India’s painful coal story finally turning right?

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For the past six months now India’s coal imports have fallen, a trend that needs a closer look as the world’s third-largest buyer of the fuel digs for more domestically to feed its rising needs.

In December, India’s coal imports fell by just over 34 percent to 12.35 million tonnes year-on-year, as Coal India dug more and dug faster. The world’s biggest miner of coal is opening one new mine a month after the government agreed to push through environmental clearances, for long a painful process, at a faster pace to meet rising demand and fuel power generation capacities..

Compare that with China, the world’s biggest consumer, which is now talking about banning new coal mines for the next three years as a slowing economy begins to hit manufacturing.

“Record coal production by Coal India leads to further reduction in imports,” India’s Coal Secretary Anil Swarup tweeted this week, as Coal India’s April-December production grew by a record 9 percent, keeping the country on course to reduce annual imports for the first time in five years, Reuters said.

But there is another side of the story, as Coal India get set to double its output 1 billion tonnes by 2020, making coal imports nearly negligible by 2023: and that is the huge investments Indian companies have made in overseas mines.

The big question: If there will be no need to import coal going forward, what will happen to these $10 billion investments as global prices decline and domestic production rises?

Most of these billion-dollar coal mine acquisitions were made between 2008 and 2012 to fuel their power plants in India at a time when the price of coal was at its peak. Since the international prices of coal have declined by almost half, many of these mines have become economically unviable, forcing the coal barons to monetise their coal assets., The Hindu newspaper said.

It added that the coal barons were now being forced to focus on mining business in India to support the government’s initiative of “Make in India.”

“The government wants to obliterate thermal coal imports by 2017 by doubling production of Coal India, which already has an 80 per cent market share, by FY2020,” Bloomberg New Energy Finance analysts Ashish Sethia and Richard Hobbs wrote in a report titled ‘India’s thermal coal imports live to die another day.’

“That may be too good to be true and in theory it can cease thermal coal imports in the year FY23 although some imports may continue at coastal power plants,” they wrote. A fall in international coal prices and delays in developing the mines have already raised questions on the attractiveness of India’s overseas coal gambit, it quoted Sethia as saying.

“Don’t be surprised if you see the coal-heavy companies putting more eggs in the renewables basket,” he said.

Reliance Group chairman Anil Ambani has already decided to sell three of his coal mines in Indonesia spread across 40,000 hectares with reserves of two billion metric tonnes. His company, Reliance Power, bought the mines in 2008 and the company had plans to invest another $500 million in developing the coal reserves, the newspaper said.

Similarly, Gautam Adani-led Adani Group – which acquired Linc Energy’s Queensland coal tenements in a deal valued at $2.72 billion and agreed to pay another $2 billion in cash for the Abbot Point terminal near Bowen to secure coal delivery – might have to rethink its strategy even as it plans to invest another $10 billion in developing infrastructure for the project.

“Except for Adani Group, no one is pursuing their overseas mines as all of them were meant for captive use for power plants in India,” S P Tulsian, an investment advisor, told The Hindu. “Adani Group saw it from commercial mining purpose. If they don’t see coal demand in India, they may sell it to other countries.”

A new domestic focus on mining coal has it inherent advantages, but there might be others such as the GVK Group, GMR Group and Lanco Group who would have to quickly try and sell off their overseas assets to raise funds and reduce their massive debts.

 

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