Shatrughan Sinha and Amitabh Bachchan toiling in the dark caverns of a deep coal mine in the 1979 hit Kala Patthar has more or less come to represent life in the Indian coal industry.

The image now needs a makeover, as underground (UG) mining, once the mainstay and a relatively environment-friendly option, has become rare in India.

In FY18, the nation’s two commercial miners — Coal India Ltd (CIL) and Singareni Collieries Co Ltd (SCCL) — produced 629 million tonne of fuel. Of this, barely 39 mt, or 6 per cent, came from underground sources, down from 16 per cent in FY05 and nearly 9 per cent in FY14. Among the top coal-producing nations, only Indonesia has a lower UG share. Considering 25 per cent of India’s coal assets are deep-seated, UG should ideally contribute a quarter of production.

Dramatic decline in CIL

The decline is more prominent in CIL, which contributes 90 per cent of India’s commercial production. Last fiscal, a little over 5 per cent of CIL’s total production (567 mt) came from UG, down from 11.5 per cent in FY08 and 7.8 per cent in FY14.

Barring South Eastern Coalfields, no major CIL subsidiary has respectable UG production. Some, like Northern Coalfields, have no UG mines.

This is both due to a rise in opencast production and a sharp decline in underground production, from as high as 70 mt (90 per cent of total production) in 1975, when CIL was created through nationalisation, to 30 mt in FY18. The trend is not new and is partly attributed to improvement in opencast technologies, allowing the company to convert assets up to 250 metres deep into opencast mines. In comparison, technology absorption was low in UG.

But that alone doesn’t explain the dramatic fall in UG share over the past decade. In the first 30 years following nationalisation, UG production dropped by 23 mt. The rate of decline has doubled since 2005, as CIL lost 17 mt UG production in 13 years.

One of the reasons behind the sharp drop in production is the closure of unviable UG mines acquired during nationalisation.

The production trend could have been reversed by opening new mines or introducing mechanisation in existing mines, which didn’t happen due to lack of commercial interest.

Coal prices are practically government-dictated in India. And the government is focussed on keeping fuel prices low for the power sector, which consumes at least 80 per cent of CIL’s production. Naturally, producing thermal coal through the underground mode becomes unviable.

Also, unlike in countries such as Australia, UG mines in India are required to acquire the overhead surface area. This make them all the more unviable.

The biggest deterrent, however, is the government. Since 2005, India has been on a massive thermal power capacity addition programme. Between 2007 and 2017, its total generation capacity increased by 1.5 times.

The period also coincided with major controversies and policy faux pas in the coal sector. As a face-saver, the government put pressure on CIL to step up production quickly. CIL obliged.

Since FY07, India’s coal production has increased by 200 mt; nearly half of it came in the past four years, and opencast was the easiest way to do it. Roughly 3,000 hectare of India’s mountains and forests are plundered every year for opencast mines while the UG version slips into oblivion.

The last time CIL made media statements about opening new UG mines was in 2009, when half-a-dozen high capacity (3-5 mt) projects were lined up. None saw the light of day.

A ray of hope

A number of former senior executives believe CIL’s opencast share has reached environmentally unsustainable levels and a correction is necessary. SCCL’s 2-mt Adriala project shows there are economic reasons, too. The UG mine taps reserves located below an opencast project. There are similar resources in CIL, too.

A CIL official told BusinessLine the declining trend in UG production may be arrested this year. The company is planning to introduce continuous miners in 10 more mines this year, to step up productivity.