Essar Power looks to Indonesia to source coal for Jamnagar plant

Essar Power looks to Indonesia to source coal for Jamnagar plant
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First Published: Thu, Feb 21 2008. 12 15 AM IST

Resource rich: Coal being loaded onto a carrier vessel for export from Indonesia. Essar Power joins a growing list of Indian firms looking to secure supplies from the South-East Asian nation.
Resource rich: Coal being loaded onto a carrier vessel for export from Indonesia. Essar Power joins a growing list of Indian firms looking to secure supplies from the South-East Asian nation.
Updated: Thu, Feb 21 2008. 12 15 AM IST
Essar Power Ltd, part of the Essar Group controlled by brothers Ravi and Shashi Ruia, plans to spend up to $500 million in acquiring a coal mine in Indonesia or inking a long-term supply contract for 6 million tonnes (mt) a year of coal for its 1,200MW power plant at Jamnagar in Gujarat, joining a growing list of Indian companies that have acquired, or are looking to acquire coal mines in the South-East Asian country.
Resource rich: Coal being loaded onto a carrier vessel for export from Indonesia. Essar Power joins a growing list of Indian firms looking to secure supplies from the South-East Asian nation.
“We are working on two models; either we will take an equity stake in coal mines in Indonesia or we will tie up for coal from the existing suppliers there. An announcement will be made in a couple of months,” said A.K. Srivastava, managing director, Essar Power.
In recent months, Tata Power Co. Ltd, Star Emmsons Resource, Reliance Energy Ltd and PTC India Ltd have struck similar deals or have announced their intent to do so. Analysts say Essar will end up paying as much as it does because of rising demand for coal in the international market.
“For a mine that may support 6mtpa coal supply for a power project in India, the investment may range from $350 million to $500 million. Additional investments are needed for development of the mine, purchase of equipment and development of infrastructure,” said Dipesh Dipu, a manager with audit and consulting firm PricewaterhouseCoopers.
“Securing coal supplies from abroad may require outright purchase of coal mine or equity stake in the coal mining company and signing long-term contract with this company. In the international coal markets, supply contracts rarely have tenures of more than four-five years, but buying sizeable equity stakes can facilitate long-term supply contracts being signed,” Dipu added.
Essar’s Jamnagar plant could cost around Rs4,800 crore. Of the power produced by the plant, Essar will supply 1,000MW to the state on a long-term basis at Rs2.40 per unit; it can sell the remainder to a customer of its choice at a price of its choosing. The project will have two units of 600MW each and is likely to be commissioned by 2012.
“Getting coal from Indonesia will not be a problem for us as we already have a presence in that country,” Srivastava added. Essar has a cold-rolling complex in the island nation that is run by its subsidiary PT Essar Indonesia.
Indian power companies needing coal to run their plants are increasingly looking to Indonesia. Companies such as NTPC Ltd, Coal India Ltd, Lanco Infratech Ltd, Madhucon Projects Ltd and GVK Power and Infrastructure Ltd are also looking for coal assets in the same region.
Apart from its proximity to India, Indonesia has become a preferred destination for Indian companies because of the availability of the fuel there and the local government’s willingness to invite foreign firms to invest in the country.
The size of the market for imported coal that goes into power generation in India is around 20mtpa. Coal imports are projected to more than double to 40mtpa by 2012 due to an increase in demand from power projects.
“Prices of imported coal from Indonesia, including freight, are around $90 a tonne. In the case of coal from South Africa, they are around $120 per tonne. The metallurgical coal from Australia, that is used in steel industry, has a price range of $130 to $140 per tonne,” Dipu added.
Essar Power aims to generate 6,000MW by 2012. The group has a turnover of around $2.2 billion and is present in sectors such as steel, oil and gas, power, and shipping.
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First Published: Thu, Feb 21 2008. 12 15 AM IST
More Topics: Essar Power | Investment | Coal | Supplier | Mine |