ICVL may buy stake in US coal producer

ICVL may buy stake in US coal producer

New Delhi: International Coal Ventures Pvt. Ltd (ICVL), a company set up by five state-owned firms, is in talks with a leading coking coal producer in the US for acquiring a stake in the company as a precursor to accessing mining concessions in that country.

ICVL, owned by NTPC Ltd, Steel Authority of India Ltd(SAIL), Coal India Ltd (CIL), Rashtriya Ispat Nigam Ltd(RINL) and NMDC Ltd, is being advised on the transaction, code-named “Project Roy", by Giuliani Partners Llc, a management consulting business founded by former New York City mayor Rudolph Giuliani.

“We are talking to Giuliani Partners. This coal company is one of the major coking coal producers in the US and is looking for investors," said a senior CIL executive, who asked not to be identified given the sensitive nature of the issue. He also declined to name the US firm.

SAIL chairman S.K. Roongta didn’t deny the move, but said unless there was something “specific" to share with the media, he couldn’t talk on the subject. Questions emailed to Giuliani Partners on Tuesday remained unanswered.

There are around six leading coking coal producers in the US. These are Consol Energy Inc., Massey Energy Co., Peabody Energy Corp., Walter Energy Inc., Arch Coal Inc. and PinnOak Resources Llc.

While PinnOak couldn’t be contacted and an Arch Coal spokesperson declined comment, questions emailed to the other four firms on Wednesday remained unanswered.

ICVL executive Ajay Mathur did not respond to phone calls and to a text message to his mobile phone. ICVL’s mandate is to acquire coal mines abroad.

India has 256 billion tonnes of coal reserves, of which around 455 million tonnes (mt) per annum is mined. CIL is targeting a production of 435 mt this year, against 403.73 mt achieved in 2008-09.

India imports around 40 mt of coal. Demand is expected to reach around 2 billion tonnes a year by 2031-32, around five times the current rate of extraction, with most of it coming from the power sector.

“India does not have substantial good quality metallurgical coal reserves and hence it is prudent to acquire such assets abroad, more so in light of volatility in prices. However, acquiring equity stakes may address supply security concerns in terms of assured quantum, but may not necessarily shield the acquiring company from pricing shocks," said Dipesh Dipu, principal consultant (mining) with audit and consulting firm PricewaterhouseCoopers.

“Cannibalizing target company’s profits for the Indian end-user company may not go down well in the era of shareholders’ interest unless the target company is acquired fully," he added.