SAIL's exposure in ICVL increased disproportionately: CAG

State-run SAIL's exposure in International Coal Venture (ICVL) rose "disproportionately" to 49.43 per cent by September 2014 against the agreed 28.6 per cent, increasing financial risk of the domestic steel giant, government auditor CAG said.
In a report on public sector undertakings (PSUs) for the 2013-14 fiscal, tabled in Rajya Sabha today, the Comptroller and Auditor General (CAG) said ICVL did not acquire any foreign coal assets in the first 5 years of its operations.
Formed in May 2009, ICVL was venture between SAIL and RINL, coal miner Coal India (CIL), iron ore miner NMDC and power producers NTPC for securing metallurgical coal and thermal coal assets overseas.

"Largely governed by SAIL nominated executives, ICVL did not acquire any foreign coal assets in the initial five years of operation," the report said.
Audit noted that out of the five JVC (joint venture companies) partners, CIL and NTPC did not show interest in overseas acquisitions as their priority was thermal coal and not metallurgical coal, it added.
"As a result SAIL's financial exposure to ICVL increased disproportionately to 49.43 per cent (Rs 182 crore) as on September 30, 2014 from the agreed 28.6 per cent. SAIL approved (July 2014) further equity investment of Rs 1,000 crore in ICVL," the report added.

In its reply, SAIL had said as a matter of commercial prudence it did not buy any foreign coal assets prior to 2014 as prices of metallurgical coal were very high during 2009 to 2015.

"ICVL had acquired first coal assets in July 2014 -- coal block from Rio Tinto Coal Mozambique and a proposal for restructuring ICVL was under consideration of Steel Ministry in which CIL and NTPC were not included," it added in reply to CAG's findings.
The report further said that SAIL's reply needs to be viewed against the fact that due to delay in acquisition, the intended benefits were not achieved.

"JVC had participated in bidding process for acquiring coal assets in Australia and Mozambique during 2010-14. Bids were not finalised as the project was held up by the seller due to depressed market condition; the JVC backed out from bidding process citing steep fall in prices of coking coal and JVC was priced out in the bidding process," it added.
Expulsion of two partners would enhance the financial risk of the company in the JV, CAG report said.