Thursday, December 23, 2010

India to Seek Coal Mines in Africa to Plug Shortfall in Domestic Supplies

By Kartikay Mehrotra and Rajesh Kumar Singh - Dec 22, 2010

India’s Coal Minister Sriprakash Jaiswal said state-run companies will seek deals to buy mines in South Africa, Botswana and Mozambique when he visits the continent next month in a bid to plug a domestic shortfall.

“The top priority is to buy coal mines,” Jaiswal said in an interview in New Delhi yesterday. “We already have two mines in Mozambique and the government is seeking more there and in other countries in Africa.”

Coal India Ltd., the world’s biggest producer of the fuel, and Neyveli Lignite Corp. are among state-owned companies looking for deposits overseas to feed an economy growing at more than 8 percent a year. Jaiswal said local supply may fall short of demand by 83 million metric tons in the year ending March 31, with Coal India set to miss its annual output target.

“Coal India is a bit late in the game,” said P. Phani Sekhar, a fund manager with Angel Broking Ltd. based in Mumbai. “It should have started this exercise 10 years ago and should have matured by now to make big acquisitions.”

Coal users imported 72 million tons of the fuel last financial year, Jaiswal said. The minister said he will visit South Africa, Mozambique, Botswana, Malawi and Swaziland starting Jan. 4.

Coal India shares gained 1.1 percent to 316.65 rupees at 9:24 a.m. in Mumbai trading. Neyveli Lignite rose as much as 1.4 percent and was trading 0.2 percent higher at 128.90 rupees. The benchmark Sensitive Index advanced 0.2 percent.

China Competition

India has lost out to China for assets overseas as Asia’s fastest-growing major economies seek to secure energy supplies. State-run Chinese companies spent a record $32 billion last year acquiring energy and resources assets overseas compared with India’s single $2.1 billion investment by Oil & Natural Gas Corp.

“In China, the government has supported this drive,” said Pauli Laursen, an Aabenraa, Denmark-based fund manager at SydInvest Asset Management. “It is a positive sign that the Indian government is also now joining to help its companies acquire assets.”

Coal India, in which the government sold a 10 percent stake in October to raise 152 billion rupees ($3.4 billion), may miss its target to produce 461 million tons of the fuel this fiscal, the minister said.

“There are delays on environment clearances,” Jaiswal said. “We need to increase production as coal will be the most important fuel for power generation for at least another decade.”

Coal Demand

India’s government has pledged to provide electricity nationwide by 2012 and needs to increase installed generation capacity to 200,000 megawatts to sustain economic growth, according to the power ministry. More than half of the country’s current capacity of 167,278 megawatts is fueled by coal.

Coal demand in India may more than triple in the next two decades to 2 billion tons, Jaiswal said Sept 24. India produced 530 million tons of coal last year, the minister said. The country’s power plants may import 60 million tons of coal next financial year, Power Secretary P. Uma Shankar said Dec. 9.

Coal India is considering buying a Peabody Energy Corp. mine in Australia, one owned by Massey Energy Co. in the U.S., and another in Indonesia, Chairman Partha Bhattacharyya said Nov. 25, declining to name the third company. While Coal India hasn’t started due diligence on two more mines in Australia, it may appoint banks soon to evaluate offers, he said.

“It’s more expensive to bring coal from the U.S. to India because of the distance,” Jaiswal said. “Africa is an ideal location.”