisgarh alone produces 50 mt of fuel. Several OC mines are producing in the range of 25-35 mt of fuel each.

Low production and productivity have a huge impact on costs. The average ex-mine price of CIL fuel is Rs 1,400 a tonne. In contrast, the average underground production cost is Rs 6,000 a tonne.

Such costs are irrecoverable for regular-grade thermal coal. And, almost 99 percent of CIL’s UG mines are making heavy losses. Only some in the Ranigunj (Bengal)-Dhanbad (Jharkhand) belt, producing high-quality fuel, may be making some money from open market sales.

However, even for best-quality coal, underground margins are either abysmally low or non-existent. CIL subsidiary Eastern Coalfields (ECL) operates in the Ranigunj area. Roughly 26 percent of the ECL output comes from UG.

In FY23, ECL reported a net margin (profit after tax on total income) of 3.8 percent. In comparison, Odisha-based Mahanadi Coalfields (MCL), which produces low-quality fuel, reported 41 per cent net margin riding on 99.8 per cent opencast production.

For all practical purposes, closing underground mines or converting them into opencast would be most logical for CIL. That is exactly what they are doing. Since 2015, the number of UG mines in CIL are down by 77.

Ideally, CIL should have a few highly mechanized, high OMS, high-capacity underground mines, each producing a minimum of 3 mt best quality fuel, from the depths where opencast is not possible. The rest of UG operations should be closed down.

The high-capacity UG mines may not earn much money (vis-à-vis opencast) but will give India strategic security against imports. This is particularly true for coking coal (used in steel-making), which is mostly imported.

Due to the high stripping ratio, and costly labour, SCCL has little competitive edge even in opencast. There is no case for the company to go underground and the private sector may require a profit guarantee for developing such mines.

Any such underground policy will benefit all. UG production may go up. CIL’s production cost will come down.

Lower cost of domestic fuel is mandatory to reduce the cost of power generation. This is rudimentary, if we want to distribute electricity at cheaper rates, promote industry and solve the problems of under-recovery in the electricity distribution sector.

The point is simple: Let underground mining not be a fashion statement. Let it add some economic and strategic value.