Coal Ventures International, Public-Private Projects to Secure India's Supply of Primary Resources

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Researched by Industrial Info Resources (Sugar Land, Texas)--Major Indian state-owned companies are moving into partnerships with private-sector companies to create synergies in efforts to secure the supply of primary resources critical to the country's development prospects. Coal Ventures International (CVIL) is a new special-purpose vehicle that is being promoted by the state-controlled Steel Authority of India (SAIL), the National Thermal Power Corporation, Rashtriya Ispat Nigam, Coal India and the National Mineral Development Corporation. Invitations have been issued for the submissions of interest from global investment bankers to assist in the location of metallurgical and thermal coal assets outside India. Merchant bankers will be selected on a combination of factors, including global footprint, credentials in the coal and mining business globally and experience in coal asset mergers and acquisitions.

CVIL is looking at acquisitions in several countries, including Australia, Canada, the U.S., Indonesia, Mozambique, Zimbabwe and South Africa, with the aim of securing long-term supplies for the steel and power sectors. The five major promoters have provided equity contributions of $900 million and about $1.8 billion in debt facilities. As a major public service utility, CVIL has been given more autonomous power than a "navaratna" development company with a mandate to clear investment proposals of up to $375 million whereas the navaratna entities can only clear project investments of up to $250 million. The company will have directors and a business development group comprising officials from the promoting companies.

A three-avenue strategy will be used on the acquisition trail. Strategic investments will be made in shares of listed coal companies that produce metallurgical and steam coal in countries including Australia, the U.S. and Canada. Private-equity deals will be considered with unlisted companies, partners and owners holding coal assets worldwide but more specifically in South Africa, Mozambique, Zimbabwe and Indonesia. CVIL will also pursue the acquisition of mining licenses worldwide.

In a public-private joint venture, SAIL and Tata Steel (Bombay, India) will mine coal blocks in India to secure coking coal supplies for steel production, as both companies are expanding production capacities to meet the growth in domestic demand. SAIL is investing $12.5 billion to boost output to 26 million tons per annum (TPA) of steel, and Tata is undertaking major brownfield and greenfield expansion projects. The two companies are reported to be looking at coking coal mining of 500 million tons of reserves in Jharkhand.

By 2020, the steel companies' demand for coking coal will reach 70 million tons of which 85% will be imported. Total industrial demand for coking coal could reach 2 billion TPA by 2031 up from the current 460 million TPA. India's Coal Ministry so far has allocated 172 coal blocks holding reserves of 38 billion tons to private and public companies. The target is for non-state-run companies to produce 104 million TPA by 2011-12 compared with the 25 million TPA they will produce in 2007-08.

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