ICVL faces fresh hurdles in bid to acquire stake in MEC - Quoted in the Mint

International Coal Ventures Pvt. Ltd ’s plans to acquire a 24% stake in Singapore-based MEC Coal may come unstuck with one of the promoters of the former, NTPC Ltd, insisting that the latter give a bank guarantee against the $200 million upfront payment.


The state-owned energy company also doesn’t want ICVL to invest in a holding company but directly in PT TOP Indonesia, the MEC entity that owns the Indonesian coal mines from which it is looking to source 6 million tonnes per annum (mtpa) of coal at a 15% rebate than the market price and another 4 mtpa at the market price— both as part of the deal.

ICVL was set up by five state-owned firms, NTPC Ltd, Steel Authority of India Ltd (SAIL), Coal India Ltd, Rashtriya Ispat Nigam Ltd and NMDC Ltd to secure overseas coal assets. The MEC deal was to have been its first.

“We are not comfortable and have made our stand clear. It is now for ICVL to deal directly with MEC and for the ICVL board to go ahead with the deal,” said a senior NTPC executive who did not want to be identified.

C.S. Verma, chairman, Steel Authority of India Ltd (SAIL) and head of ICVL said, “the transaction is under discussion,” and declined comment. An MEC spokesperson said in an email that “MEC is in discussions with a number of off-takers in both India and China, with equity and without equity. As we are bound by confidentiality agreements, we cannot discuss details at this time.”

NTPC’s nod is necessary for the deal as apart from being one of the five companies that has set up ICVL, the coal from the mines is to be used for its projects. Coal is critical for NTPC and at least 80% of its installed capacity runs on the fuel.

The company plans to increase installed capacity from 34,194 megawatts (MW) now to 75,000MW by 2017 and 128,000MW by 2032. It needs 160 mt of coal in fiscal 2012, of which around 16 mt has to be imported. The utility has already placed orders for importing 12 mt.

While private Indian firms have been successful in securing coal resources from foreign companies, government-owned entities such as ICVL and NTPC have not been successful. Bids by Indian miners tend to be relatively uncompetitive because most Indian companies seek the coal for their own end-use projects, while rival bidders may have higher-margin alternative plans.

Commenting on the strategy adopted by the Indian state-owned companies, Dipesh Dipu, director of consulting, energy and resources, and mining at Deloitte Touche Tohmatsu India Pvt. Ltd, said that the success of entities such as ICVL would be a function of the “cohesion between the entities that comprise the consumers and the miners, which are likely to bring different business perspectives to the table.” At one level, this can help better “assessment of target resources”, he added, but it could just as easily “lead to conflicts.”

With demand for coal increasing, acquisition activity involving coal mines would only increase, Dipu said. And Indian companies would “face competition from Chinese companies.”

ICVL itself has gone up against Chinese coal miners such as China Shenhua Energy Co. Ltd and Yanzhou Coal Mining Co. Ltd, which are actively engaged in acquiring mining concessions overseas.

India has a known coal gross resource base of 264,000 mt, the fourth largest in the world, of which proven reserves are around 101,000 mt. Demand is around 600 mtpa and is set to touch 2,340 mtpa by 2030.