India's Adani Enterprises to Invest $1.65 Billion on Coal Port and Railway Project in Indonesia

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Researched by Industrial Info Resources (Sugar Land, Texas)--Recently, Chairman Gautam Adani of Adani Enterprises Limited (BSE:512599) (Ahmedabad, Gujarat) announced that in the next seven years, the group would invest $25 billion to $30 billion in coal mine acquisitions, cement manufacturing, shipping, port operations and power generation. As part of this program, Adani Enterprises will spend $1.65 billion on a coal port and railway network project in Indonesia's Sumatra province. The company signed the project agreement with the government of Sumatra Selatan and PT Bukit Asam (Persaro) Tbk (Tanjung Enim, Indonesia). The project is expected to help Indonesia tap its abundant coal reserves and secure fuel supplies for India's power projects.

Experts have observed that Indonesia's coal port and railway line project will open doors for other Indian investments. Presently, India's total power generating capacity is about 162,366 megawatts (MW). Of this, thermal power plants contribute nearly 67%. During India's 12th Five-Year Plan (2012-17), the country plans to add 100,000 MW of power generating capacity. In the next 10 years, with a growing power demand, India's electricity output is set to double.

The 250-kilometer railway line in Indonesia will connect Tanjung Enim with the proposed coal port at Tanjung Carat. As part of the agreement, Adani Enterprises also will secure coal-purchase rights. The infrastructure will enable transportation of 35 million tons of coal on a "take or pay" basis from the concessions available to PT Bukit Asam. In a "take or pay" agreement, the buyer agrees to purchase a specified amount of goods or services from the seller, or pay the corresponding value if the purchase is not made or needed. In exchange for the financing arrangement for the railway project, the company's power subsidiary, Adani Power Limited (BSE:533096) (Ahmedabad, Gujarat) is expected to sign an offtake deal with PT Bukit Asam. Construction on the project is scheduled to begin this year and is likely to be completed in four years.

The coal port terminal will have a capacity of 50 million tons per year. According to Alex Noordin, the governor of South Sumatra, PT Bankit Asam has agreed to supply 34 million tons per year of coal to the coal terminal. As per the agreement, Adani Enterprises will have exclusive rights to more than 60% of coal reserves in the project. PT Bankit Asam has set targets to increase coal production to 50 million tons in the next five to six years.

This fiscal year, Adani Enterprises, which is India's largest coal importer, is expected to procure 35 million tons of coal. In the next three to four years, imports are likely to grow to 60 million to 70 million tons per year. In the next 10 years, Adani Enterprises aims to increase coal mining capacity, power generating capability and coal trading to 200 million tons per year, 20,000 MW, and 200 million tons of cargo, respectively. Earlier this month, the company signed an agreement with Linc Energy Limited (ASX:LNC) (Brisbane, Australia) to acquire the Galilee coal project, which has estimated reserves of 7.8 billion tons. Media reports indicate that Adani Enterprises will pay about $3 billion initially, then $2 per ton as royalty for mining activities during a 20-year period. During peak production period, the Galilee mine is expected to produce 50 million tons per year of coal. For related news, see August 6, 2010, article - India's Adani Group Plans $30 Billion Investments Through 2017 and Acquires Australian Coal Mine.

Indonesia is abundant in mineral resources, including coal, natural gas and oil. Sumatra Island, which has 11.5 billion tons of coal reserves, accounts for nearly 57% of the country's total mineable resources. The remaining coal resources are in the Kalimantan region. Adani Enterprises already has identified 140 million tons of coal reserves in the country, mainly in the Bunyu Island in Kalimantan province. However, the country has been unable to optimally develop this sector, due to lack of infrastructure and funding. With strong government support and political stability, Indonesia is now attracting international investments to its mining and energy sectors. Recently, Reliance Industries Limited (BSE:500325) (RIL) (Mumbai) announced plans to invest $5 billion on power plants and coal mines in the country. For related news, see August 27, 2010, article - India's Reliance Power Announces Investment of $5 Billion in Indonesia.

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