Coal India’s Australian shopping to cost over $1 billion; why does it want to spend so much?

By: |
February 23, 2017 2:11 PM

India’s near monopoly coal producer state-run Coal India Ltd is learned to be considering buying coal assets in Australia for over $1 billion. It will raise debt to fund the acquisition, BTVi reported.

Inter Ministerial Group, inter ministerial panel, Tilaiya UMPP, UMPP, Reliance power, PFC, bank guaranteeCoal India Ltd has been scouting coal reserves, particularly coking coal reserves abroad in order to secure supplies to meet domestic demand. (Image: Reuters)

Coal India is learned to be considering buying coal assets in Australia for over $1 billion, BTVi news reported citing wire agency reports. India’s near monopoly coal producer, the state-run Coal India Ltd, will raise debt to fund the said assets in Australia, BTVi reported, without giving details.

Coal India Ltd has been scouting coal reserves, particularly coking coal reserves abroad in order to secure supplies to meet domestic demand. It is also reportedly mulling entering into strategic partnerships in the next financial year 2017-18 to import coking coal.

Technology constraints at home

The company is looking for overseas assets as India is faced with constraints of techno-commercially viable domestic coking coal reserves, Coal and Power Minister Piyush Goyal had told the Parliament in a written reply earlier this month. “The recent spurt in global coal prices, particularly for coking coal, is expected to create an encouraging scenario for such an acquisition process,” Goyal had said.

Dependence on imports

India’s steelmakers depend heavily on imported coking coal as the domestic production is not enough to meet demand. Further the coking coal produced in India has higher ash content which makes it less suitable to use with the technology available here.

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Currently, steel companies in India fulfill 70% of their coking coal requirements through imports, leaving them vulnerable to volatile prices in the international markets. Coking coal import for the steel sector for the last fiscal year was estimated at 40 million tonnes.

Coking coal prices have shown high volatility, rising from $80 per tonne in January last year (2016) to $283 per tonne in December 2016, before falling back to $193 per tonne in early January.

India is considering various steps to reduce steelmakers’ dependence on imported coking coal, or protect them from pricing and supply uncertainties.

Securing long-term supply

Earlier this year, the Steel Ministry approached Coal Ministry seeking securing long term availability of metallurgical coal. The Steel Ministry has asked the Coal Ministry to auction the coking coal mines on a long-term basis to encourage the private sector to invest in coal washeries, according to Steel Secretary Aruna Sharma.

India’s draft steel policy also aims at increasing supply of domestic coking coal to cut dependence on imports by half.

Further, the Steel Ministry has also sought reduction in import duty on both coking coal and nickel – vital components needed for making steel.

Future is not black?

The government hopes that in future, steelmaking will increasingly move towards replacing coal-based production to gas-based. “Pellet making can easily shift to the gas-based thing if it is guaranteed at affordable prices,” a PTI report had recently quoted Aruna Sharma as saying. “Now, with the Paris Convention, it is mandatory that we must bring down the carbon footprints. So, that is another alternative we are working on,” she said.

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Coal India’s efforts for securing long-term supplies are also believed to be the steps towards protecting domestic steel companies to protect from volatility prices and quantity.

Meanwhile, India’s overall imports of coal, including thermal coal, continued to fall in the current financial year 2016-17 on the back of rising domestic production by Coal India. Total coal imports for the current fiscal are projected to be at 160.16 million tonnes, down from 199.88 million tonnes in 2015-16 and 217.78 million tonnes in 2014-15.

 

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