Imported Coal Business

We are actively looking out for acquiring coal mine stakes. This coal will be procured for direct supply to our customers for their imported coal-based projects. The size of the investment for these projects will depend on the size of the coal mines that we secure overseas. The company hopes to acquire overseas coal blocks with a mining capacity of around 2 million tonnes per annum (mtpa) and is exploring for opportunities in South Africa, Indonesia and Australia. The company’s plans are consistent with its strategy of ensuring coal supplies to the customers. Imported coal typically has a higher calorific value, which reduces wastage and also improves the generation efficiency of these power projects. Analysts estimate that 1 tonne of imported coal is equivalent to 1.56 tonnes of domestic coal.

There has been a rush of Indian companies trying to acquire coal mines stakes overseas after Tata Power Ltd paid $1.1 billion (Rs4,334 crore) for a 30% stake in two coal mining units and a trading company, belonging to Indonesia’s PT Bumi Resources Tbk.Reliance Power Ltd is set to make a $1 billion investment in overseas coal blocks and is hopeful of finalizing a deal shortly in Indonesia. Other companies with similar plans include Coal India Ltd, Lanco Infratech Ltd and Madhucon Projects Ltd.

Coal industry analysts believe that such a move makes business sense in light of the high coal prices in both contract and spot markets.

Coal mining costs are expected to rise, too, due to demand pressures on equipment and human resources in particular, but it will still have value for the investors who choose to mine rather than purchase at prevailing market rates.

Even though 78% of India’s coal production is dedicated to power generation, projected supply of the fuel falls short of demand. The sector, excluding the planned ultra mega power projects, is expected to need 545mt of coal by 2012, compared with domestic coal supplies of around 482mt. The shortfall will have to be made up through imports. India’s coal imports, currently estimated at 20mt, are expected to double in the next five years as more thermal power projects become operational. Prices of imported coal, including  freight, average around $90 per tonne.

Coal demand in India is expected to grow rapidly as the country seeks to add 78,000MW of generating capacity in the next five years. India currently has a generating capacity of 130,000MW, but needs more power to fuel an economy that grew by 9.4% last year and is expected to expand by more than 8% this year.