A fortnight away from its initial mega public offering, state-owned Coal India Ltd has embarked upon an ambitious Rs 3,000 crore plan to wash almost half of its output in order to improve the quality and garner prices at par with international rates.
"Under the programme, Coal India Ltd (CIL) has recently given the first contract of five million tonnes at one of its subsidiaries. In the overall project, the company proposes to set up 20 coal washeries with an annual production capacity of 111 million tonnes and commission them successively by 2017," a person in-the-know of the development said.
Firms wash coal to reduce the ash content and improve the calorific value. The average ash content in Indian coal is 35-38 per cent, which makes it inferior to imported coal. Washing helps reduce the ash content by 7-8 per cent.
The development comes at a time when the world's largest coal producer is gearing up for a four-day IPO starting October 18. The IPO, under which the government is divesting a 10 per cent stake in the company, could be the biggest ever in the country and is expected to garner up to Rs 16,000 crore.
The company could not be contacted for comments. At present, the Centre holds 100 per cent equity in the firm.
Coal India, which produced about 431 million tonnes of coal last year and is the primary supplier of the fuel to Indian companies, sells its output at rates almost 50 per cent cheaper rates than prevailing global prices.
Earlier this year, the government said it was considering pricing domestic coal at par with global rates. CIL had hiked the prices of different grades of coal by 11 per cent on average last year to Rs 448-2,500 per tonne.
"The power sector has the appetite to take higher quality coal at higher prices. High quality coal from subsidiaries like Eastern Coalfields Ltd are selling hot cakes. NTPC, which is looking at superior imported coal as an alternate option, is the main buyer of such coal from CIL," the official said.
By 2017, Coal India plans to sell around 300 million tonnes of washed coal out of the total envisaged production of 647 million tonnes. According to the official, in all new mines having an annual production capacity of 2.5 million tonnes or above, the company will install in-built coal washeries. The washery project will be undertaken on a Build, Operate, Transfer basis.
Coal India sells coal at an average price of around $21 a tonne, whereas the nearest source of imported coal, that is, Indonesia, charges around $45 a tonne. The official said the company expects coal prices to go up by $5 a tonne after implementation of its washery programme. However, he said it will still maintain a cost-advantage over imported coal.
"CIL is steadily moving from the deep discount situation to the import price parity regime," the official said.
Indian companies, mainly from the power industry, are already scouting for rich coal reserves overseas to bridge the domestic demand-supply gap, currently pegged at around 80 million tonnes.
In order to bridge the domestic supply gap, CIL is in the process of importing about 6 million tonnes of coal for power major NTPC and Damodar Valley Corporation. In 2009-10, the country produced about 532 million tonnes of coal, with CIL enjoying a market share of around 85 per cent. With over 63 billion tonnes of coal reserves under its fold, CIL is targeting an output of 461.5 million tonnes in the current financial year.
The company has cash reserves of over Rs 30,000 crore, which it plans to utilise for mega acquisitions and global partnerships to bring more coal to India. The company had earlier said it does not need to raise money for its capital expenditure programme, estimated at a total of Rs 9,000 crore for the current fiscal.
The Centre aims to raise Rs 40,000 crore through disinvestment in PSUs like Coal India and SAIL in the current fiscal. In the mega Coal India IPO, the government is selling 63.16 crore shares at a price band with likely upper band of Rs 260 a share. However, an Empowered Group of Ministers (EGoM) will meet on October 12 to decide the price band of the shares being offered under the IPO, for which a prospectus has been filed with market regulator SEBI after being cleared by the Registrar of Companies.
Interest in the IPO has been so keen that the government has decided against roping in anchor investors for the issue.
"With the encouraging response from domestic as well as global investors, the government has dropped plans to rope in anchor investors for the issue. It was earlier planning to have anchor investors for the issue, which is said to be the biggest one in India," the official added.
Anchor investors are those that buy shares of a company before the launch of a public issue. The concept of anchor investors was approved by Sebi last year. Anchor investors, who cannot be promoters of the issuer company, can be allocated as much as 30 per cent of the portion reserved for qualified institutional buyers. Such investors must bid for at least Rs 10 crore worth of shares.
Citigroup Global Markets India, Deutsche Equities (India) Private, DSP Merrill Lynch, Enam Securities, Kotak Mahindra Capital and Morgan Stanley are the book running lead managers to the issue.