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CIL may scrap Mozambique production project on poor deposits

A top company executive said that state-run monopoly CIL is likely to scrap its maiden overseas coal production project as the deposits in the acquired blocks are not good enough to be called coal.

The executive, who spoke to ET on condition of anonymity, said the coal in the two blocks acquired in Mozambique is unfit for consumption by even Indian power plants, which can use the lowest variety of coal.

CIL has already spent close to INR 500 crore in exploring reserves in the two blocks. The reserves in the two blocks do contain carbon, but it is not good enough to be called coal. This reserve cannot sustain a 12% rate of return on investment in the medium to long run.

The executive said said that “Simply put, it is not coal."

CIL won a 5 year licence for exploration and development of A1 and A2 blocks, acquired about 6 years ago, in Mozambique's north-western province of Tete. The blocks were un-explored and it was upon CIL to explore and ascertain the quality of the coal.

Following the acquisition of the blocks, CIL floated Coal India Africana in Mozambique, the company that is supposed to execute exploration and production. CIL was given to understand that 20% of the deposits in these blocks are expected to be of superior variety, good enough to be used in steel making, while the remaining were expected to be thermal coal, which could be used as fuel in power plants.

The executive added that it took CIL almost two years to explore the entire area. Sample coal was sent to India for analyses. After extensive exploration, the quality of the reserve was found to be extremely inferior. The substance that was found does not contain enough carbon to even quality as coal.

Source: The Economic Times