State-owned Coal India Ltd (CIL) has received at least 60 proposals from firms including Anglo-Australian miner Rio Tinto Plc and the GVK Group to buy equity in their coal mines. CIL seeks to consolidate its position as the world's largest coal miner, leveraging around Rs.45,000 crore cash on its books and the bargains on offer. This follows a similar attempt by another state-owned entity, NTPC Ltd, to consolidate its position as India's largest power generation company by acquiring distressed assets in the backdrop of reasonable valuations.
"We have received more than 60 proposals in response to our call for expression of interest (EoI) for acquiring coal assets overseas," a top CIL executive said, requesting anonymity. "Of these, around seven proposals have cleared the initial stages and are under consideration."
India has been trying to cut its dependence on coal and oil imports by buying stakes in overseas assets, a move that could reduce both supply risks as well as price shocks.
The GVK Group approached CIL to buy equity in its Australian coal mine, Mint reported on 31 March. Coal India, which has earmarked Rs.35,000 crore for overseas asset purchase in the next five years, spurned the proposal because of risks related to project implementation, the strengthening Australian dollar, weakening markets and high cost of production.
Queries emailed to Rio Tinto, the world's third largest miner, on Friday afternoon, remained unanswered.
"There are a certain number of Indian firms as well who have approached us for their assets in Indonesia and Australia," said the executive cited earlier. He declined to name the other firms.
This isn't the first time that global firms are engaging with CIL. Its unit Coal Videsh Ltd was earlier in talks with global coal firms such as Peabody Energy Corp. and Rio Tinto for a strategic alliance to mine coal in Australia, the US, South Africa and Indonesia.
Signs of distress at Indian firms that had bought foreign mines during the rally in mineral prices that peaked in 2011-12 have become common. They are looking to get bailed out by other, cash-rich companies, or are waiting for a turnaround in commodity prices to rescue them.
In the year ended 31 March, CIL reported a production shortfall of around 20 million tonnes (mt) because of muted demand for the fuel and the unwillingness of state electricity boards to buy enough power. Although output increased, the state-owned firm mined around 462.5 mt of the 482 mt production targeted for 2013-14.
Analysts say India will have to import coal to meet growing demand.
"India has strong structural demand for coal given the country's reliance on thermal power. We expect its thermal coal-based power capacity to increase from an estimated 123GW (gigawatts) at end-FY13 (fiscal year 2013) to around 150GW by FY16. Thereby, total coal demand could increase from around 720mt in FY13 to 920 mt in FY16E (estimated). However, we expect domestic coal supply to only cater to 76% of FY16E coal demand, with the rest being met by imports," UBS Global Equity Research said in a 19 March report.
"India's coking coal reserves are limited and not of the type that is most suited for blast furnaces. Hence, most of India's coking coal is imported. CIL and SCCL (Singareni Collieries Co. Ltd, a small operator with less than 10% of CIL's volume) are the only merchant miners of coal in India, and to that extent, it is a monopoly," the report said.