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Indian coal barons’ $10 billion global mine investments may flounder

Coal imports may be negligible by 2023 as CIL is set to double output to 1 billion tonnes by 2020.

About $10 billion worth of investments made by Indian coal barons, including billionaire Anil Ambani, Gautam Adani, L. Madhusudhan Rao, GVK Reddy and G. M. Rao, in buying mines overseas may go down the drain due to declining global prices of the commodity and a surge in domestic output.

Most of these billion-dollar coal mine acquisitions were made between 2008 and 2012 to fuel their power plants in India at a time when the price of coal was at its peak. Since the international prices of coal have declined by almost half to $45 a tonne many of these coal mines have become economically unviable, forcing the coal barons to monetise their coal assets. India's coal imports may be negligible by 2023 as Coal India, the world’s largest coal producer, is set to double its coal production to one billion tonnes by 2020.

The coal barons are now forced to focus on coal mining business in India to support the government’s initiative of “Make in India.”

“The government wants to obliterate thermal coal imports by 2017 by doubling production of Coal India, which already has an 80 per cent market share, by FY2020,” Bloomberg New Energy Finance analysts Ashish Sethia and Richard Hobbs wrote in a report titled ‘India’s thermal coal imports live to die another day.’

“That may be too good to be true and in theory it can cease thermal coal imports in the year FY23 although some imports may continue at coastal power plants,” they wrote. A fall in international coal prices and delays in developing the mines have already raised questions on the attractiveness of India’s overseas coal gambit, Mr. Sethia said.

“Don't be surprised if you see the coal-heavy companies putting more eggs in the renewables basket,” he said.

Reliance Group chairman Anil Ambani has already decided to sell three of his coal mines in Indonesia spread across 40,000 hectares with reserves of two billion metric tonnes. His company, Reliance Power, bought the mines in 2008 and the company had plans to invest another $500 million in developing the coal reserves.

“India has ambitious plans of doubling its coal production,” Mr. Ambani said, addressing shareholders. “We have also decided to exit the coal business in Indonesia and we hope to complete this transaction in the course of this year,” he said. Gautam Adani-led Adani Group acquired Linc Energy's Queensland coal tenements in a deal valued at $2.72 billion and agreed to pay another $2 billion in cash for the Abbot Point terminal near Bowen to secure coal delivery. The company plans to invest another $10 billion in developing port, rail, mine and allied infrastructure in the controversial project, being opposed by environmentalists. The viability of the projects are now being questioned with Australian thermal coal prices dipping to an eight-year low and India pushing for solar, wind power and domestic coal. The company is looking at selling a stake in the ambitious project to raise funds to finance the integrated development of the project as most of global banks opted out from funding the project on environmental concerns. “We are not looking to sell a stake in our coal mine at this point of time,” an official at Adani Group said, citing low prices as a factor.

Debt-laden GVK Group, GMR Group and Lanco Group are also in talks to sell stakes in their overseas coal mines to raise funds. E-mails sent to Reliance Group, Lanco Group, GMR Group weren’t immediately answered.

“Except for Adani Group, no one is pursuing their overseas mines as all of them were meant for captive use for power plants in India,” S P Tulsian, an investment advisor, told The Hindu. “Adani Group saw it from commercial mining purpose. If they don’t see coal demand in India, they may sell it to other countries.”

Source: The Hindu