Coal news and updates

Modi may lose $3-bn plant to Iran as coal runs short

Domestic coal shortages are prompting India’s National Aluminium Co (NALCO) to plan construction of a $3 billion smelter complex abroad, possibly in Iran, underscoring the task Prime Minister Narendra Modi faces to boost energy output.

Indonesia, Vietnam, Malaysia, Oman and United Arab Emirates are other potential sites for the 500,000 metric ton smelter and a 1,000-megawatt captive power plant, National Aluminium’s Chairman Ansuman Das, 59, said in an interview. He didn’t give a timeline for the project by the state-run maker of a metal used in everything from beer cans to aircraft and cars.

“We are facing a massive energy challenge in India,” Das said. “That’s the reason we are looking at these countries, which have abundant energy resources.”

Using imports to make up for a lack of sufficient local coal output is too costly, Das said, signaling the challenges for industry from a 23 percent national shortfall in domestic supplies. While Modi has pledged to fix energy woes over time, graft probes, environmental objections and slow land acquisition are holding back efforts to mine more of the fuel.

National Aluminium, also known as Nalco, has surged about 50 percent in 2014, exceeding the 21 percent rise in the benchmark S&P BSE Sensex. Aluminum has climbed 13 percent this year, and Nalco may report a 1.78 billion-rupee ($29 million) profit in the April to June period, the highest in three quarters, based on the median of 12 analyst estimates.

The shares rose as much as 1.1 percent today and were trading at 56.9 rupees as of 9:30 a.m. in Mumbai.
Cheaper Energy

India produced 565.6 million metric tons of coal in the 12 months through March 2014, compared with demand of 739.4 million tons. Supplies to captive power plants dropped 31 percent to 37.80 million tons, according to the Power Ministry.

Making aluminum with imported coal isn’t viable as it costs $1,900-$1,950 a ton, about $250 more than with local coal, Barclays Plc estimates. Electricity accounts for almost 40 percent of smelting costs.

That’s why access to cheaper energy is crucial, said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai.

“Nalco has been trying to go overseas in search of gas or coal,” he said. “If all goes well, then they should be able to make decent return on equity.”

Building a plant in Iran depends in part on nuclear negotiations between it and six world powers. The talks could lead to an easing of sanctions on the central Asian nation, which the U.S. Energy Information Administration estimates holds the world’s second-largest natural gas reserves.
‘Great Destination’

Iran may boost its natural gas-fired electricity and nuclear power if the talks succeed, making the nation a “great destination” for aluminum smelting, said Kenneth Hoffman, a Bloomberg Intelligence analyst in New Jersey.

Modi swept to India’s first single-party parliamentary majority in 30 years after general elections over April and May. He pledged 1.48 trillion rupees last month to unclog transport links, spur power output and build cities, while also loosening restrictions on foreign investment.

The rupee has weakened 4 percent against the dollar since Modi was sworn in on May 26, the most in Asia, amid concern he may fail to implement the overhauls as quickly as some investors had expected. A proposed increase in the cap on foreign investment in insurance, for instance, has yet to get parliamentary assent.
Militants

Bhubaneswar, Odisha-based Nalco, which has been forced to idle some capacity at home because of an increase in energy costs, has tried to expand abroad for a decade to boost fuel-supply security. Obstacles in India include coal supply disruption at Nalco’s captive power plant in Odisha, Das said in the July 31 interview in New Delhi. The eastern state faces militant attacks by Maoist rebels.

A report evaluating overseas locations for the planned smelter will be ready in about two months, Das said. Nalco would join companies such as Rio Tinto Group, Alcoa Inc. and Norsk Hydro ASA in tapping cheaper energy in the Middle East.

The new project would be Nalco’s first facility overseas, as earlier plans to build smelter and power plant complexes in Iran and Indonesia failed to progress.

“We have previously burnt our fingers in overseas projects,” Das said. “This time, we will be very careful in choosing a partner, if needed.”

Source: Bloomberg