Coal India Ltd – which is set to build a $A1.4 billion railway link through its three richest mining regions – says the untapped pits will help the world's second-biggest thermal coal-importing nation end overseas purchases.
The 330-kilometre network, to be funded by the company and built by Indian Railways in five years, would free up 300 million tonnes of coal annually in the states of Odisha, Jharkhand and Chhattisgarh, Coal India chairman S. Narsing Rao said.
Indian power companies pay about 40 per cent more than local prices to import 70 million tonnes of coal, about 20 per cent of their annual consumption.
According to recent trade data, the value of Australian coal exports to India - which have crept above the value of coal exports to China - are worth $A5.5 billion a year.
"The railway line can eliminate the need for imports of thermal coal in five years," Mr Rao said.
"Given the reserves we have, we should not have to depend on other countries for electricity generation."
The state-owned company, which is the world's biggest producer of the fuel, needs to step up output to comply with Indian Prime Minister Manmohan Singh's 2012 directive to ensure adequate supply and prevent blackouts in an economy expanding at the slowest pace in a decade.
Failure to guarantee supplies to utilities will result in a penalty for the company, whose production growth has stalled in the past three years.
Stalled Projects Coal India shares have advanced 4 per cent in the past year, compared with an 11 per cent gain in the benchmark Sensitive Index, according to data compiled by Bloomberg.
The stock fell 1.5 per cent to 338.75 rupees on Friday in Mumbai.
Power projects worth at least $A34 billion announced by billionaires including Anil Ambani and Gautam Adani, have stalled because of fuel shortages.
A peak shortfall of 9 per cent in electricity supplies leads to outages that shave about 1.2 percentage points off India's annual economic growth, according to government estimates.
The company's proposal for the railway link has been delayed for more than six years, pending approval from the railway and environment ministries. The government last year formed an inter-ministerial panel to push the project following Mr Singh's order.
"The heavy penalty Coal India has to pay if it fails to supply its customers is driving it to do everything it can to boost production," said Deven Choksey, managing director at K.R. Choksey Shares & Securities in Mumbai.
Volumes, Prices Coal India, which must pay as much as 40 per cent of the value of any supply shortfall as penalty, reported a 19 per cent increase in profit to 30.8 billion rupees ($A573 million) for the second quarter ended September 30.
A rising wage bill suppressed revenue gains and led to earnings missing analyst estimates.
Coal India, which accounts for more than 80 per cent of the nation's output, last raised prices two years ago. It had cash worth more than $A11.6 billion as of September 30.
"The company's sales volumes are not increasing the way they should and there is no visibility on prices," said Rahul Jain, an analyst at CIMB Securities India in Mumbai, who has an equivalent of a sell rating for the stock.
"For commodity stocks, you need to have good volumes and prices. Both are missing here."
Of the 52 analysts who cover the company, 35 recommend purchasing the stock, while five advise selling it, according to data compiled by Bloomberg.
India's annual thermal coal demand is expected to climb 43 per cent to 730 million tonnes by 2017, while supplies from local mines may increase 38 per cent to 565 million tonnes, the Planning Commission's energy adviser I.A. Khan said in an interview.
Cheaper local coal will lower the cost at existing plants, while ensuring energy security to upcoming projects.
Coal India has said it will start importing to meet its supply contracts. While the company's output is forecast to rise 6.4 per cent this year to a record 464 million tonnes, it will still fail to meet demand.
"Law and order issues have been the biggest impediment to output," Coal Minister Sriprakash Jaiswal said last month.
Some mines in the eastern states of Odisha and Jharkhand remain shut for three days a month on average because of social unrest, Coal India personnel director R. Mohan Das said, without elaborating on the loss.
Delays in environment approvals and difficulties in acquiring land have also affected production, he said.
India, which generates 57 per cent of its electricity from coal, plans to add 118 gigawatts of generation capacity in the five years ending March 2017, Khan said.
Power companies added about 55,000 megawatts in the five years ended March 31, the most in a five-year period. The country has installed generation capacity of 211 gigawatts.
"India is doing everything to increase coal production," said Debasish Mishra, a partner at Deloitte Touche Tohmatsu India in Mumbai. "The railway plan needs to be supplemented with speedy approvals and efficient project management."