Photo by: Reuters
KOLKATA (miningweekly.com) – Following its withdrawal from Mozambique, Coal India Limited (CIL), with a reduced appetite for overseas acquisitions, was planning to redeploy its funding towards domestic capacity.
According to a senior CIL official, the experience in Mozambique had revealed the high risks involved in developing mineral assets in foreign countries and uncertainties over the quality of assets that could not be definitely appraised even with best of due diligence exercises.
Over the past few years, the coal miner had earmarked $5.46-billion of its total free $8.12-billion reserves to acquire and develop coal assets overseas, including in Mozambique, he said.
But, considering the poor investment environment in Mozambique, CIL in a shift of its strategic investments, had decided to redeploy its investible corpus to domestic projects, with a sharp focus on creating infrastructure projects necessary for evacuation of coal from domestic mines, the official said.
He pointed out that, since 1991, CIL had adopted a policy of not taking up any projects within the country which did not yield a benchmark internal rate of return (IRR). As the experience with the Mozambique asset revealed, most of the overseas acquisition projects on the anvil did not assure even the minimum 12% IRR as mandated by the CIL management.
Simultaneously, with the gap between the global and domestic price of coal in terms of energy units (Rs/GCal) narrowing, the financial viability and returns on investments from overseas projects were also getting squeezed, the official added.
Earlier this month, CIL took the decision to relinquish 75% acreage of two coal licensing blocks in the Tete province, in Mozambique, on the grounds that the local government had increased holding charges of the two blocks and that the blocks, in any case, had not yielded coal of any significant quality.
Besides Mozambique, CIL’s other overseas acquisitions which failed to take off at the negotiations stage over the past few years included assets of Peabody Energy in the US, and PT Dian Swastatika Sentosa, in Indonesia.
The CIL official said its newly freed-up investible corpus would enable the company to aggressively step up investments in domestic logistics and infrastructure capacity creation, such as joint ventures with Indian Railways in developing transportation linkages with pitheads and buying its own railway wagons. Such investment held the potential to increase production, which was currently locked up from lack of evacuation facilities, by 400-million tonnes a year.
For example, CIL would invest an estimated $800-million in buying 2 000 of its own railway wagons apart from tying up with government-owned and managed Indian Railways to implement about 50 projects that would connect pitheads to the railway network.
An indication of the importance of the infrastructure projects could be gauged from the fact that CIL’s offtake of coal from its mines was not matching production growth rates and a clear sign that higher production alone would not mitigate shortages of coal for the user-end, the official said.
For example, in 2014/15, CIL production was off the mark by 3% at 494-million tonnes while its offtake missed the target by 6% at 489-million tonnes.