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CIL plans to invest in overseas coal mines

CIL plans to invest in overseas coal mines
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First Published: Sun, Jan 31 2010. 10 13 PM IST

Tapping demand: CIL chairman Partha S. Bhattacharyya says the company will start closing deals within the next six months. Indranil Bhoumik/Mint
Tapping demand: CIL chairman Partha S. Bhattacharyya says the company will start closing deals within the next six months. Indranil Bhoumik/Mint
Updated: Sun, Jan 31 2010. 10 13 PM IST
Kolkata: The board of state-owned miner Coal India Ltd (CIL) on Saturday approved a plan to acquire equity interest in 15-20 coal mines in Australia, Indonesia and the US. This could cost CIL up to $2 billion (Rs9,280 crore), according to chairman Partha S. Bhattacharyya.
CIL would develop some of these mines in partnership with firms such as US-based Peabody Energy Corp.—the world’s largest private sector coal miner—and Massey Energy Co.; others are operating mines in which CIL will buy small equity stakes in return for committed coal supplies.
“This is CIL’s first step towards achieving a global footprint… the benefits are going to be substantial,” Bhattacharyya said.
Tapping demand: CIL chairman Partha S. Bhattacharyya says the company will start closing deals within the next six months. Indranil Bhoumik/Mint
Through competitive bidding, which started in July, CIL had identified nine investment proposals. Its board decided that CIL will pursue the two best investment proposals each in Australia, Indonesia and the US.
The six investment proposals would give CIL access to some 15-20 mines, the due diligence on which would soon begin. “Within six months, we’ll start closing deals,” he said. “We are going to deal with highly credible partners. So the due diligence exercise should not take too long.”
Over the next 10 years, CIL expects to import from these mines at least 500 million tonnes of thermal coal, a variety used by power plants. Coal supplies from these mines are expected to begin in fiscal 2011, Bhattacharyya said.
In fiscal 2009, CIL produced 404 million tonnes of coal, of which almost 300 million was sold to power plants. In the same year, India imported around 60 million tonnes of coal, of which 36-37 million tonnes was thermal coal.
“It’s a step in the right direction,” said Sumantra Banerjee, managing director of CESC Ltd, a Kolkata-based power utility. Key to the success of this arrangement is the freight cost of importing the coal. “Even if CIL secures high quality coal, the freight cost of importing coal from many countries—Australia and South Africa for instance—is prohibitive,” Banerjee added.
CIL expects to secure supplies at a substantial discount to international spot prices. Even if the landed cost of coal imported under this arrangement is $10 a tonne less than international spot prices, the country will save $500 million a year, assuming CIL imports on an average 50 million tonnes of coal a year, Bhattacharyya said, adding, “Some of this will, of course, translate into profits for CIL.”
The real demand for imported coal could be much more than what is currently imported, according to Kameswara Rao, India leader for energy utilities and mining at consulting firm PricewaterhouseCoopers.
It is impossible for CIL to fulfil India’s coal needs with its own domestic production, and its move to secure committed supplies from foreign mines could lead to substantial savings for Indian firms, he said. But there could be significant “supply-side constraints” even with this new arrangement, at least initially.
“For instance, managing the logistics of shipping the coal to India might not be easy—CIL could face serious bottlenecks at overseas ports, and the miners may want CIL to invest in the transport logistics, too,” Rao said.
shutapa.p@livemint.com
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First Published: Sun, Jan 31 2010. 10 13 PM IST