INDIA BUSINESS WORLD - APRIL 1st - APRIL 15th - 2008
VIDEOCON, INDIABULLS & JSW STRIKE $2-B COAL DEAL IN AFRICA
In what could be one of the largest energy hunts in the overseas market, three Indian companies—Videocon, Indiabulls and JSW Steel—have either acquired or are in the process of acquiring coal mines in Africa which would give them access to 1 billion tonnes in reserves.
The three firms have struck separate deals with Rachana Global, a Mozambique-based mining firm, to acquire the coal assets in a deal worth over $2 billion jointly. “Many Indian companies are in talks with us to acquire coal mines in Mozambique. Recently, the Videocon group expressed an interest in our mines and we have signed an MoU with them,” said Rachana Global director-general Manoj Sompura. The agreement is for various assets in Africa including coal mines in Mozambique. “Indiabulls too is in advanced talks with us to purchase some mines,” he added.
Apart from coal, Rachana Global currently possess over 150 mining licenses in other assets such as iron ore, gold and bauxite in Mozambique and other African countries.
Rachana had last year sold coal mines to JSW Steel. Leading consultancy firm Ernst & Young has been advising Rachana Global on these deals. When contacted, Indiabulls director Gagan Banga declined to comment on the deal. JSW Steel finance director Seshagiri Rao said: “We have already acquired two mines in Mozambique.” However, he was reluctant to divulge details on companies further coal mine acquisitions in the region. Recently, the Indiabulls group has entered power business through its subsidiary, Indiabulls Power, and is currently bidding for many coal-based power projects locally. Also, Videocon Industries has initiated a process to spin off its energy business into a separate company called Videocon Natural Resources, including coal fields in Indonesia and oil and gas blocks in Brazil, to give focus to its energy business.
JSW Steel, the Sajjan Jindal-led company, is also expanding production to 10 million tonnes (mt) from the current 3.8 mt and needs more coal for its expansion.
Mozambique is one of the major coal producing countries in the world. The quality of coal is comparable with other major coal exporting countries such as Indonesia, South Africa and Australia. Mozambique, driven by its rapidly developing infrastructure, has fast become a destination of choice for Indian companies scouting for coal assets worldwide for their power and steel plants.
“Mozambique, as a coal destination, is a relatively unexplored market with huge latent potential. It presents a viable alternative to Indonesian coal for the various imported coal-based power plants being set up in India,” E&Y associate director Chaula Desai said.
Other Indian companies such as Tata Steel, Gremach Infrastructure and Ispat Industries have already acquired coal mines in Mozambique. Several other public and private energy and mineral companies are scouting for coal blocks in Mozambique. The 10th Five-Year Plan had envisaged a coal demand of 460.50 mt in the terminal year 2006-07, which was revised upwards to 473.18 mt during the mid-term appraisal of the plan and moderated to 474.18 mt in the annual plan 2006-07. The demand-supply gap of 55.5 mt in the terminal year 2006-07 of the 10th Five Year Plan envisaged initially has declined to 44.08 mt due to improved domestic supply of coal envisaged in 2006-07. This shortfall was planned to be met through coal imports. Coal imports reached a level of 36.87 mt in 2005-06 (coking coal 17.11 mt; thermal coal 19.76 mt). Though imports have helped power sector achieving its planned generation programme, it however, has resulted in regulating domestic off take, which in turn has resulted in stock build-up at pit heads during 2005-06.
Similarly, the estimated demand for steel is related to a hot metal production programme of 70.30 mt in 2011-12 and the corresponding coking coal requirement is 68.5 mt (after converting domestic washed coking coal availability in raw coal terms). However, the Working Group on Iron and Steel, in its draft document, projected hot metal production of only 44.4 mt through oxygen route with corresponding coal requirement of 46 mt.
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