Cabinet may take up coal SPV proposal

Cabinet may take up coal SPV proposal

New Delhi: The Union cabinet is likely to consider the creation of a special purpose vehicle (SPV), proposed by leading public sector utilities, to acquire a stake in overseas coal mines to meet growing production needs.

The cabinet is likely to deliberate on the planned SPV to be formed by Coal India Ltd (CIL), NTPC Ltd (NTPC), Rashtriya Ispat Nigam Ltd (RINL), Steel Authority of India Ltd (SAIL), and National Mineral Development Corp. Ltd (NMDC) when it meets on Thursday.

The proposed SPV will have an initial capital base of Rs3,500 crore, which will eventually go up to Rs10,000 crore," a top government official said on Wednesday.

SAIL, RINL, CIL, NMDC and NTPC have joined hands to source coal from abroad, especially Australia and Canada, to increase their output.

SAIL and CIL have decided to pump Rs1,000 crore each for the proposed SPV, while NTPC, RINL and NMDC will invest Rs500 crore each. “Initially, the SPV would function as an unincorporated company and after shortlisting coal properties abroad, they would jointly launch a formal company," the official said.

The new company would be worth Rs3,500 crore, the official said, adding that “in due course of time, the stakeholders would pump in more money to raise its corpus to Rs10,000 crore."

But “for any investment above Rs3,500 crore, they would have to seek the nod of the Empowered Committee of Secretaries to be set up for the purpose," he added.

The proposed SPV will have a three-tier decision making body. It will have an apex committee comprising the chiefs of the participating companies in addition to a steering committee consisting of functional directors of these companies.

“In the proposed SPV, there will be a joint business development group comprising hand-picked officers, who would carry out due diligence on investment opportunities in overseas coal mines," the official said.

The SPV would explore the possibilities of full acquisition of coal mines and buying out stake in existing coal mines, in addition to exploration of joint ventures with smaller companies, which have mining leases, but are unable to mine because of a lack of technical expertise, he said.

The SPV could explore the possibility of raising resources through debt and equity (in the ratio 2:1), he added.

“Currently, efforts are on to identify specific properties in Australia or Canada, but they will have to decide on the nature of acquisition they should have in these mines," the official said.

“However, we have asked the public sector units to intensify their efforts in acquiring coal properties by choosing a team," the official said, adding that blocks acquisition plan of the SPV has been changed slightly because NTPC and SAIL needed different grades of coal.

“NTPC says it needs thermal grade coal and SAIL needs coking coal," he added.