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India Feeds Its Hynger for Coal

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India Feeds Its Hunger for Coal
By Priyanka Bhardwaj and Michael Economides
Posted on May. 04, 2010
India is hungry for coal and domestically there is neither the quantity nor the quality to feed the country’s needs. The situation is exacerbated because coal consumption has soared in the construction (steel, cement) and power generation sectors. Given ongoing high demand, the problem is expected to become even more pressing.
Following China’s example, India is seeking new and distant coal locations in the US, Colombia and Russia to add to supplies from Indonesia, Australia and South Africa, the usual sources of the recent past. It is expected that American and Colombian coal will be shipped to India before the end of the year. China, paving the way, has imported several million tons of coal from Colombia this year. The Chinese generally blaze the coal import trail for India to follow. This is a routine that is already happening in South Africa. India imported 1.4 million metric tons (Mt) from South Africa in February, double the January figure of over 720,000 Mt.
India and China, the two fastest growing large coal-consuming countries, are looking for high-energy content coal at a low average cost that would justify the long-distance shipment. “It's good to know that India is a market into which we can sell our coal, even if it's not our first choice,” a Colombian supplier said.
Industry sources say that over the last few months many global coal producers and traders have been assessing the prospects of the Indian market. These include Colombia's Cerrejon, conglomerates Vale, Xstrata, Rio Tinto, BHP Billiton, Anglo Coal, and Mechel from Russia. In addition Europe is close to shipping surplus coal for the first time from Netherlands to India. In the export hubs of Amsterdam, Rotterdam and Antwerp, coal stockpiles are reportedly over 7 million metric tons (Mt) out of a total capacity of around 9 million Mt.
The search for more coal is due to India’s need for more electricity. The Eleventh Plan of India (ending March 2012) calls for the addition of more than 50 GW of new coal-fired generating capacity.
Coal accounts for over half of India’s total energy consumption . About 70 percent of India's own coal production is already utilized for power generation while three quarters of India's electricity is generated from over 80 coal-fired thermal plants. India, the third biggest coal producer in the world, had reserves of 56,498 million Mt, or nearly 7 percent of the world total.
Yet, India’s federal coal minister Sriprakash Jaiswal recently said coal imports are likely to rise 21 percent over the next year. The imports are needed because domestic output is not keeping pace with the demands of a fast-growing Indian economy. Jaiswal added that coal imports in 2010/11 are estimated to top 85 million Mt up from 70 million Mt in the current fiscal year. “Though local production has increased by about 8 percent, yet energy requirements have risen by 15 percent,” Jaiswal said. The import figures represent almost 15 percent of India’s coal consumption of over 600 million Mt.
More coal imports are almost certain in the future. The Indian government estimates that imports could reach 200 million Mt by 2017.
Indian largest coal producer, the state owned Coal India Limited (CIL), is looking to buy joint global stakes with the US’s largest coal firm, Peabody Energy Corp, in America, Australia, Indonesia and South Africa. CIL has earmarked over $2 billion over the next four years to buy stakes in overseas assets. Last year, CIL acquired two blocks with estimated reserves of 1 billion tons in Mozambique
State-owned National Thermal Power Corp (NTPC), India’s biggest power producer, and Tata Power are also looking to put in place coal supplies from Australia, Indonesia and Africa.
Following suit is the $15-billion, Ruia family-controlled, Mumbai-based Essar Group (with interests in oil, steel, retail, power) that recently finalized a deal to buy Aries coal mines in Indonesia from an unnamed private company. The deal follows the Essar Group’s recent acquisition of US-based Trinity Coal (200 million tons reserves) for $600 million. The company has plans to raise about $3 billion by listing its energy and power businesses on the London bourse, to fund its $8 billion India expansion plans.
To facilitate these acquisitions New Delhi has drawn plans to create a sovereign fund that will help state-run firms finance the purchase of oil, gas, coal, LNG, and other energy sources abroad. The government has also ratified a coal ministry move to auction coal blocks to ensure transparency and speed the allotment process. “Only the highest bidder would be given coal blocks in the country, as it was found that private players were acquiring them as property assets,” the coal ministry has said. The government has also proposed setting up a coal regulator to deal with coal pricing and disputes.
Despite these efforts, India has a long way to go to meet its coal requirements and it’s clear that international sources are likely to dominate India’s ever-increasing energy appetite.

https://www.businessweek.com/news/2010-04-26/coal-india-may-spend-1-7-billion-to-buy-overseas-mine-stakes.html
Coal India May Spend $1.7 Billion on Overseas Mines (Update1)
April 26, 2010, 3:59 AM EDT
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(Adds India’s coal import requirement in eighth paragraph.)
By Rakteem Katakey
April 26 (Bloomberg) -- Coal India Ltd., the nation’s monopoly producer of the fuel, may spend $1.7 billion to buy stakes in five mines in Australia, Indonesia and the U.S. to help bridge a shortfall in Asia’s third-biggest energy consumer.
“We have the equivalent of $7.4 billion in cash which we can use for acquisitions,” Partha Bhattacharyya, chairman of the Kolkata-based company, said in a telephone interview today. “We have all this money and no debt and we want to use it for acquisitions to meet shortages,” Bhattacharyya said.
State-owned Coal India, in which the government plans to sell shares, is seeking access to mines overseas following delays in increasing supplies to power producers setting up plants in the world’s second-fastest growing major economy. Environmental approval is pending for 89 Coal India projects, Coal Minister Sriprakash Jaiswal told parliament in March.
“India will continue to depend on imports unless Coal India acquires reserves of at least 50 million tons a year,” said Madanagopal Ramu, an energy analyst at Centrum Broking Pvt.
The five mines that Coal India is studying include two owned by Peabody Energy Corp. in the U.S. and Australia, Bhattacharyya said. Peabody, the largest U.S. coal producer, is in preliminary talks with Coal India over “long-term” supply agreements and potential cooperative ventures, the St. Louis- based company said April 12.
Due Diligence
Coal India appointed Bank of America Merrill Lynch, Royal Bank of Scotland Group Plc and Royal Bank of Canada to do due diligence on the mines, Bhattacharyya said. The assessment may be completed in four months and purchases may take place in six months, he said.
“We are confident we will be able to strike a deal for at least two of the five proposals,” he said. “We would be happiest if we get all five.”
India imports about 10 percent of its coal requirement and the five mines together can meet about 50 percent of annual imports of the fuel, Bhattacharyya said.
Thermal coal imports surged last year to about 60 million tons from about 30 million tons in 2008, Macquarie Group said in March. India plans to increase its coal imports to 81 million tons in the year ending March 2012, Jaiswal said in November.
The Indian government has invited bids from merchant bankers by May 3 to be appointed as advisers for the sale of a 10 percent stake in Coal India, the department of disinvestment said in newspaper advertisements last week.
Stake Sale
The government expects to raise more than 120 billion rupees ($2.7 billion) selling shares of Coal India in an initial public offering, Bhattacharyya said. The sale may take place in the last week of July or the first week of August, he said.
Reliance Power Ltd.’s 115.63 billion rupee offering in January 2008 was India’s biggest share sale, according to data compiled by Bloomberg.
Coal India plans to spend 38 billion rupees on its mines at home to increase output in the year that started April 1, Bhattacharyya said. That’s excluding the spending on overseas purchases, for which it has set aside 60 billion rupees.
The company is targeting output of 460.5 million tons of coal during the year, compared with 431.34 million tons produced in the year ended March 31, Bhattacharyya said.
Coal India, which was created in 1975 from nationalized companies, mostly uses the less-complicated, open-cast mining method that needs large tracts of land.
Environmental approvals to prospect for more reserves is a process that can take as long as seven years in India, delaying production from fields at home and increasing imports by 10 to 15 percent a year, Bhattacharyya said July 1. This is forcing companies to seek coal reserves overseas, he said then.
--Editors: John Chacko, Clyde Russell.
To contact the reporter on this story: Rakteem Katakey in New Delhi at