Delay in environmental clearances and increasing dependence on imported coal trigger a new strategic coal-securing policy
India Inc seems to have hit upon a new strategic coal policy — not with a carefully thought out strategy but as the result of a few fortuitous developments recently.
Thanks to delay in environment clearances blocking the development of coal blocks, some energy sector companies have amassed huge coal assets abroad. Rapidly rising imports, coupled with ill-exploitation of domestic reserves, is helping the country save its own resources for future use and, in the mean time, making optimum utilisation of import opportunities.
“Our imports are rising at an annual rate of over 10 per cent. Also, environmental hurdles have brought down domestic production. This may not be deliberate, but it is allowing us to save our own reserves,” a senior Planning Commission official said. “While it will still take a lot of time for imports to match production levels, the gap has started coming down,” he added. (Click for table & graph)
India generates around 500 million tonnes of coal annually, while the domestic production falls short of the demand by at least 83 million tonnes. The gap in the demand and supply is projected to exceed 120 million tonnes by the end of the current Plan period in March 2012. There is a growing list of companies that are forced by the domestic supply constraints to look for coal assets abroad.
The latest addition to the list was Gurgaon-based Lanco Infratech, which acquired Australia’s Griffin Coal Mining Company and Carpenter Mine Management Pvt Ltd early this year for $ 760 million (Rs 3,420 crore) to fuel its power generation base. Through the acquisition of the two entities, owned by Collie-based Griffin Coal, the largest supplier of coal to West Australia’s industrial coal market, Lanco amassed coal reserves in excess of 1.1 billion tonnes.
In a similar acquisition, India’s largest coal importer, Adani Enterprises, had bought Australian coal asset of Link Energy in a deal worth over Rs 12,500 crore in August last year. The mine, in the Galilee basin of Queensland, has thermal coal resources of 7.8 billion tonnes. Adani estimates the production to be at 50 million tonnes a year from this.
Ruias-controlled Essar Group, too, through its subsidiary Essar Minerals, recently acquired Trinity Coal, one of the top-10 coal producers in the US from private equity firm Denham Capital, for Rs 2,750 crore. Trinity Coal has reserves of 200 million tonnes. In another deal, Essar Group had bought a 100-million-tonnes coal mine in Indonesia’s East Kalimantan, to fuel its thermal power projects, in an acquisition worth Rs 900 crore.
“The increasing acquisition of assets by Indian companies is driven by the pressing need to insulate themselves from the volume and price risks associated with buying coal from the international market. Also, as power a producer, we want to ensure that our plants run at full capacity,” said J Suresh Kumar, Chief Financial Officer (CFO), Lanco Infratech. He also agreed that the time was not too far when imports would be equal to domestic production. “This will happen in 5-6 years,” he said.
The “chance” development of rising imports, especially by the private sector, leading to savings of domestic coal reserves, might not be as fortuitous as it seems. Coal minister Sri Prakash Jaiswal had earlier this year said: “Buying coal mines abroad is an activity best suited for the private sector.” Coal mining is an exclusive domain of the public sector in India, except for captive generation. Also, Jaiswal had informed Parliament recently that India was unlikely to achieve self-sufficiency in meeting coal demand in “near future”.
Some experts, however, point out the downsides of adopting such a strategy. “Heavy reliance on imports is never advisable. There are issues of energy security. What if there are floods in Australia tomorrow?” asked a senior Planning Commission official.
Data show that the growth in coal imports in India has far outgrown the rise in domestic production, forcing experts to believe that imports would match production sooner than the government thinks. India’s domestic coal production increased 70 per cent, or 1.7 times, over the last decade, to 530 million tonnes recorded last financial year. Imports, however, rose four times to over 70 million tonnes during the same period.
“Nobody had ever expected imports to pick up at such a pace. Our dependence on imported coal is going to grow more than what was anticipated. This is largely due to the fact that domestic production is not seen picking up in the short-to-medium term, owing to delayed environmental clearances,” said Kalpana Jain, senior director, Deloitte Touche Tohmatsu India.
