India's Thirst for Energy

India's quest for overseas coal continues, driven by the country's burgeoning economy and energy needs. South Africa shipped an estimated 35 percent of its thermal coal exports – 2.1 million metric tons – to India in July, almost twice June's 1.2 million tons.

India has averaged buying 34 percent of South African exports throughout 2010, making up for weak European buying in the wake of the continuing economic downturn. Earlier this year, Raymond Chirwa, CEO of Richards Bay Coal Terminal, said there has been a marked shift in coal buying by Indian power firms.

As an indication of India's thirst for coal, "Of the total exports (of 60 million tons from South Africa) in 2009, 41 percent was shipped to the Asian markets, and out of this 29 percent was for the Indian market," Chiwa said. "18 percent was exported to the Asian market during 2008, of which India accounted for 11 percent."

India's growth, beginning in the 1990s when the economy came unshackled from the license raj, has averaged 7 percent per year, slowing only slightly to 6.5 percent in 2008 in the coils of the global economic downturn. Industry now makes up 28.2 percent of gross domestic product, making it the second-biggest component of GDP and increasing the demand for fossil fuels.

Although India has the world's fourth-largest thermal coal reserves, they are being depleted at a rapid pace at the same time the industry has been hobbled by bureaucracy that has stalled the award of contracts to the mining industry. This month, India's Parliament finally amended the Mines and Minerals Development and Regulation Act of 1957, which should speed the auction of coal blocks. The competitive bidding system would substitute the existing process of allocating coal blocks via an inter-ministerial screening committee and bring more transparency and investment.

It is sorely needed despite substantial environmental concerns. While coal consumption has soared in the construction sector – particularly steel and cement production – it is power that takes most of it. Some 70 percent of the country's electricity is being generated by coal despite new and intensive moves into renewable energy sources, which are too little and too late.

Richards Bay, owned by Anglo American Plc, deals with almost all South Africa's entire outbound coal shipments. For long, South Africa has witnessed European buyers as biggest buyers. Conversely, Deutsche Bank has said that the "evolution of exports by South Africa into near Asia has resulted from contraction of growth in Europe. The Asian market is growing.'' Meanwhile, Japan's Itochu Corp. recently said it will double coal shipments in the next five years to meet rising demand from China, India and Southeast Asia.

The intensive generation of power from coal is raising concerns among India's environmentalists. According to Ganapati Information Technology Resources, an Indian environmental NGO, India is the fifth-biggest carbon producer after the US, China, Russia and Japan, with carbon emissions growing by a factor of nine since 1970 and are expected by 3.2 percent annually through 2020. .

India Coal Imports

Indian companies have been looking at overseas coal sources as the country's coal demand is expected to touch 730 million tons by 2011-12, while domestic supply is estimated at only 520 million tons, leaving a shortfall of over 200 million tons. A recent KPMG report predicts India's coal shortage, at nearly 190 million tons a year by 2015, could have an impact on 50 percent of the power sector's demand and result in a two-fold increase in imports.

New Delhi has set a target to generate 78,000 MW in new capacity in the 11th five year plan (2007-2012) and another 100,000 MW in the 12th FYP till 2017 to tide over power deficits.

CIL Looks Overseas

Although state-owned Coal India Limited (CIL) has done well to raise domestic coal output, it is not been enough to meet rising demand. India imports bulk of its coal from Indonesia and the rest from South Africa. The largest producer of coal in the world, CIL has floated a tender to import 6 million tons, the company's first import tender since its inception in 1975.

CIL, which produces 80 percent of India's domestic coal, has set aside US$2 billion for such investments. The company expects to import 50 million tons in the next few years

Domestically, CIL is demarcating as coalfields forest land that is actually nothing more than shrubs. CIL, which expects to go public with an estimated Rs150 billion offering in October, has identified nearly 150 new projects. However, there is fierce resistance from environmentalists and any final outcome is uncertain.

NTPC Coal Moves

Last month, India's largest power producer NTPC floated a global tender for direct procurement of 14.5 million tons, valued about US$1.5 billion. The company will import the fuel directly for the first time. It is also looking at acquiring coal assets abroad, having earmarked nearly US$4 billion for the purpose. The company is studying options in Mozambique, Botswana, South Africa, Australia, America, Russia, Indonesia and Mongolia.

"We are looking at picking up stake in two coal mines in Indonesia – East Kalimantan and Sumatra," NTPC Chairman R S Sharma said this week.

Almost 80 percent of NTPC's installed capacity of nearly 32,000 MW is coal-based. The company's coal needs are 150 million tons annually, estimated to rise to 280 million tons by 2017. Its coal imports are estimated at 25 mtpa by 2015-16. NTPC aims to produce over 70,000MW by 2017.

Corporate Tie Ups

To meet the demand, private firms with big power plans are tying up for coal resources overseas.

  • After securing an Australian asset, Linc Energy Ltd's Galilee thermal coal property in Queensland, Adani Power (with plans to generate 16000 MW) signed a long-term pact last week with Indonesia's state-run coal miner PT Tambang Batubara Bukit Asam.

  • Tata Power Company (TPC) has forecast that its coal imports will surge to 22 million tons a year by 2014, from 5 million tons last year. The company already owns 30 percent of PT Kaltim Prima Coal in Indonesia with plans to procure 12-14 million tons of coal for its 4000-MW Mundra Ultra Mega Power Project (UMPP).

  • Another major, Essar Energy, finalized a deal to buy Aries coal mines in Indonesia following the acquisition of the US-based Trinity Coal (200 million tons reserves) for US$600 million.

  • Anil Ambani's Reliance Power has bought three coal mines in Indonesia paying over US$1.5 billion. R-Power plans span 25,000 MW. The company has bagged three UMPPs of 4000 MW each.

Meanwhile, leading steel companies SAIL, JSW Steel, JSPL and RINL are looking to jointly buy coal assets abroad, the first such Public-Private Partnership initiative in India to secure crucial steel-making input. India's largest steelmaker SAIL plans to invest Rs15 billion to develop domestic coal mines to cut imports.