Centre prioritises coking coal contracts over foreign mine purchases

The government’s priority in securing coking coal assets abroad has changed, as the coal ministry is now targeting to first get contracts for coking coal import at competitive prices instead of its earlier plan to go for outright purchase of coal mines.

Union coal minister Pralhad Joshi said on the sidelines of the 8th Asian Mining Congress and Exhibition, “As of now, the thinking is not to acquire assets and only to freeze orders in advance to get coal at competitive prices. The thought process is going on, and as of now we are not thinking of acquiring any assets.”

Coal India chairman Anil Kumar Jha clarified that while getting contracts is a priority, the company will consider picking up stakes in coking coal companies instead of going for an outright purchase.

So far, Coal India has been in two minds on whether to opt for an outright purchase of mines or pick up stakes in coal companies in Australia, Canada, the US and Russia. It is also about to float a tender to select merchant bankers who will guide Coal India through the process.

Joshi reasoned that the decision has been taken to protect India's forex reserves, which stood at Rs 2.71 trillion last year. That year, India had imported 235 million tonne (mt) of coal of which around 50 mt was the coking variant.

Coking coal is scarce in India and is a key ingredient in the manufacture of steel. With the government keen on developing the country’s infrastructure, steel availability and the cost of production–which will impact prices–is crucial.

Around 10-15 per cent of the 55-60 mt demand for coking coal in India is met by domestic supply, the rest is imported from Australia, the and Canada, among other nations. Estimates suggest that by 2030, the steel sector will be demanding 180 mt of coking coal to meet a production target of 300 mt.

The US holds the largest recoverable coal reserves in the world at 230 billion tonne (bt) while production hovers at 685 mt every year. Russia, which holds the world’s second-largest reserves at 160 bt, produced 433 mt of coal in 2018.

These considerations led Coal India to narrow down on the above countries and a memorandum of understanding was also signed between Russia and Coal India recently. Moreover, the coal behemoth was expected to sign definitive agreements with Australia and Canada by the end of this fiscal.

Apart from Russia, this Maharatna company had almost narrowed down on an Australian company, picking up a 20-25 per cent equity stake in which was considered for an offtake commitment and an ad hoc budget was also allocated. This Australian firm has six coal mining licenses under the application stage in its home country, while one mining license has been granted to it by the authorities.

Joshi asserted there would be no FDI in Coal India, in response to a question whether such a possibility existed after the Centre allowed 100 per cent foreign direct investment in the coal mining sector.

Interestingly, foreign portfolio investments (FPI) in this company have been on the rise. While FPIs had a 5.68 per cent stake in Coal India as on September 2018, the same rose to 8.67 per cent at the end of the second quarter.

Coal India chairman Anil Kumar Jha further clarified that though a global tender would be floated to invite partners for the company's coal-bed methane project, FDI would not be the choice.

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