South Africa acquisition price soars for NTPC

South Africa acquisition price soars for NTPC
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First Published: Mon, Oct 05 2009. 10 19 PM IST
Updated: Mon, Oct 05 2009. 10 19 PM IST
New Delhi: State-run NTPC Ltd, India’s largest power utility, will need to spend an additional close to half a billion dollars as part of plans to acquire a South African coal mining firm aimed at securing coal supplies for domestic fuel-starved power projects.
While the cost of acquiring the South African company is estimated at $1 billion (Rs4,750 crore), NTPC will need to invest the extra cash to setting up washeries to process the fuel.
“There are some technical issues regarding the high sulphur content of the coal from the mines which have led to environmental concerns. A large portion of the South African coal goes to the European markets after desulphurization at the washeries, which is an expensive process,” said a person who’s part of the process but did not want to be identified as NTPC is still examining the feasibility of acquiring the target company. “An assessment is presently being done about the cost of setting up a washery there.”
Fresh coal supplies are critical for NTPC as at least 80% of its installed capacity of 30,644MW is powered by the fuel. With around 67% of the total power generation currently based on coal, the power sector is the largest consumer, absorbing nearly 78% of India’s coal production.
NTPC requires 122.94 million tonnes per annum (mtpa) of coal and it expects this to grow further as a substantial portion of the capacity it is adding will be based on coal. The firm plans to add 22,430MW of capacity by 2012.
A top NTPC executive confirmed the additional cost due to the need for setting up a washery. “We are conducting studies to examine the feasibility of this acquisition. We will have to take care of this high sulphur content in the coal before getting it to India,” he said.
The person familiar with the proposal cited first detailed the additional cost that may be involved. “With a reserve base of 1 billion tonnes and assuming a 30 mtpa production, an investment of Rs2,100 crore is estimated for the washing of the coal, assuming a project lifespan of 30 years.”
Mint reported NTPC’s plan to acquire the South African company, which has an exploration licence for 1 billion tonnes of coal reserves, on 15 September.
Once NTPC buys the firm, it will get the licence to mine the coal, sparking possible competition with leading Chinese government-run coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd, which are actively engaged in acquiring mining concessions overseas.
“Apart from competition from Chinese players, there is also the factor of quick decision-making. However, with global markets being slightly down, NTPC has a little bit of flexibility with reference to the duration for placing an offer,” said the first person familiar with the negotiations.
As the largest power producer in the country, NTPC is the biggest consumer of coal in India but will need to balance the country’s hunger for the fuel with environmental concerns. The Washington-based Center for Global Development, a policy and research organization, had identified NTPC in 2008 as the third largest polluter among the world’s power producers.
Still, Indian consumers will need to pay the price whatever the cost of getting the coal into the country. “NTPC has an immediate need for coal and this looks like a viable acquisition because whatever fuel cost it has to bear is a pass-through for it,” said Hitul Gutka, an analyst at Mumbai-based India Infoline Ltd.
While NTPC’s projects are facing an acute coal shortage, it has not succeeded in any of its overseas plans for sourcing either coal or gas. At the same time, the company has a sizeable war chest, with cash reserves of Rs44,393 crore.
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First Published: Mon, Oct 05 2009. 10 19 PM IST