New Delhi/ Hyderabad: The Hyderabad-based infrastructure firm, GVK Power and Infrastructure Ltd (GVKPIL) has joined the hunt for coal mines in Indonesia for meeting the fuel requirements for its proposed merchant power projects to be set up on the country’s coastline.
Coal industry analysts believe that such a move, by GVK as well as other Indian companies, makes business sense in light of the high coal prices in both contract and spot markets. India is also competing with China, the world’s largest coal user and producer, for the critical fuel.
Coal rush: GVK Group chairman G.V.Krishna Reddy.
“Acquiring coal properties will ensure security of supply and cost synergies for the company and enhance profitability from merchandising power. The differential in mining costs and prices of coal traded in the international markets, which has widened substantially in the recent times, can help Indian power generation companies unlock value through coal mine acquisitions abroad,” said Dipesh Dipu, a manager with audit and consulting firm PricewaterhouseCoopers.
India’s coal imports, currently estimated at 20 million tonnes (mt), are expected to double in the next five years as more thermal power projects become operational. Prices of imported coal, including freight, average around $90 per tonne.
If successful, this marks the first overseas acquisition of the GVK group and may involve an investment of around Rs2,372crore.
“We are now planning to acquire coal mines overseas to meet the requirement of merchant power projects that we are planning to set up in the coastal regions of the country. We have already started scouting for coal mines in Indonesia. We are also looking at two or three other countries,” said G.V. Krishna Reddy, chairman of the company. He declined to elaborate.
Such a move brings the company in direct competition with NTPC Ltd, India’s largest power generation company, which, too, has plans to set up imported coal-based power projects on the coast.
Reddy said, “We are prepared for any size of investments, which depend on the coal reserves, its price and the capacity we plan for merchant power projects in India.”
To start with, the company plans to set up its first merchant power project in the coastal region of Tamil Nadu, close to the special economic zone (SEZ) it is developing with the Tamil Nadu Industrial Development Corporation (Tidco).
The company has already acquired around 400 acres for the proposed SEZ and expects to acquire the total requirement of 3,000 acres mostly by March.
“We are also looking at acquiring around 1,000 acres of land near the coastside, close to the SEZ for setting up merchant power projects. If we are successful in having sufficient coal supplies from our overseas coal mines, then we will go in for 1,000-2,000MW of power plant in the Tamil Nadu coast,” Reddy said.
Says Dipu: “Initial investment will depend upon the coal reserves for the mineral rights, as also on geological characteristics, mine life, mining technology and such parameters for mine development. Investment size for a 2,000MW capacity power project can range from $400-600 million at the prevailing market rates in Indonesia.”
GVK is keen on setting up more coal-fired merchant power projects in other coastal areas that run on imported coal. “We are currently in the process of identifying suitable locations in the coastal areas spread across the country,” Reddy said.
Imported coal typically has a higher calorific value, which reduces wastage and also improves the generation efficiency of power projects.
Analysts estimate that one tonne of imported coal is equivalent to 1.56 tonnes of domestic coal.
Many Indian companies have been rushing to acquire stakes in coal mines overseas after Tata Power Ltd paid $1.1 billion (Rs4,334 crore) for a 30% stake in two coal mining units and a trading company, belonging to Indonesia’s PT Bumi Resources Tbk.
Reliance Power Ltd is set to make a $1 billion investment in overseas coal blocks and is hopeful of finalizing a deal shortly in Indonesia. Other companies with similar plans include Coal India Ltd, Lanco Infratech Ltd and Madhucon Projects Ltd.
In the domestic market, GVKPIL already has a coalmine in Jharkhand which has estimated reserves of 55mt.
The company plans to use this mine, being developed at an estimated cost of around Rs200 crore, for its 540MW power project coming up in Punjab at an investment of Rs3,000 crore.
Even though 78% of India’s coal production is dedicated to power generation, projected supply of the fuel falls short of demand.
The sector, excluding the planned ultra mega power projects, is expected to need 545mt of coal by 2012, compared with domestic coal supplies of around 482mt. The shortfall will have to be made up through imports.