Indian power generation companies are scouting for coal assets in Indonesia after the share prices of major mines there witnessed steep erosion following the global financial turmoil. Leading power players such as Tata Power, Reliance Infrastructure and GMR Energy, with an aim to ensure coal availability for their mega projects in the pipeline, are believed to be the frontrunners for the Indonesian assets, said sources in the companies.
"The power companies have various proposals on their table, which are relatively cheaper when compared to the scene before the beginning of the financial crisis. However, the acquisitions will depend on the ability of the acquirers to raise funds as the banks have stopped lending at cheaper rates," said a source.
Apart from the three companies, Vedanta group firm Sterlite Energy, JSW Energy and Larsen and Toubro are also evaluating proposals for equity participation in Indonesian mines, sources said, adding that liquidity reserve with these major groups would help them to go for a cheaper buy.
According to a report by global credit rating agency Fitch Ratings, the lower value of coal mines in Indonesia now when compared with earlier months of 2008, will cause a re-emergence of foreign interest in acquiring a stake in the foreign country's coal mines.
"Such a phenomenon attracts global producers, particularly from coal-hungry India, to look for opportunities in Indonesia's coal mines. To India, Indonesia presents an attractive market because of both its proximity and the higher caloric value of its coal," said the report.
The share price of Indonesia's top coal miner, P T Bumi Resources, in which Tata Power has 30 per cent stake, declined by more than 90 per cent to close at Indonesian Rupiah 710 (Rs 2.90) on November 21 after peaking to Rp 8,500 (Rs 34.79) in mid-June. The shares of PT Adaro Energy, Indonesia's second-biggest coal miner, have fallen 56.36 per cent since its IPO in July this year from Rp 1,100 (Rs 4.50) to close at Rp 480 (Rs 1.96) on November 21. The value of shares in PT Indo Tambangraya Megah, Indonesia's fourth-largest coal company, has dropped 60.60 per cent since the start of the year.
India plans to add 90,000 megawatt of power during the 11th five year plan and a majority of them are coal-fired projects. Though the country has the fourth-largest proven coal reserves in the world, Indian coal is of poor quality. India had to import over 50 million tonnes of coal in FY 2008 and is estimated that the country would have a shortfall of 100 million tonnes of thermal coal by FY 2012.
In Indonesia, Tata Power had acquired a 30 per cent stake in P T Kaltim Prima Coal and PT Arutmin Indonesia in 2007, valued at $1.1 billion, mainly to fuel its upcoming 4,000 MW ultra mega power project at Mundra in Gujarat. The company is scouting for more acquisitions in Indonesia and other foreign countries such as South Africa and Australia as part of its plans of increasing its generation capacity by over six times to about 12,800 MW by 2013, with an additional investment of Rs 25,000 crore (Rs 250 billion).
"In the short term, we are not looking at acquisition as the only opportunity to ensure fuel supplies from Indonesia due to the changing market conditions. We also have options such as entering into long term contracts with mine developers. We are also looking at ensuring supplies from other geographies such as South Africa and Australia," said a company spokesperson.
Currently, Tata Power is implementing new power projects to the tune of 5,500 MW, including Mundra UMPP and a 1,050 MW project at Maithon in a joint venture with Damodar Valley Corporation.
"As we are on the look out for more mines to fuel our future projects, it is definitely an opportunity," said a Reliance Power executive. However, a spokesperson said that the non-availability of cheap loans from international funding agencies and domestic banks would be a deterrent in acquiring mines in various geographies.
A few months ago, Reliance Coal Resources, a wholly-owned subsidiary of Reliance Power, had acquired three coal assets in the Musi Rawas region of South Sumathra in Indonesia. The assets -- Srivijaya Bintangtiga Energy, Bryayan Bintangtiga Energy and Sugico Pendragon Energy -- are spread over 40,000 hectares with coal reserves of about 2 billion tonnes, valued about Rs 20,000 crore (Rs 200 billion).
Reliance Power plans to spend over Rs 4,000 crore (Rs 40 billion) to develop these mines to fuel its power projects. Reliance Power is currently developing 13 power projects with a combined installed capacity of 28,200 MW, including Sasan and Krishnapattanam UMPPs.