Rise in imported coal prices puts overseas coal mines back in focus

A miner at a coal mine Photo: Shutterstock
The spurt in global coal prices in past six months is likely to put Indian companies’ overseas coal assets back in focus with talks over fresh plans for these assets now underway.

“Higher global coal prices are encouraging such Indian firms to commence discussions on capital investment to open or develop their mines (abroad), even if in part. There are no buyers in sight at the moment, but financing is becoming possible,” said Kameswara Rao, partner with PWC.

Most of the Indian energy companies bought stakes in overseas coal assets in the 2010-2011 period when global coal prices were at a peak of $135 a tonne. Since then, Australian thermal coal spot prices, one of the indicators of global coal prices, hit $100-a-tonne in October for the first time since 2012.

The rise in coal prices might also give fresh impetus to companies that have been trying to exit from these assets. “In the past one to two months, with the coal prices, there is a lot of interest in evaluating options to exit them as they may get a better price. Some of the borrowers who had taken mines in Indonesia are now seriously looking at the option of selling and cutting losses,” said an investment banker who deals with power companies.

Adani Power, Tata Power Co, GMR Infrastructure, Reliance Power, GVK Power and Infrastructure, and Lanco Infratech are some of the larger companies which bought overseas coal assets in the 2010-2011 period. The two people quoted earlier in the story did not name any specific coal assets.

“At current coal prices, there is definitely business sense for some mines, especially the ones in Indonesia, as there is demand in the adjoining markets for this coal. These mines is a profitable venture in the short-term; anyone with a long-term view not seeing coal as a huge play may want to sell it,” said a coal analyst who did not wish to be identified. The analyst added the rise in prices may make a case for certain other companies to start or restart work at these overseas coal mines if the coal prices continue to remain firm.

An email questionnaire sent to Adani Power, Tata Power, Reliance Power, GVK Power, and Lanco remained unanswered. In an interview with Business Standard earlier this month, G B S Raju, chairman, Energy for GMR Group, had said: “We have an existing partner who might be interested; we are evaluating various options.” In 2011, GMR Infrastructure invested $500 million to buy a 30 per cent in Indonesia’s PT Golden Energy Mines stake.

However, not everyone is convinced global coal prices have firmed enough to bring cheer to Indian energy companies holding on to their overseas assets. “Even if global coal prices move up, India and China are the influencing factors. India is increasingly meeting its coal demand with domestic sources and China’s influence on the global commodity prices continues to fluctuate,” said a power sector analyst with a domestic brokerage firm. 

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