Essar buys 100-mt Indonesian coal mine for Rs 900 crore

Becomes fourth Indian firm to buy coal mines in the South-East Asian nation.

The Essar Group has acquired a coal mine in Indonesia to fuel its upcoming thermal power projects. Sources said the acquisition, from an undisclosed local company, was for about Rs 900 crore.

The Aries coal mines in the Kutai region of East Kalimantan has an estimated resource base of 100 million tonnes of thermal coal and mineable reserves of 64 mt, said a statement from the Group, whose annual turnover is $15 billion (Rs 68,700 crore).

The transaction is subject to regulatory approvals and is expected to be closed by April 2010, said the release.

“The Indonesian mines are an excellent addition to our growing portfolio of coal assets. This acquisition adds another 100 mt to our existing thermal coal resource base of about 275 mt in India,” said Anshuman Ruia, Group Director.

He said the acquisition was a major step forward in Essar’s strategy of securing long-term fuel linkages and capturing the complete value chain in all its businesses.

Essar Power said the Indonesian mine had high-quality bituminous coal with a gross calorific value (GCV) of 6,000, with low ash and low moisture and was suitable for power plants. Production from the mine should start within a year.

In the first week of this month, Essar Minerals, a subsidiary of the Essar Group, had acquired Trinity Coal, one of the top-10 coal producers in the US, from private equity firm Denham Capital for $600 million (Rs 2,750 crore). The acquisition was to ensure raw material coking coal and thermal coal linkages to its two steel mills in the US and Canada. Trinity Coal has reserves of 200 mt and produces about seven mt annually.

Prashant Ruia, chief executive of the Essar Group, had told reporters the company would also sell half the output from Trinity Coal to local power producers in the US.

Essar Power, which operates four power plants in India with a combined capacity of 1,220 Mw in three locations, is planning to expand this to 6,100 Mw by 2012. It has a 1,200-Mw power project coming up in Gujarat, dependent on imported coal. It is also setting up a Rs 4,800-crore project at Salaya near Jamnagar, also in Gujarat, and the imported coal-based project is slated for completion by 2011.

With the acquisition of the Aries mines, the Group has become the fourth domestic business house in the country to buy coal mines in Indonesia. In August 2007, Tata Power had acquired a 30 per cent stake in Indonesian energy giant PT Bumi Resources, by paying close to $1.3 billion (Rs 6,000 crore). Anil Dhirubhai Ambani Group firm Reliance Power also acquired three coal mines in Indonesia with plans of spending over Rs 3,000 crore to develop these. GMR Energy had also acquired full ownership interest of the Barasentosa Lestari coal mine in Indonesia, by investing Rs 400 crore.

In the past two years, almost all power developers such NTPC, Essar Power, Adani Power, JSW Energy, Indiabulls Power and Lanco Infratech were scouting to own coal mines in Indonesia, to fuel some of their proposed projects.

India is planning to add close to 200,000 Mw of power capacity by the end of the next Five-Year Plan (2017) and all major power producers are scouting for power plants abroad, mainly in Indonesia, South Africa, Mozambique and Australia.

In the past, the Essar Group had acquired Dhabi Group’s telecom businesses in Uganda and Congo, Warid Telecom Uganda and Warid Congo. It also had acquired a 50 per cent stake in Kenya Petroleum Refineries from Shell, BP and Chevron for an undisclosed sum.