Coal India seeks equity, alliances

Coal India seeks equity, alliances

Mumbai: State-run Coal India, the world’s largest coal miner, is moving swiftly towards signing strategic alliances to help fill India’s yawning coal supply-demand gulf, its director of marketing said on Wednesday.

They would be in the form of equity or offtake deals with major coal mining firms in Indonesia, Australia and the United States and it has shortlisted 10 producers, A K Sarkar told Reuters on the sidelines of the Coaltrans conference in Mumbai.

India’s coal shortages have affected a range of industries including aluminium smelting and caused power plant coal stocks to shrink to two or three days’ worth.

“The thirst is for equity and we are going full steam ahead," Sarkar said in an interview. “We would prefer not to sign purely offtake deals, we want security of coal supply."

Security of supply would best be guaranteed by owning all or part of existing or new mines, he added.

To this end, Coal India has shortlisted 10 major coal producers and will take three months to carry out due diligence and decide which alliances to seriously pursue, he said.

Coal India is looking at three alliance models: equity in existing mines; pure offtake deals and joint ventures to develop new mines and deals will be signed with producers “sooner rather than later," Sarkar said.

Some of the coal producers with whom Coal India is in talks will be able to supply coal this year and some next year, he said, stressing the urgency of getting coal flowing rapidly.

India’s coal shortfall for 2010-2011 is 81 million tonnes but Coal India will fill only a portion of that as instructed by the Central Electricity Authority, Sarkar said.

In February, Coal India subsidiary Western Coalfields said Coal India would import 6-10 million tonnes in 2010-11, up from around 1.5 million in the previous year.

Imports to continue strong

India has no choice but to import coal for the foreseeable future, at least five years, despite Coal India’s efforts to ramp up domestic coal output, Sarkar said.

“Imports are a reality and will increase or decrease depending on how much we can increase our output but definitely imports will continue for the forseeable future, at least five years and will increase year to year," he said.

It is too early to discuss the structure of equity deals in exchange for coal or pricing for offtake agreements, Sarkar said, but the higher cost of imports would need to be reflected in domestic coal prices paid by end-users.

“There is a cost component for imported coal - domestic coal is less than 50% the cost of imports - and also Indian coal is a depleting energy resource, this must also be taken into account," he said.

India has vast coal reserves in the east of the country but strict environmental laws and the difficulty of developing mines where there are towns and villages restricts Coal India’s ability to boost output, Sarkar said.

“The fact is, in India, land is almost a raw material. People do not want to move but you need land to get at the coal," he said.