VZCZCXRO3966
RR RUEHAST RUEHBI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHCI #0062/01 0681305
ZNR UUUUU ZZH
R 091305Z MAR 09
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC 2294
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEIDN/DNI WASHINGTON DC
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHCI/AMCONSUL KOLKATA 2810

UNCLAS SECTION 01 OF 02 KOLKATA 000062 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/INS (ASHWORTH) 
 
E.O. 12958: N/A 
TAGS: EMIN EINV ENRG BEXP SOCI IN
SUBJECT: COAL INDIA: GROWTH THROUGH LEADERSHIP, TECHNOLOGY, 
OUTSOURCING, AND ACQUISITION 
 
KOLKATA 00000062  001.2 OF 002 
 
 
¶1. (SBU) Summary: Led by a dynamic chairman, Coal India Limited 
(CIL), the world's largest coal producing company, is focused on 
growing its operations through more efficient mining operations, 
greater utilization of outsourcing and initiating overseas 
acquisitions.  CIL has recognized the importance of harmonious 
community relations and adopted a sound land acquisition and 
village rehabilitation policy to successfully navigate the 
perils of land acquisition in India.  CIL offers promising 
business opportunities for American firms in the areas of mining 
equipment sales, coal washing facilities, contracting of mining 
operations and as potential acquisition targets.  Coal fired 
thermal accounts for approximately 53 percent of India's total 
power generation capacity, and given the growing economy and 
increasing demand for energy, only a portion of which may be met 
by the nascent nuclear industry, will remain the major source of 
India's energy production in the country.  End Summary. 
 
¶2. (U) On February 20 ConGen, EconOFF and EconFSN accompanied 
the Chairman of CIL, Partha S. Bhattacharyya, and his senior 
management, on an overnight train journey to visit the open cast 
mine of Rajmahal, and the adjacent re-settled village of Ishwar 
Marandi Nagar, located in Godda district in the eastern Indian 
state of Jharkhand.  This cable summarizes information provided 
by Bhattacharyya and other senior managers during a series of 
discussions that took place over the course of the visit. 
 
Domestic Growth Plans 
 
¶3. (SBU) Rajmahal exemplifies CIL's domestic expansion strategy 
through concentration on profitable mining operations, greater 
outsourcing, mine expansion and simultaneous investment in new 
equipment.  CIL currently employs 415,000 people and owns 473 
mines spread across eight Indian states.  As a Public Sector 
Undertaking (PSU), a state owned enterprise, CIL has limited 
flexibility in remanding workers.  CIL has attempted to 
strategically concentrate and relocate workers to more efficient 
mines away from loss making underground mines so that it can 
eventually close them.  It has also encouraged greater 
utilization of contractors - for instance, in open cast mines, 
it has outsourced the actual coal extraction (second layer) 
while retaining the overburden removal function (first layer) 
for its in-house employees.  CIL has chosen this strategy to 
achieve targeted production levels within the shortest period of 
time with limited direct investment.  Outsourcing has also 
instilled a sense of competition between the contractors and CIL 
employees, thereby spurring increased productivity.  Acquisition 
of new land for the development of two new open cast mines, 
along with more efficient mining operations, should allow 
Rajmahal to increase overall production from 10.5 to 24 million 
metric tons per annum. 
 
¶4. (SBU) Given the strategic importance of coal to national 
development, land acquisition for coal mining operations is 
governed by the Coal Bearing Areas (Acquisition and Development) 
Act, 1957, a more accommodating vehicle for land acquisition 
than the Land Acquisition Act, 1894, that governs land 
acquisition for industries.  CIL claims to have gone above and 
beyond the requirements of the Act to ensure harmonious 
community relations.  CIL officials have advocated 
"participatory development" that "touches the hearts" of the 
land-losing community.  In the process of acquiring land and 
resettling villagers, CIL says they pay a negotiated fair market 
compensation for the value of the house and land, provides a 
relocation allowance, considers individuals for employment and 
gives land for a house in the new relocated village.  In the 
village Post officers visited, CIL had developed the entire 
infrastructure of the new village including water, power, roads, 
drainage, schools, clinic and Hindu and Christian houses of 
worship. 
 
Opportunities for U.S. Companies 
 
¶5. (U) CIL offers promising business opportunities for American 
firms in the areas of mining equipment sales, contracting of 
mining operations and construction and operation of coal washing 
facilities.  Bhattacharyya lauded American mining equipment as 
"world class" with "competitive terms and pricing" and "best in 
service operational maintenance".  A CIL subsidiary recently 
concluded approximately USD 382 million in equipment purchases 
from Bucyrus, Caterpillar and Atlas Copco for purchase and 
maintenance of shovels and dumper trucks.  Contracting 
opportunities are available for operations of underground mines 
(traditionally loss making) and establishing coal washing 
facilities through Build Own maintenance (BOM) contracts. 
Because of the high ash content of Indian coal, CIL has decided 
to supply washed non-coking coal to all consumers by 2011-12 
 
KOLKATA 00000062  002.2 OF 002 
 
 
(except those at pithead) requiring the addition of 100 millions 
tons per year of coal washing capacity over the next four years. 
 
Global Expansion 
 
¶6. (SBU) CIL, along with four other PSUs (Steel Authority of 
India, Rashtriya Ispat Nigam Limited and National Thermal Power 
Corporation), has formed a special purpose vehicle entitled 
International Coal Ventures Limited (ICVL) to acquire overseas 
mining companies.  It is currently examining acquisition targets 
in the United States, Canada, Australia and Mozambique. 
Bhattacharyya confided to ConGen that ICVL is in an advanced 
stage of negotiations to acquire a stake a leading coal producer 
based on the East Coast. 
 
Comment 
 
 ¶7. (SBU) Coal will remain India's primary source of power 
generation and CIL its largest producer.  With an exemplary 
chairman at the helm, who successfully turned around one of the 
loss-making CIL subsidiaries and is cognizant of the need for 
advanced technology, the benefits of outsourcing and the 
opportunities of acquisitions, the company is set to grow as an 
international player.  Land is integral to mining operations and 
CIL appears to have adopted a sound land acquisition and village 
rehabilitation policy to successfully navigate the perils of 
land acquisition in India.  The cordial relations between the 
villagers and CIL leadership evident during the visit did not 
appear to be staged and was reinforced when one local reporter 
asked Battacharya during a press conference when his village 
would be "acquired" and developed by CIL. While the 
inefficiencies of a state-owned enterprise remain (restrictive 
personnel policies, political pressure to continue loss-making 
operations, potential for corruption in the bidding process) in 
the 36 hours Post Officers spent with the Chairman, he and his 
staff delivered an impressive performance and sell of the 
opportunities that await American companies with CIL. 
PAYNE