Coal imports better than buying overseas mines for CIL?
Coal India Ltd is known to be nurturing ambitions of owning coking coal mines in South Africa. However, in view of prevailing low international coal prices, it may be prudent for India to keep importing coal to meet domestic demand, rather than buying assets abroad, analysts say.business Updated: Oct 28, 2015 01:33 IST
Coal India Ltd is known to be nurturing ambitions of owning coking coal mines in South Africa. However, in view of prevailing low international coal prices, it may be prudent for India to keep importing coal to meet domestic demand, rather than buying assets abroad, analysts say.
At least two analysts HT spoke to said that demand is also waning, and it makes little sense to sink capital in foreign assets that are likely to yield little by way of returns.
“Coal India has committed to ramping up its domestic production to one billion tonnes a year in the next five years. With scanty information in terms of demand per se, we would have to think whether its own domestic commitments will allow Coal India to look at a foreign acquisition,” Dipesh Dipu, an energy expert at Hyderabad-based Jenissi Management Consultants said.
“South Africa itself is a power and coal deficit country,” he added. “Although (unlike India) it is an open market where there is no restriction on exports and it has better quality coal as well.”
Coal secretary Anil Swarup and Coal India chief S Bhattacharya both told HT that the two countries were in talks to buy coal mines in South Africa, but declined to comment on specifics.
Dipu said that last year, an asset buy would have made sense as coal prices were higher. “This year, prices have fallen by 50%, and several mines have been running in losses,” he said.
Chintan Mehta, an analyst with Mumbai-based Sunidhi Securities and Finance, said even if the government gets mines dirt cheap, it doesn’t make economic sense and the country is better off importing coal. “One reason why they are going for this acquisition is that land acquisition in India is a problem, impacting coal production,” he said.
Government figures, released earlier this month, showed that in 2014-15, India’s thermal power and steel producers imported 212 million tonnes of coal worth Rs 1 lakh crore, out of which 43.7 MT was coking coal.