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New government pushes Coal India to revive overseas mine buy effort

Tuesday, 3 June 2014 - 7:00am IST | Place: Kolkata | Agency: dna

Coal India to aggressively look at acquiring overseas assets

Buoyed by hopes of a speedy reform process to be undertaken by the new government going ahead, Coal India (CIL) has now decided to acquire coal mines abroad, and pick up stakes, particularly, in coking coal and high grade thermal coal.

Despite pursuing with handful of proposals in the past, Coal India had failed to firm up any acquisition in the past five years. With the coal ministry, under Piyush Goyal, looking at reviving efforts to boost output, Coal India now wants to go all-out on the acquisition front, especially, at a time when output of coking coal and high grade thermal coal is seen declining from the domestic mines.

The state-owned miner, which has a near monopoly, is open to outright takeover of mines or even undertake equity investment on production sharing basis, Coal India has said.

"It may not be possible to bridge the entire demand gap of coking coal and high-grade low ash thermal coal, primarily because of limited availability of techno-commercially recoverable coking coal reserves and near absence of high-grade low ash thermal coal reserve in the country. In light of the above background, CIL intends to set up coal mining business overseas with a view to acquire coal resources, produce coal and import the produce to India by way of either opening new mines or equity participation in working mines on production sharing Participation Interest (PI) basis," Coal India has disclosed in a document inviting expression of interest (EoI) for empaneling consultants for overseas asset buys.

Coal India has already made "significant progress" identifying several prospective coal resources in select countries, the document said.

"It's felt prudent to create a panel of technical consultants, whose services would be required to carry out technical due diligence of the coal assets proposed to be acquired and for further assignments in the areas of mine planning and design and operation planning."

Coal India currently has about 17 investment proposals from overseas mining companies.

However, it has a poor track record in actually converting such proposal into concrete deal due to several extraneous factors and also because of its inability to act fast and aggressive mainly due to governmental oversight issues.

The mining firm has not been successful in acquiring overseas coal mines since the purchase of two coal blocks in Tete Province of Mozambique in 2009.

For the 12th plan period (2012-2017), it has set aside a capital outlay of Rs 35,000 crore for acquisition of assets and development of Mozambique block.

Without foreign acquisitions, Coal India runs the risk of increasingly failing to keep up with the rising demand from the power sector.

Credit Suisse on Monday said "it is difficult to see volumes improving within 3-4 years" while downgrading Coal India to "neutral" from "outperform".

The day also saw the coal behemoth coming out with its production figure for May which stood at 36.27 million tonnes compared to a target of 38.56 million tonnes. Coal offtake or sale for the month at 40.71 million tonnes was also below target of 43.78 million tonnes.

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