Cash-rich energy PSUs in rush for coal blocks

CIL, NTPC vie for two-billion-tonne Deocha Pachami block in Bengal

The government’s move to put 8.5 billion tonne (bt) coal reserves up for auction has kicked off a frantic rush among companies, with top cash-rich energy public sector undertakings (PSUs), including Coal India and NTPC, scrambling to grab the natural resource.

These firms are lured by the Deocha Pachami block in West Bengal’s Birbhum district which is the country’s largest thermal coal block with over 2 bt reserves. The block was yesterday placed in the list of 17 acreages offered by the coal ministry. This was despite NMDC seeking the block’s allocation for the past three years. It had chalked out a Rs 10,000-crore plan to develop the block in a joint venture with Coal India (CIL).

However, with the block up for sale now, CIL, the world’s largest coal miner, wants to exploit the reserves alone. “We will write to the coal ministry to give this block to us. There is nothing we can do in a joint venture which we cannot do alone,” a top CIL executive told Business Standard.

COAL RUSH
PSU giants in race

• Bengal’s Deocha-Pachami block the most sought-after acreage
   
• The block houses 2 bt of indicated reserves, accounting for a fourth of the total reserves on the block
   
• Total reserves (including inferred) estimated to be as high as 19 bt, throwing up opportunity for the buyer to become the country’s second-largest coal miner
   
• CIL to ask govt for allocation of the block, even if via special dispensation. NTPC, too, wants to apply
   
• Govt’s move to put the block on offer under end-use category hit NMDC’s long-held plans

Already sitting on 67 bt reserves, CIL has been facing the government’s ire for not ramping up production to meet the entire 630 mt domestic requirement. The Maharatna PSU’s cash and bank balance swelled from Rs 58,200 crore in March to Rs 64,600 crore as at the end of September.

But, financial wherewithal is not the only criterion set by the government for screening of companies. It wants to allocate the block to a power firm setting up an end-use plant to utilise the coal in-house. Accordingly, the block has been listed in the “end-use” category of the list. Asked whether this would spoil CIL’s plan, the executive said his company would ask the ministry to strike the block off from the list and allocate it to CIL under a special dispensation.

The end-use criterion, coupled with financial strength, has also made power generator NTPC a good potential developer for the block. The company wants to rejuvenate its fuel securing strategy to ramp up capacity. “We will apply for all the blocks, including this one. We are a long-term player,” a senior NTPC official said. “We are in the process of identification of the blocks to apply for them,” the company said in an e-mail response to a questionnaire.

Meanwhile, the government move might have blocked NMDC’s plan to develop Deocha Pachami. The new guidelines bar mining firms from seeking blocks placed in the end-use category. “NMDC cannot apply for this block. It is meant for power generation,” a senior coal ministry official said. It cannot apply even if it sets up a power plant, as the applicant firm should have a power purchase agreement signed before January 2011.

The only way NMDC can get the block is by forming a JV with a power generating firm like NTPC, where NMDC acts as the mine development operator. NMDC’s acting chairman, C S Verma, refused to comment.