R-Adag set to enter coal-to-liquid sector

R-Adag set to enter coal-to-liquid sector
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First Published: Tue, Jun 24 2008. 12 24 AM IST
Updated: Tue, Jun 24 2008. 12 24 AM IST
The Reliance-Anil Dhirubhai Ambani Group, or R-Adag, controlled by Anil Ambani, is looking to enter the coal-to-liquid, or CTL business, a move that could likely open up another front in the ongoing battle between it and Reliance Industries Ltd, or RIL, controlled by Mukesh Ambani, which has already announced its entry into the business.
The estranged brothers have sparred since a 2006 settlement that carved up the Reliance group between the two with the flashpoints usually involving non-compete agreements or first right of refusals. R-Adag firm Reliance Communications Ltd and RIL are currently engaged in a battle over the former’s merger-in-the-making with South Africa’s MTN Group Ltd.
CTL involves the conversion of coal into liquid fuels such as diesel and petrol, a process that one analyst said has become economically viable with crude prices soaring to historic highs.
R-Adag has shortlisted an Australian firm and an American one as technology partners and could bid for three CTL blocks in Orissa said an R-Adag spokesperson. He declined to name the companies. RIL is in the fray for the same blocks as is Tata-Sasol.
When contacted over phone, an RIL spokesperson said: “Since these are complex legal issues, I will need at least a day to respond to this.”
He did not respond to queries emailed to him.
Mint couldn’t independently ascertain whether R-Adag’s CTL play will violate any non-compete agreement with RIL. An analyst who did not wish to be identified said both had entered the coal bed methane business after the settlement, indicating that there was no non-compete agreement in certain areas.
The Orissa blocks are Bankhui, Sakhigopal B and Alaknanda in Talcher district and can support production of 3.5 million tonnes of oil and petroleum products.
R-Adag has to partner with a technology provider without which it will not be eligible to bid for the blocks according to criteria laid down by the coal ministry. The other eligibility condition is for the bidder to have a minimum net worth (equity and reserves) of Rs4,000 crore. The total cost of the project is estimated at $8 billion (Rs34,400 crore).
With crude oil prices touching around $140 a barrel, there has been a resurgence of interest in proven technologies such as CTL that were previously considered expensive. India’s Integrated Energy Policy has said CTL technology is one of the options that can improve energy security in the country.
Rohit Nagaraj, an analyst at Angel Broking Ltd, said that the “threshold for production from CTL blocks is around $80 per barrel. If the crude oil prices remain above this level, then CTL is economically feasible”.
Nagaraj added that he wasn’t sure how R-Adag’s entry into the business would affect the non-compete agreement with RIL but added that “both RIL and R-Adag have coal bed methane blocks.”
If R-Adag manages to get the CTL blocks and is then successful in converting coal to liquid fuel, it will have to find a buyer for the end products.
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First Published: Tue, Jun 24 2008. 12 24 AM IST