Indian power producers have been compelled to look abroad for fuel to run upcoming facilities, as domestic generation is unlikely to be able to meet the country’s growing appetite for thermal coal.
With India looking to add another 75 Gigawatts (Gw, or 75,000 Mw) of thermal generation capacity by 2017, the coal requirement for the sector is reckoned at about 375 million tonnes per year at that point. However, according to KPMG estimates, only about half of this can be fulfilled by domestic producers, meaning India will have to import between 150-180 mt annually.
So, Indian power majors — including NTPC, Tata Power, Reliance Power and the Adani Group — have begun scouting abroad for coal assets. State-run Coal India has also expressed its intention of making foreign purchases.
Although targets have included South Africa, Australia, the US and Indonesia, the last option has emerged as a favourite for almost all domestic power companies in the fray.
Only a handful of firms have picked up thermal coal assets elsewhere. There is, for instance, Adani Group’s recent $2.8 billion (Rs 13,500 crore) purchase of the Galilee Basin coal tenement in Australia, and JSW Energy’s show of intent for acquiring 70 per cent stake in South Africa-based Indian Ocean Mining.
Why Indonesia
A greater concentration of Indian companies, though, remains in Indonesia. But what makes Indonesia — the world’s largest thermal coal exporter — such an attractive hunting ground for large power sector players from India, the world’s fastest growing coal importer?
“The main consideration is to get the lowest possible delivered cost of coal to a power plant. The pit head value of sub-bituminous thermal coal is less than the freight cost. That’s why you have to make sure the freight cost is kept low. From this perspective, procuring from Indonesia is an advantage,” explains Harsh Mishra, president and chief of corporate planning at the Adani Group.
The country’s largest coal importer, it owns a 6-million tonne per annum (mtpa) mine in Indonesia. Last month, it committed an additional $1.65 billion (Rs 7,700 crore) investment to undertake a port and rail project in Indonesia’s Tanjung Enim region, which will give the company access to 35 mtpa from the mines of PT Bukit Asam.
Tata Power, the country’s largest integrated private sector power utility, in an emailed statement said the “shortest transportation distance to India among all coal exporting countries” was a factor in attracting substantial domestic investments. In 2007, it had taken a 30 per cent stake in two of Indonesia’s largest mines — PL Kaltim Prima Coal and PT Arutmin Indonesia — for about $1.1 billion (Rs 5,100 crore), in part to secure supplies for its Indian power generation plans.
Indonesian coal assets are also valued by Indian companies because their produce, typically, lower grade coals containing very low ash and sulphur content, blending easily with high ash Indian coals, according to Tata Power.
