NTPC and Coal India Ltd (CIL) have formed a joint venture (JV) to pursue acquisition of coal assets in India and abroad, raising questions about the future of another JV, International Coal Ventures Ltd (ICVL), that was set up by NTPC along with steel major Steel Authority of India Ltd (SAIL), Rashtriya Ispat Nigam Ltd (RINL), CIL and NMDC two years ago with a similar objective but still remains a non-starter.
With ICVL unable to strike any deal, there was a suspicion that all was not well with the JV. Lack of coordination among constituents appeared to be a key reason given the fact that the JV comprised PSUs from three different ministries?SAIL, IRNL and NDMC come under steel ministry, NTPC under power ministry and CIL under coal ministry. This suspicion was confirmed when steel minister Virbhadra Singh in February suggested revamping ICVL to make it worthwhile and said that NTPC and CIL might exit the JV if they were not keen to scout and buy coal assets abroad.
Meanwhile, there is speculation that the steel ministry is planning a special arm under SAIL to spearhead acquisition of coking coal assets abroad. Significantly, international prices of coking coal, a key input for the steel industry, has risen sharply in recent months, forcing domestic steelmakers like SAIL to raise prices in a bid to pass on part of the additional cost of production to consumers. However, there is a resistance from consumers to further price hike.
In an interaction with FE, SAIL chairman SK Roongta said the PSU was open to looking at a change in the structure of ICVL if the problems with the present set-up was what was hampering acquisition of coal assets abroad. Unlike oil fields, coal assets in many countries rich in this natural resource is held by private entities and it is therefore more difficult to conclude deals in this area, Roongta said. ?Cost of production has gone up more than steel prices in recent months,? he said, emphasising on the importance of having coal assets abroad. ?We are certainly looking at overseas coal asset acquisition,? Roongta said. So steelmakers are aware that in case of a sharp rise in raw material prices prices in the future, they might be forced to absorb part of the impact themselves rather than pass it on to consumers. That makes a case for acquisition of coal assets. Cheaper availability of coal would help steelmakers to maintain their profit margins under difficult market conditions without having to make a commensurate hike in prices. He hinted that revamping needed revamping given its failure to strike any deal for acquisition of coal assets so far.
RINL and NMDC both are equipped with Navratna that would allow their boards to grant approval for investment of up to Rs 1,000 crore in a coal project without going to the CCAE. Meanwhile, SAIL is expected to bag Maharatna status from the government soon that would increase financial autonomy of its board from Rs 1,000 crore to Rs 5,000 crore for investment decisions relating to acquisition of coal assets by the company.
