Steel producers are preparing to increase coal imports sharply as state governments halt approvals for them to mine coal because of court investigations into the system for awarding coal blocks.

A rise in imports by India, which shipped in a record 138 million tonnes of coal in the last fiscal year, could support global prices at a time when a glut of steel in China has eroded demand for coking coal used in steel making.

Jindal Steel and Power Ltd (JNSP.NS) could more than double its coal imports to about 5 million tonnes a year to feed a plant that will start up next month, an executive told Reuters, as the state of Odisha has further delayed the company's decade-long wait for approval to operate its own coal mine.

Jindal, India's No. 3 steel producer by market value, Tata Steel Ltd (TISC.NS), its biggest producer, and Monnet Ispat Energy Ltd (MNET.NS) were among the firms to be allocated coal blocks in different states by the central government over the past two decades.

Years on, state governments have yet to give them the necessary approvals to start mining coal. States have further dragged their feet after India's federal police, the Central Board of Investigation (CBI), said last month it was investigating the allocation of a coal block to aluminium maker Hindalco Industries Ltd (HALC.NS).

The coal block allocation controversy, dubbed "Coalgate," surfaced after an auditor's report last year questioned the government's practice of awarding coal mining concessions to companies without competitive bidding. Hindalco has denied any wrongdoing.

"In view of the pending litigations and investigations by the CBI or other agencies, we consider that proceeding further in respect of such allocations may not be advisable till the settlement of pending litigation or closure of investigation," Odisha's top bureaucrat, J.K. Mohapatra, wrote in a letter to the coal ministry on October 23.

Jharkhand, India's No. 2 coal-producing state after Chhattisgarh, also is making little progress with coal block allocations, according to a state government official.

Jindal Steel expected the go-ahead to start mining from Odisha's Utkal B-I block, with estimated reserves of 228 million tonnes, in a month or two as all formalities were completed, said Subrat Ratho, the head of its operations in the eastern state, where the company was awarded two coal blocks. But Odisha's move to halt work on permits means coal mining is unlikely to begin soon.

"Since our coal block has not started, we'll be forced to import or buy costly coal through e-auction," Ratho told Reuters. "It's like buying every day, cooking every day. We don't have any long-term raw material security."

Jindal Steel's new plant to produce 2 million tonnes a year of direct-reduced iron, which is used alongside steel scrap to produce various steel products, will come online next month.

The company will go slow in tripling the plant's capacity to 6 million tonnes by 2014, Ratho said. Thermal coal, typically used in power generation, will be converted to synthetic gas and then used in the plant.

For Tata Steel too, coal imports will nearly double to about 5 million tonnes this fiscal year, said a top official who did not want to be named. The company already imports half of its coal needs, with the rest coming from its own mines.

Tata Steel expects to import all the coal requirements for a 3 million-tonne-a-year steel mill in Odisha that is likely to start production by December next year, the official added.

Analysts have said the controversy over the coal blocks could further hurt coal reforms in India, where more than 80 percent of output is controlled by state-run Coal India Ltd (COAL.NS), which has missed output targets for years.

The company said in a presentation earlier this year that there could be a shortage of 350 million tonnes of coal by 2016-17, much higher than the planning commission's estimate of about 186 million tonnes.