Does Coal India need to look abroad?

For Coal India it is more prudent to allocate adequate funds, bring in foreign equipments and experts, and carry out mining operations within the country itself, as there still are unlimited reserves

Latest reports in the media indicate that in order to achieve power projects capacity of 108,000 mw, it is essential for Coal India Ltd (CIL) to sign fuel supply agreements (FSAs) with 172 units, covering 134 letters of assurance (LoAs), in line with the directives of Cabinet Committee on Investments. Coal supplies have been approved by the Cabinet Committee on Economic Affairs and so far, Coal India has signed 160 FSAs and the balance have to be accounted for soon.  It is expected that during the 11th and 12th Five Year Plan periods, CIL and its subsidiaries should be able to plan and supply the required fuel needs.

 

Unfortunately, as the details are already in hand, the supplies from Coal India during the fiscal 2013-14 failed to reach the target of 492 million tonnes. The full details were covered in Moneylife couple of weeks ago.

 

The point at stake continues to be the urgent and imperative need for CIL and its subsidiaries to increase the production and also ensure the importation of high grade coking coal supplies are maintained.  Production of thermal coal has also been falling due to reasons beyond control such as the Phailin cyclone and heavy flooding during monsoon.

 

In the meantime, it appears Coal India has been receiving overseas proposals from miners, such as Rio Tinto of Australia and others, inviting the Indian giant to participate in their equity. Coal miners all over the world know that Coal India is a cash cow with $7-8 billion in the kitty, who is the world's largest miner. Apart from domestic production, which has been in 472-480 million tonnes range, covering mostly thermal coal, CIL imports practically the entire needs of coking coal, which is a miniscule supply domestically.

 

Due to the slowdown of economic activities all over the world, particularly in China, coal prices have also come down, as they have large stocks lying in ports, besides their domestic production.

 

A brief reference to the past year's activity will show that Coal industry, as such has been plagued by delays in delivery, slow and inadequate transportation of coal from pitheads and non-lifting of cargo by power generators and gradation issues that NTPC had with CIL. 

 

In the meantime, the issue of de-allocation of coal mine blocks and the troubles faced by serious mine owners who have been unable to get "all" clearances to commence mining operations. Till the new government is formed and portfolios are allotted, work in almost all the areas will be coming to standstill, whether we like it or not!

 

The prime ministerial candidate, Narendra Modi, and his party, have at least made one assurance that there will be "one window clearance!" The investors both indigenous and foreign, at least hope so. This remains to be seen.

 

The proposal by foreign miners may look attractive. It seems a few proposals are already under consideration by CIL.  It is not an easy task to make a quick decision on such oversea proposals, until an in-depth study of the economies of operation, wage structures, strength and weakness of the currency involved, vis-a-vis the rupee, type of coal produced, its grade, scope for increasing the production to meet the Indian needs apart from the most important element of transportation costs, and if CIL plans to use Indian vessels or acquire some of them, themselves?

 

The major issue in such equity participation for a layman to ask is, if the miner offering the equity is already "making profits", why do they want to share this? Are they expecting a kind of world-wide fall in coal prices?  Is the price structure linked to the caloric value of the coal presently mined?  Do CIL have adequate technical personnel who will be able to "man" the oversea acquisition? Finally, why not consider such proposal and then make a counter bid for "leasing" the property for 15-20 years?  Some kind of a joint venture in these lines could be thought of.

 

CIL's desire to own oversea assets is understandable but if these are situated in far off lands, control would become difficult.

 

While they may still study such possibilities and offers and have them examined by third party experts, it would far more prudent to allocate adequate funds, bring in foreign equipments and experts, and carry out mining operations within the country itself, as India has unlimited reserves of coal.  It will mean great potential for employment to people in the country and also generate income all round.

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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